Intermodal rates seen firming in wake of new UP–CSX service offering

Users of CSX Corp.'s intermodal services are likely to see price increases on many traffic lanes following an announcement Wednesday by CSX and Union Pacific Railroad Co. of a new joint intermodal offering, according to analysts.

The service, called UMAX, launches March 29. It will cover 600 service lanes nationwide and give customers access to a fleet of more than 20,000 53-foot containers, the companies said in a joint statement.

Analysts say that from a pricing perspective, the new venture actually represents a modification of an existing intermodal agreement between the two companies. Through the venture, UP will be able to get out of a so-called "legacy" contract with CSX under which as much as $250 million of UP's intermodal revenue for moving CSX freight is currently being priced at below-market rates, analysts say.

Analysts at JPMorgan Chase said it would be "reasonable" to expect UP's rates on the CSX business to rise by 10 percent by the end of the year. The Morgan analysts said the new venture is likely to herald a "more robust" pricing climate for intermodal services in general, a trend that should also benefit intermodal service providers like J.B. Hunt Transport Services and The Hub Group Inc.

Analysts at Robert W. Baird & Co. called the venture a "positive for industry pricing fundamentals" in that it elevates UP's rates for hauling CSX intermodal freight to market levels. UP in recent months has re-priced several legacy intermodal contracts with other companies, moves that should keep intermodal rates—which have already been steadily rising—firm for several years, Baird analysts said.

Baird said the venture will spawn such operational benefits as opening up additional markets to intermodal service, shortening transit times on key lanes, and creating higher traffic density. These steps should lead to more freight being converted from over-the-road truck to intermodal, the analysts said.

John Kaiser, UP's vice president and general manager–intermodal, said in a statement that UP and CSX Intermodal, CSX's intermodal unit, are "committed to delivering market-competitive service and value to our customers, providing truck-competitive schedules that maximize the benefits and efficiencies of rail intermodal."

The announcement coincided with the Association of American Railroads' (AAR) report that for the week ending Feb. 20, intermodal volumes were sharply higher compared with the same period in 2009 but still well below the comparable 2008 time frame.

AAR said the volume of 200,204 trailers and containers was up 19 percent from the 2009 period, but down 11.1 percent from 2008. Compared with the same week in 2009, container volume increased 24.9 percent and trailer volume fell 5.6 percent, AAR said. In comparison with the same week in 2008, container volume decreased 4.3 percent and trailer volume dropped 36.1 percent.

The comparison week from last year was affected by the Chinese New Year, which has a significant impact on container volume, AAR said.