Savvy trucker JB Hunt heads east, by train! Truckers traveling via train? Yep, the smart do so with increasing frequency. Earlier this month, J.B. Hunt Transport Services Inc. announced that its already successful "Secret Formula" for Intermodal success will henceforth include much more of a current ingredient, one known as "NSC" or Norfolk Southern Corporation, which reported Intermodal revenues for this year's 1st nine months of just slightly less than JBHT's $1.2 billion of Intermodal biz. for the same three quarters.

JBHT Scripts another Award Winner

Once a prosperous "traditional" trucking company, JBHT long ago started weaning itself of that declining business model; and today JBHT generates ~55% of its total revenue and ~74% of its total operating income from Intermodal. By using its closely-monitored company-owned trucks and company-paid drivers (the so-called asset-based approach) to handle the tedious drayage assignments (moving Intermodal containers to and from railroad yards), in combination with sophisticated computer systems and other tools of enlightened management, while engaging the railroads to perform all the "heavy-lifting" of moving freight cross country, JBHT produces mind-shattering results and, for trucking, creates a New Math, where the total actually is greater than the sum of its parts; e.g., at JBHT Intermodal, 1 + 1 = 4.

Experienced industry analysts immediately remarked that the JBHT-NSC alliance could soon begin yet another successful multi-year "run on Broadway," similar to the success of JBHT's 20 year-old Intermodal alliance west of the Mississippi with the Burlington Northern Santa Fe railroads. Back in 1989, JBHT and the Santa Fe railroad took the transportation industry by surprise in announcing their Intermodal partnership. That deal was the first such North American collaboration between a railroad and a trucking firm, so unique that, until this week, many believe it had yet to be matched; it clearly began a tectonic shift in the landscape of commercial freight transportation throughout North America. Now, clearly, JBHT is scripting another such performance and plans for it to win Tony Awards on the east side of the street!

NSC, headquartered in Norfolk, VA, has long been admired for its efficient operations and operating margin accomplishments. Itself the progeny of 100+ railroad mergers, reorganizations, and consolidations, NSC now operates its trains over a system of ~21,500 route miles in 22 states, the District of Columbia and Ontario, Canada, with many NSC rail lines paralleling key Interstate highway truck routes. Presently serving almost all of our East Coast, plus 20 sea and lake ports, NSC is leading multi-billion dollar investments initiatives and build-outs of its Intermodal network throughout the East, with the Crescent Corridor, the Heartland Corridor, the Meridian Speedway, the MidAmerica Corridor, the Pan Am Southern Corridor, the Patriot Corridor, and also via a partnership with the Florida East Coast Railroad developing direct Intermodal service in central Florida.

Truckers prefer the West

Despite that near half of our Nation's population and, thus, business opportunities reside east of the Mississippi River, for decades truckers transporting commercial freight cargos have preferred to "not go there," and oft times for good reasons. E.g., Out West the toll roads and toll bridges are cheaper and fewer, diesel fuel cost less, road speed limits are higher, traffic is much less congested, truck repair labor costs are lower, truckstops and highway rest areas are bigger and easier to find, and some say even the coffee shop waitresses are much prettier!

Over the past quarter-century, the trucking industry's vehicle miles traveled increased 105 percent while available highway lane miles grew only 4 percent, according to U.S. Department of Transportation data. That translates to the highways within high-density Eastern populations now, near every single day, exceeding their capacities, and becoming more unfriendly to big trucks at an even faster rate. Annually converting possibly hundreds of thousands of Eastern U.S. shipments from the vehicle-congested highways to NSC's nearby Intermodal rail routes will solve many of the aforementioned challenges and complaints, while simultaneously augmenting JBHT's and NSC's net incomes.

Coming Up, the Mixed Doubles Final Event

The two overwhelmingly dominant Intermodal freight shipping railroad operators in the Eastern United States are NSC and CSX Intermodal, part of CSX Corp., while Union Pacific Corporation., Burlington Northern Santa Fe Corp. and Kansas City Southern operate the dominant Intermodal freight shipping railroads in the Western United States.

NSC competes directly with CSX for rail Intermodal business east of the Mississippi, and during this year's 1st nine months, NSC generated 30% more Intermodal revenue than did CSX. Throughout North America, JBHT Intermodal faces robust competition from only one similarly jumbo trucking company possessing considerable Intermodal abilities and assets, privately held Schneider National, Inc. Schneider's Intermodal segment long ago followed JBHT's lead by forming a strong alliance with BNI regarding its Intermodal shipments in the West; late last May, Schneider named CSX as its exclusive core Eastern Intermodal carrier. What's developing here is Intermodal's Eastern U.S. equivalent of a Wimbledon mixed doubles final event; in the Centre Court we'll be watching team JBHT-NSC via against the Schneider-CSX duo, while those truckers' and railroads' shareholders feast on fine Pimms spritzers accompanied by strawberries and cream.

© 2009, AmherstAlphaAdvisors LLC