Introduction to 53' Domestic Intermodal Freight Pricing
As a business owner or logistics manager, you're always looking for ways to optimize your shipping costs while maintaining efficiency. If you're considering 53' domestic intermodal freight solutions for your shipping needs, you're probably wondering, "What affects the pricing?" This question is crucial because understanding the factors that influence intermodal freight costs can help you make informed decisions, plan better, and potentially save money.
At InTek Freight & Logistics, Inc., we know that shipping isn't just about moving goods from point A to point B. It's about ensuring your products arrive on time, in good condition, and at a cost that makes sense for your business. This article will dive deep into the various elements that affect the pricing of 53' domestic intermodal freight in the USA. By the end, you'll walk away with a clear understanding of what drives these costs and how you can manage them effectively.
Key Factors Influencing Intermodal Freight Costs
Distance and Route
Much like truckload, one of the primary factors influencing intermodal freight costs is the distance between the origin and destination. The longer the distance, the higher the cost, but also the higher the savings as compared to truckload. The reason the savings is greater for the longer mile shipments is because intermodal cost competitiveness comes from the efficiency rail brings to the equation.
Impact of Distance and Route on Pricing
Distance is a straightforward factor: the further your shipment has to travel, the more it will cost. However, the route is where things get interesting. For example, shipping from Los Angeles to New York might be cheaper than shipping from a rural area in California to a small town in upstate New York, despite the latter being a shorter distance. This is because major routes between large cities benefit from more frequent services, better infrastructure, and economies of scale.
Consider the following example: shipping goods from Chicago to Houston along a well-established intermodal route might be less expensive than a less frequently traveled route, even if the latter is shorter. This is due to the efficiency and volume of shipments handled along the major route, reducing costs.
There are a number of reasons for this, with fuel being near the top.
Fuel Prices
Speaking of fuel, fuel prices are a significant variable in the cost of intermodal freight. When fuel prices rise, the cost of operating trucks and trains also increases, which is passed on to customers through a fuel surcharge. Conversely, when fuel prices drop, you might see a reduction in freight costs.
The fuel surcharge is another cost savings opportunity versus truckload. A metric that is often used to illustrate the efficiency of rail is ton-miles moved per gallon of fuel. A ton-mile is the movement of one ton of freight over a distance of a mile, so to calculate ton-miles, divide the weight in tons of the shipment by the distance it is transported.
Under this metric, rail can run one ton of freight nearly 500 miles on a single gallon of fuel, while a truckload runs 134 miles. The result is rail is 273.1% more efficient than truckload.
As fuel rises, intermodal makes more and more sense on intermodal lanes that are 500 miles or more.
Role of Fuel Prices in Freight Costs
To illustrate the impact of fuel, think of it like filling up your car's gas tank. When gas prices are high, your cost to drive increases. Similarly, for shipping companies, higher fuel costs translate to higher operational costs, which in turn, increase shipping rates.
Calculating Fuel for Intermodal Quotes
Fuel calculation is added to an intermodal rate as either a percentage of the base rate or on a cost per mile basis.
Seasonal Demand
Like many industries, intermodal freight shipping is subject to seasonal fluctuations. During peak seasons, such as the holiday season or back-to-school rush, demand for shipping services increases. This surge in demand can drive up prices due to the limited availability of containers and rail space.
Peak seasonal demand is not a given. However, if peak season does happen in the intermodal freight market it coincides with the holiday stocking season. The stocking season usually runs from mid-August through the 1st week of December, although loose freight markets may only be in place for a couple of weeks.
Peak season charges typically impact California outbound markets with originations in LA or Oakland. But like timing and length of the peak, this is not a hard and fast rule.
In extremely tight freight markets, where shippers struggle to find freight capacity, railroads will often call out constrained markets. A constrained market is essentially a peak season in “non-typical” peak season intermodal lanes.
On the plus side of seasonal demand, there is a benefit for shippers that are moving the backhaul lanes into the peak origin markets. As an example, say LA to Chicago is called out as a constrained market in peak season. The intermodal spot rates would be elevated, while the backhaul in this lane would be highly competitive.
Seasonal Demand Fluctuations and Their Effect on Pricing
Seasonal demand significantly impacts intermodal freight pricing. During peak seasons, such as the holiday rush from October to December or the back-to-school period in late summer, the demand for shipping services skyrockets. This increased demand leads to higher prices due to limited availability of containers and rail capacity.
Imagine the rush to get holiday products on shelves in time for Black Friday. The surge in demand for shipping services during this period means that containers and rail space are at a premium, driving up costs.
Calculating Seasonal Demand Intermodal Pricing
For contracted intermodal lanes where a Mutual Commitment Program (MCP) pricing agreement is put into place, seasonal demand is administered by the railroads as a price per box used above their trailing eight week volume on a lane.
An MCP agreement is available for high volume intermodal lanes. The purpose is to lock in an annual rate and a capacity commitment throughout a peak season to guarantee a shipper box availability for their required volumes and protect against a peak season accessorial charge.
So when your intermodal marketing company (IMC) is telling you to put more or as much as possible on your intermodal, they are working to help build up the volume reported to the railroad. This protects the lane as much as possible from the surcharge and gets the highest container commitment level possible.
