Intermodal has long been considered a handsome profit center for the railroads, and JBHT's financial statement disclosures reveal that JBHT is now also minting money the Intermodal way. From every $1,000.00 of its Intermodal revenue JBHT extracts ~$102.00 of operating income; that's about $195.00 of average operating income achieved from each JBHT Intermodal load, and there were 663,386 such loads at JBHT during the first nine months of this year (17,000 loads per week = $3.3 million of JBHT Intermodal weekly operating income). Schneider's Intermodal results are likely near those of JBHT's, but Schneider's privately-held status allows it to withhold words to the public about the parts of its money machine.

All things considered, NSC is a superb East Coast partner for JBHT Intermodal. Close observers believe the new JBHT-NSC alliance will offer pricing incentives sufficient to attract substantial additional business from Eastern region shippers who have previously relied almost exclusively on traditional highway-mode truckers for freight movements. Plus, NSC's wholly-owned subsidiary, Triple Crown Services Company (at times, a direct competitor to JBHT Intermodal), might fit quite well within JBHT Intermodal's new East Coast tennis bag.

A Confusing Battleground

At current first glance, the battle lines here might appear to be sharply drawn, but upon closer look, you'll find them really quite hazy. For example:

(1) BNI simultaneously grants preferred status to (and, quid pro quo, receives preference from) both JBHT and Schneider, while those two jumbo truckers continue battling each other. Yet BNI still courts Intermodal business from many other truckers. BNI also operates a subsidiary called BNSF Logistics that directly competes with the Intermodal and other business pursuits of JBHT, Schneider, and many others, including two of BNI's largest "second tier" Intermodal business sources, Pacer International Inc. and Hub Group Inc. (NASDAQ:HUBG). Concurrently, PACR and HUBG daily compete with each other and with freight brokers CH Robinson and Landstar System Inc. for Intermodal and other business throughout the U.S., Canada, and Mexico, while both CHRW and LSTR boast strong direct Intermodal relationships with PACR and, of course, with each of the Class 1 railroads.

(2) PACR has long conducted the lion's share of its Western U.S. Intermodal business with UNP while also recently increasing its volumes BNI; but earlier this month PACR announced an extension and rewrite of its "marriage contract" with UNP, just a few months after HUBG began shifting most of its Western Intermodal business away from BNI to UNP.

(3) BNI, CSX, KSU, NSC and UNP of course all conduct Intermodal business with numerous direct competitors to JBHT, Schneider, PACR and HUBG (and also with many other truckers, freight brokers, 3PLs, etc.). And,

(4) Given their each substantial but still finite rail trackage footprints, BNI, Canadian National (NYSE:CNI), Canadian Pacific (NYSE:CP), CSX, KSU, NSC and UNP (Collectively, the "Big Seven") each daily share the others' rails, interchange rail cars and Intermodal containers, and cooperate with each other as heartily as they do compete with each other. In fact, and despite the reality that hardly any Intermodal service provider (railroad, trucker, or other) can every day deliver to its each and every major customer all the trumping-power priority special attention they promise, near every single major and minor Intermodal counterparty in the North American Intermodal continuum speaks near identical words while trying to convince freight shippers that "no one else is as well connected and as well resourced as are we."

Considering all that, it's little wonder that Intermodal industry gatherings, like the Intermodal Association of North America's "2009 Intermodal Expo," underway this week and attracting near 10,000 Intermodal participants to California's Anaheim Convention Center, often seem to outsiders as confusing as redneck family picnics!

JBHT's Gravy Train

Yet since year-end 2000, JBHT has indisputably beaten the railroads at their own Intermodal game. From January 1, 2001 through September 20, 2009, the Big Seven North American Class 1 railroads' composite Intermodal revenue has grown at the meager compounded annual growth rate (CAGR) of ~3.3%, while JBHT's Intermodal revenue has chalked up an impressive CAGR of ~9.6%, almost triple that of its railroad collaborators! And intermediaries CHRW, HUBG, LSTR and PACR are all experiencing considerable difficulties retaining and growing their Intermodal revenues and operating incomes, due in no small measure to the formidable competition presented surely by JBHT and perhaps too by Schneider.

There's no doubt about it; JB Hunt Transport Services has found and is riding its Gravy Train!

© 2009, AmherstAlphaAdvisors LLC