Guess what's Numero Uno?

My first up-close-and-personal experience with intermodal was to watch a 150-car Kansas City Southern freight rumble through little Sulphur Springs, Tex., led by six red, yellow, and black F units and three to five truck trailers atop flat cars. That would be 1958, and even that little beginning impressed this kid.

We have come a long way. The week ending April 18, for the first time ever, intermodal units on U.S. railroads exceeded all carload types combined, 280,016 to 276,416. The future arrived even sooner for Norfolk Southern. In the first quarter of 2015, 51 percent of its units carried were trailers or containers.

All this was brought about by an anemic economy that so far this year has resulted in a 1.4 percent drop in carload traffic (led by coal, down 5.1 percent) but a respectable 1.6 percent jump in intermodal units.

This watershed moment has interesting implications. The ascent of intermodal into the lead category at Norfolk Southern is really due to sharp decline of its coal portfolio. While intermodal units jumped from 856,000 in 1Q 2013 to 927,000 in 1Q 2015, coal was dropping from 343,000 carloads to 277,000.

The challenge intermodal presents in its ascendency is this: While coal brought NS $1,642 per carload this year and chemicals $3,390, a trailer or container commanded a mere $639 (down $30 from two years earlier). Look at the numbers on any other railroad and they will be somewhat comparable. Continuing to deliver record earnings when your fast-growing intermodal franchise commands one-third to one-fourth the rates of your carload business will become harder.

It’s easy to grow fat and happy handling coal and chemicals, but far harder in intermodal transportation. There, you’ve got to control your costs, concentrate your volumes, and offer consistent service. The service part gets dicey when your railroad is choking on carload freight, which is still a common occurrence today across the northern half of the U.S. (you know you’re near a big terminal by the number of parked trains outside it).

By the way, in the latest week, ending May 2, carload traffic retook the lead from intermodal, by a couple thousand units. But given the trends of this year, my bet is that intermodal will soon regain first place.—Fred W. Frailey