(The following story by John D. Boyd appeared on the Journal of Commerce website on June 3, 2009.)
WASHINGTON, D.C. — Intermodal shipper Hub Group will start shifting 8,400 domestic containers next week away from BNSF Railway and into the hands of rival Union Pacific Railroad, partly drawn by UP’s service of providing dedicated equipment.
Mark Yeager, Hub’s president and chief operating officer, said when the move is complete UP will be handling about 14,400 units or 90 percent of all Hub’s loads in western U.S. markets, while BNSF Railway will continue handling about 1,400.
In the East, Hub already uses Norfolk Southern Railway for all its moves, and Yeager said his team has seen the greater efficiencies of concentrating traffic with one railroad and avoiding numerous container drays between separate carrier facilities.
Yeager said one big factor was that UP’s policy of supplying containers fit closely with what Hub calls its own “asset-light” business model. BNSF in recent years has pushed intermodal shippers to provide their own equipment.
He said Hub did not make the move on the basis of freight rates, and “we did not ask for rate concessions” to put more boxes in UP’s hands, but he would not discuss how the pricing there compares with that of BNSF. Hub and UP agreed to a multi-year contract.
Hub began using some UP-supplied boxes about three years ago, and that service grew from an initial 2,000 53-foot containers to 6,000 now. Yeager said Hub notified customers and BNSF this week that it will commence the shift to UP in the second week of June.
“It’s a fairly complicated process” to make the shift, the COO said, and will take some time to complete with all of Hub’s customers and planned shipments. Analyst Edward Wolfe of Wolfe Research said he expected it to take about three months.
Wolfe also said the revenue UP gains from this deal will be about $110 million a year. Yeager said only that “it’s probably right around there.”
Hub last year generated $1.86 billion in sales, of which more than $1.63 billion was transportation costs and $234 million was its gross margin. It earned $59.2 million.
The sharp drop in freight traffic this year has cut into Hub’s business, but most of the roughly 18 percent decline in overall North American intermodal volume has been from plummeting international trade. Hub’s domestic traffic slid 5 percent in the first quarter from a year earlier, and Yeager would not comment on second-quarter levels.