U.S. freight company J.B. Hunt Transport Services is close to signing a long-term intermodal agreement with an eastern railroad, most likely Norfolk Southern Corp., Reuters reported.
JB Hunt, which provides trucking as well as intermodal services, currently partners with Norfolk Southern and CSX Corp in eastern United States to transport freight through their rail networks.
At least five analysts believe that JB Hunt and NS are in discussions for a longer-term deal that would benefit the former in terms of pricing and fuel costs.
JB Hunt, primarily a trucking company, started offering intermodal services in 1989. Intermodal involves the use of multiple modes of transportation, such as trucks, rail and ships, for transferring freight.
A JB Hunt spokesperson said the company does not have a comment at this time.
Norfolk Southern spokesman Robin Chapman neither confirmed nor denied that the company was in talks with JB Hunt.
"They have been in discussions for a long-term exclusive intermodal agreement for the eastern half of the United States," said Jason Seidl, analyst with Dahlman Rose & Co.
He said both CSX and Norfolk Southern have been vying for a deal with JB Hunt, but that Norfolk Southern could win the bid.
"It is probably going to be better in the pricing side if you give exclusivity to one of the railroads, and it always helps if you have two of them bidding for the same project," said Seidl.
In a note dated Oct. 1, Robert W. Baird analyst Jon Langenfeld said JB Hunt and Norfolk Southern have engaged in substantive discussions to enter into a long-term intermodal agreement.
"A long-term agreement could be a significant catalyst for JB Hunt, strengthening its best-in-class domestic intermodal franchise," Langenfeld said.
A longer-term agreement would help JB Hunt reduce transportation costs and mitigate pricing pressure in the near term.
Freight transportation companies have been hit by excess capacity and rising fuel prices, as the economic downturn took a severe toll on demand. In its most recent quarter, JB Hunt's net profit fell 53 percent while revenue dropped 21 percent.
Analysts believe the long-term intermodal deal would also be a big boost for Norfolk Southern's growing intermodal business.
"For Norfolk Southern, it really solidifies the intermodal," said Wall Street Strategies analyst David Silver.
He said it allows the Norfolk Southern management to concentrate less on the intermodal business as they would have one solid, huge customer in JB Hunt.
Analyst Seidl said the theme of Norfolk Southern's major projects recently have been in the intermodal side.
"What better way to bring some of these things through their stages than team up with the largest intermodal provider in the country (JBHT)," Seidl said.
Analysts expect an announcement from JB Hunt either during its earnings release or analyst day on Nov. 5.
(The preceding article by A.Ananthalakshmi was distributed October 13, 2009, by Reuters.)