Another option to help avoid peak season charges is to plan as many shipments as possible during off-peak times, but the feasibility of that obviously depends on your business model.
Container Availability
The availability of 53' containers can also impact pricing. If there's a shortage of containers, either due to high demand or logistical issues, prices may increase. Conversely, when there are plenty of containers available, costs might be lower.
Container availability is an issue in peak and the best way to ensure what is required on your company’s high volume lanes is to obtain an MCP agreement with the IMC you use for your business.
Importance of Container Availability
Container availability is a crucial factor in pricing. When there is a shortage of 53' containers, either due to high demand or logistical bottlenecks, prices can increase. Conversely, when containers are readily available, prices may be lower.
For example, during a major retail season such as the holidays, the demand for containers can outstrip supply, leading to higher prices. On the other hand, during slower periods, containers may be more readily available and less expensive.
Terminal Fees and Accessorial Charges
Terminal fees and accessorial charges are additional costs that can significantly impact the overall price of intermodal freight. These fees can include charges for storage, and per diem.
The primary drivers of terminal fees and accessorial charges come from containers stored at an intermodal rail ramp longer than the allotted free days.
Understanding Terminal Fees and Accessorial Charges
Terminal fees and accessorial charges can add up quickly and impact your overall shipping costs. These fees cover services such as loading and unloading, storage, and other terminal services.
For instance, if your shipment requires extended storage at a terminal, you may incur additional fees. Being aware of these potential costs can help you plan better and avoid unexpected costs.
These accessorials are manageable by pre-planning the drayage move before the train arrives. If there are issues at your business location that is to receive the product, your intermodal provider can pull the container to an off-site storage location for a much reduced cost.
Rail Carrier Rates
The rates set by rail carriers are another crucial factor in intermodal freight pricing. Each rail carrier has its own pricing structure, and their rates can fluctuate based on a number of variables.
How Rail Carrier Rates Affect Intermodal Freight Costs
Rail carrier rates can vary based on the carrier's pricing structure, fuel costs, demand, and other economic factors. Different rail carriers and associated IMCs may offer different rates for the same route, so it's important to shop around and compare options.
For example, one rail carrier may offer a lower rate for a specific route due to their operational efficiencies or strategic pricing. By comparing rates from multiple carriers, you can find the most cost-effective option for your shipments.
Intermodal pricing may not always be about efficiencies, though. Differences in intermodal rates also come from intermodal ramp pairings. Since all class 1 railroads do not operate the ramps in the same cities, there will be differences on rating based on how short the dray moves are from the origin and destination intermodal ramps. For this reason it is important to connect with intermodal companies that have access to all intermodal ramps.
Freight Volume
The volume of your freight on a particular lane plays a significant role in determining the cost.
Freight volume also determines if the freight lane being quoted can be set at a contracted MCP intermodal pricing schedule or presented as spot intermodal rates.
Freight Volume Considerations
The volume of shipments on your freight lanes can significantly impact pricing. As a rule of thumb, the more volume on a lane the better the pricing will be, as efficiencies brought on by scale will help drive down the cost of operations which are then passed to you, the shipper.
Additional Factors to Consider
In addition to the primary factors discussed, there are other considerations that can impact intermodal freight pricing:
Insurance Costs
Insurance is a necessary expense to protect your goods during transit. The cost of insurance can vary based on the value of your goods, the route, and other risk factors. Ensuring you have adequate insurance coverage is essential for protecting your investment.
As a rule, intermodal freight carries a cargo liability coverage of $250,000.
Economy
The relationship between economic market conditions and intermodal pricing is a critical aspect for companies to navigate. The healthier the economy, the greater demand to ship products, so the higher the intermodal rates will be during those times. Conversely, rates will be depressed in slow economic times.
Strategies to Optimize Intermodal Freight Costs
Route Planning and Optimization
Effective route planning can help you minimize costs by selecting the most efficient and cost-effective routes. Using advanced logistics software can assist in optimizing routes and picking the best freight mode to service the lane.
Negotiating Rates with Carriers
Don't be afraid to negotiate rates with carriers. Building strong relationships with your carriers and negotiating favorable terms can lead to significant cost savings over time.
Utilizing Technology for Cost Management
Leveraging technology, such as freight management systems, can help you track and manage costs more effectively. These systems provide real-time data and analytics to help you make informed decisions and optimize your shipping strategy.
Managing Intermodal Freight Pricing for Business Success
Understanding the factors that affect the pricing of 53' domestic intermodal freight in the USA is essential for making informed decisions and managing your shipping costs effectively. By considering elements such as distance, fuel prices, seasonal demand, container availability, terminal fees, rail carrier rates, and freight volume, you can better navigate the complexities of intermodal shipping.
At InTek Freight & Logistics, Inc., we're committed to helping you optimize your shipping strategy and achieve cost savings. By staying informed and utilizing best practices, you can ensure your shipments are efficient, cost-effective, and aligned with your business goals.
By following the insights and tips shared in this article, you'll be well-equipped to make an informed decision and optimize your supply chain with 53' domestic intermodal freight services. Embrace the future of logistics and discover the many benefits that intermodal shipping can offer your business.
Ready to get started? Reach out to us and we'll be in touch to get your strategy off and running. For more information about InTek, or logistics and supply chain issues in general, check out our Freight Guides.
