Explaining the InTek Intermodal Index: Tracking Intermodal Spot Rates

The History of the InTek Intermodal Index

For years, freight indexes have been a mainstay in the industry, helping:

• Shippers watch for positive and/or negative trends in the rates
• Economists with their forecasts of the economy overall as freight is a leading economic indicator
• Financial advisors to make more informed stock and bond buys

Examples of the more recognized freight indexes in the market include:

• CASS Freight Index for pricing and volume direction of U.S. freight
• Coyote Curve for truckload and LTL (less than truckload) pricing forecast
  
• Drewry for international ocean pricing
• And multiple freight mode indexes from major U.S. banks and freight analysis companies

InTek Freight & Logistics entered the freight index market in 2012 on its journey to build a better pricing model for its 53’ domestic intermodal business. Shortly after publishing our weekly blog, we found many others wanted to round out their insights into the freight market by using the data we began collecting.

How InTek's Domestic Intermodal Spot Rate Index is calculated

The InTek intermodal index is designed to track the 53’ intermodal spot rate market.

The index comprises 115 of the highest volume door-to-door 53’ domestic intermodal freight lanes offered by the Class I Railroads. The rates are all-in rates, meaning they include the origin and destination dray; rail linehaul segment of the shipment, and fuel.

One of the most often asked questions is how a mid-tier intermodal marketing company (IMC) can give full visibility into the direction of the domestic intermodal market when it touches only a fraction of domestic intermodal volume. The answer is: through calculating the expected value of 115 most-traveled domestic intermodal lanes.  

The expected value computation for the spot intermodal rate index is done as follows:

• Assigning the 115 lanes to its associated region-to-region sector, as defined by the Intermodal Association of North America, IANA
• Averaging the rates in each of the region-to-region data
• There are 42 region-to-region groupings in the IANA data
  
  • Examples Include:
  • SW - MW (Southwest to Midwest): LA- CHI
  • SE - SW (Southeast to Southwest): ATL - LA
  • MW - NE (Midwest to Northeast): CHI - NY
• Multiply the region-to-region averages by the percentage of the total volumes IANA has on each of the regions

Additional questions we get from our data set include:

• How is consistency held in the data collection to avoid any particular bias in a week?
   - Without fail, data is collected and published every Tuesday, which removes any particular bias in a week.
• With 42 region-to-region moves, how does 115 lanes accomplish setting an overall view of domestic intermodal?
   - First off, seven of the forty regions represent less than 0.2% of the total.
   - Secondly, the volumes in each of the regions are typically represented in one to four lanes, with one or two being the most common answer. 
• How are the data represented?
   - InTek publishes the index by a total composite dollar calculation and by mileage rates.
   - The reason for both a composite number and a rate per mile view is that the data has more meaning behind it when compared to the various truckload indexes, and truckload indexes are often found in those two different varieties.

Examples of the Composite and Mileage Domestic Intermodal Charts are below:

What the Intermodal Index is saying  

Since the InTek Intermodal Index began more than a decade ago, the freight market has experienced polar vortexes, hurricanes, a pandemic, fires, washouts and economic ups and downs.

Through all of these supply chain disruptors, we and others have found the index to be a valuable tool not only in understanding the domestic intermodal market at a micro and macro level, but also in providing a much clearer view of the entire 53’ capacity market when combined with truckload freight indexes.

Expected outcomes of the Index

The expected outcomes of the domestic intermodal index are fairly straightforward:

• Provides data over time on the top 115 lanes to better understand peaks, valleys and trends for better pricing decisions 
• Provides visibility into the overall direction of the domestic intermodal market by indexing the intermodal spot rates

Unexpected findings in the Intermodal Index

After collecting data on individual intermodal lanes for 18 months, we found the domestic intermodal index is a whole lot more useful when we added in our understanding of the intermodal market and then combining truckload market data point.

The combination of truckload and intermodal index numbers offered a far better understanding of the entire 53’ freight capacity market that comes from truckload and domestic intermodal, with the best being the sustainability of the increase or decline in the market. Yes, the combination of both intermodal and truckload gives shippers the vision of a developing trend in pricing through truckload indexes, but the strength and longevity in either direction is found in the domestic intermodal freight index.

The reason for the above lies in the characteristics of truckload and intermodal markets and their uses for small, medium and large shippers.

Comparing truckload and intermodal solutions providers:

• Truckload market is highly fragmented
  • The truckload market is roughly a trillion dollar industry that is highly segmented. The U.S. Department of Transportation reports there are over 700,000 registered motor carriers, with 91% operating six or fewer trucks and 97.3% operating fewer than 20 trucks
• Conversely, 80% of the door-to-door domestic intermodal service providers are driven by roughly 10 high-profile IMCs, along with Class I railroads

The implication: Being highly fragmented with small operators drives faster reaction to any market swing, while the less fragmented high-profile intermodal providers move slower. As a result of the characteristics of each of the 53’ capacity markets, head fakes can be taken as long-term trends if intermodal pricing is not brought into the analysis.

Conclusion

Spot freight rates are one the best examples of supply and demand theory. Over time, one can begin to see patterns in seasonal and peak periods and to identify overall direction in the freight market. Combining both 53’ markets into the analysis brings the most clarity to freight demand and pricing.

If you're looking for more help interpreting the Intermodal Index or are ready to put the knowledge behind it to work for you, let us know. We'll follow up to discuss your company's unique needs - and find solutions, intermodal or otherwise. For more information about this or other freight topics, visit our Resources page for free eBooks and comprehensive articles, or continue browsing our blog.