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Feb.22, 2016

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SURFACE & DOMESTIC TRANSPORTATION TRUCKING | RAIL | INTERMODAL | AIR & EXPEDITED | DISTRIBUTION 42 THE JOURNAL OF COMMERCE FEBRUARY 22.2016 By Reynolds Hutchins I NTE R M O DA L VO LU M E G ROW TH slid to a near-halt in 2015, and the headwinds that stymied growth — high inventories, a strong U.S. dollar, decelerating manu - facturing production, low fuel prices and flush truck capacity — show no signs of subsiding. The outlook for the Class I rail industry in 2016 varies from cautiously optimistic to downright grim. Although intermodal ser- vice has improved generally, the railroads are finding competition from the trucking sector — for domestic loads and marine containers — as fierce as ever. Fluid truck capacity and historically low fuel prices have helped keep spot trucking rates low. With U.S. crude, gasoline and diesel inven- tories close to overflowing, fuel prices and surcharges are likely to remain depressed. BNSF Railway and CSX Transporta- tion's recent crackdown on free time at intermodal terminals, an effort to improve service, according to the railroads, irked many shippers and sent some into the open arms of over-the-road competitors. "We made a strategic decision to move away from rail service in the trans-Pacific east- and westbound due to carriers' limited flexibil- ity in free time at the rail destinations," one major beverage shipper said, speaking on the condition of anonymity. Coming off a rocky fourth quarter, especially for international traffic, the Inter- modal Association of North America says it expects 3 to 4 percent growth for total inter- modal volume in 2016. Much of that will be in domestic traffic, as improved rail service helps the industry win back market share from over-the-road competitors, the trade group said. Overall intermodal volume increased 0.3 percent year-over-year in the fourth quarter of 2015, a 5.2 percent uptick in domestic containers offset by a 15 percent decline in trailer traffic, according to IANA. "There is promise that intermodal will regain traction in early 2016," IANA said in its quarterly intermodal report, "especially with domestic containers by far the largest opportunity for railroads to replace lost car- load volume and improve profitability." With U.S. West Coast labor disputes resolved and import growth likely to recover after inventories find a balance, interna- tional volume stands to see an uptick, if only a modest one, as well, the group added. Intermodal analyst Ted Prince is less confident. Prince, chief operating officer of refrigerated intermodal rail provider Tiger Cool Express, said the outlook for 2016 could best be described with a four-letter word unsuitable for print. "If you're talking about international, that's probably going to be up," he told The Journal of Commerce. "If you look at other sectors, it's a lot more difficult to predict." Prince said rail ser vice may have improved substantially on core lanes, but it remains problematic everywhere else. Moreover, low fuel prices are compress- ing rail's advantages. Shippers are still finding advantages shifting their cargo to over-the-road carriers. "We are still seeing rail-to-truck diversion. No doubt," Prince said. The word from industry executives has fallen somewhere in between IANA and Prince's assessment. Many agree that the first half of 2016 will be demanding, as the factors INTERMODAL'S GLOOMY FORECAST Railroads vie for domestic and international cargoes, as low fuel prices and a fluid trucking market slow growth

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