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Rails strive new route to intermodal growth
For decades, international commerce has dictated the principles of engagement in the U.S. intermodal industry. Seagoing containerized imports have been offloaded at U.S. ports of entry, transloaded onto railroads, and moved inland.
That business is hardly going away. However, the times when home intermodal operations were seen strictly as a “bolt on” to worldwide service that involved a prior or subsequent ocean freight motion are fast becoming history. At the moment, the four U.S. Class I railroads are putting larger emphasis than ever on the domestic market as they search for ways to gas intermodal growth. In so doing, they may try to move beyond their comfort zone of near 2,000-mile hauls and muscle in on the brief- to intermediate-distance markets dominated by truckload carriers.
To be sure, it is not a zero sum game. Collectively, the trucking trade is the country’s largest intermodal person and has for years relied on the service to cut its linehaul costs. UPS Inc., recognized to many as a floor carrier, is also the one biggest intermodal customer.
Nonetheless, there are nonetheless many shippers who is not going to use intermodal service and depend solely on truck, a incontrovertible fact that railroads know all too well. For example, the Burlington Northern Santa Fe Railway (BNSF) estimates its customers use intermodal for less than about one-quarter of their complete transport needs.
The railroads imagine U.S. companies could also be ready for a change, particularly as trucking prices escalate, highway congestion intensifies, and fears of a driver scarcity persist. The rails maintain that the velocity and reliability of their home intermodal service has now improved to the point the place they will supply a compelling worth-service answer on shorter stage lengths.
A large-open opportunity
If rail business estimates are correct, there’s loads of incentive to concentrate on the domestic business. Omaha, Neb.-primarily based Union Pacific Railroad Co. (UP) says eleven million truckloads are up for grabs in its service territory, while Fort Price, Texas-based BNSF places its potential market at 7 million. In 2010, BNSF handled between 2.25 million and 2.5 million home intermodal masses, whereas UP handles, on average, about 2 million a year.
Jacksonville, Fla.-based CSX instructed analysts lately that of the 14 million truckloads that usually transfer in the Jap United States each year, about 5.1 million have already been converted to intermodal, leaving a possible market of somewhere around 9 million. CSX mentioned it handles about forty p.c of the 5.1 million masses that have already been converted.
Senior rail executives acknowledge the potential bonanza that awaits them ought to they convince shippers that they’ll ship on their intermodal service commitments and continue to take action at lower charges than truckload. “We have a unique alternative, and the chance is huge,” says Steve Branscum, BNSF’s group vp, shopper products marketing.
To capitalize on this opportunity, the rails are constructing out their intermodal networks. Norfolk Southern’s “Crescent Hall,” a 2,500-mile joint public-personal undertaking linking New Jersey with Louisiana, is predicted to divert 1 million vans per yr from 10 interstate highways when the work is completed in 2013. Executives for the Norfolk, Va.-based mostly railroad were unavailable for comment.
Earlier this yr, CSX opened an intermodal facility in the Northwest Ohio city of North Baltimore. The facility serves because the pivot of a hub-and-spoke operation the place freight arriving from nationwide points is transferred to double-stack trains for supply throughout the East. It enables shippers to bypass the infamous “choke level” of Chicago, and thus can scale back transit occasions by up to two days between West Coast ports and distribution facilities within the Ohio Valley, CSX officials say.
“It’s our gateway to the West,” says Michael Rutherford, director of intermodal advertising for CSX Transportation.
Out west, UP has upgraded eight of its 10 main corridors to allow intermodal to higher compete with truckload, according to Matt Gloeb, the railroad’s assistant vp of home intermodal. The two remaining lanes, Los Angeles–Seattle and Los Angeles–Houston, are expected to achieve service parity by yr’s end, Gloeb says.
UP has raised tunnel clearances at Donner Cross, ninety miles northeast of Sacramento, Calif., to accommodate double-stack container trains, in accordance with spokesman Tom Lange. The railroad has constructed intermodal terminals in Chicago, San Antonio, Dallas, and Salt Lake City. It is also laying a second track on its Los Angeles–El Paso “Sunset Route”—a move that will double prepare capacity on the closely used intermodal hall by allowing two trains to function over it on the same time, Lange says.
Hurdles to clear
However with the chance come challenges. To be “truck-competitive”—which railroads outline as competing with a solo driver on quick and long hauls—railroads have to ensure their own networks, as well as these of the draymen responsible for bringing items to the intermodal ramp after which taking it off at destination, are synchronized to ship what vans already do: a flexible, dependable service, albeit at higher prices than intermodal.
Many short- to intermediate-distance segments are situated in what are referred to as “secondary markets” that lie outside of the railroads’ main corridors. It’s in these lanes that the rails’ intermodal efforts have been harm by a lack of significant traffic density and a much less-sturdy infrastructure relative to their main corridors.
David Howland, vp of land transport services for third-get together logistics giant APL Logistics, says intermodal service within the secondary markets—he cites the Ohio Valley–Kansas Metropolis corridor for instance—still wants work and will require significant investment by industry, authorities, and personal sources to get up to speed. Howland provides, however, that the railroads are doing a greater job than ever before in meeting their intermodal commitments.
Gloeb of UP says the railroad is committed to the secondary markets and is addressing the concerns over service inconsistency. “The eleven million highway conversion truckload opportunities [for] Union Pacific embrace secondary markets that we are focusing on,” he says. Rutherford of CSX says its new Northwest Ohio hub will serve as a vital conduit to its secondary corridors.
As rails set their sights on shorter distances, they also face value hurdles. The income generated from the 1,500-mile and longer hauls that have been intermodal’s bread and butter can greater than offset the expense of building and maintaining large intermodal terminals that flank main corridors. Nonetheless, because the size of haul diminishes, there shall be inherently less revenue to pay for the system, thus shrinking that movement’s profitability, in response to Thomas L. Finkbiner, senior chairman of the Intermodal Transportation Institute at the University of Denver.
The same value pressures apply on the dray portion of the move, which Finkbiner says must stay below one-quarter of the total length of haul for it to be profitable. At a 2,000-mile stage size, the dray community can lengthen up to 250 miles at either finish and still create sufficient income and traffic cushion for a profitable move. As the distance of the rail line-haul contracts, nonetheless, so does the cushion that protects the profitability of the dray portion of the transfer, Finkbiner says.
Despite these considerations, Finkbiner says intermodal will continue to attract domestic shippers as truck charges climb due to rising costs. He provides that intermodal can acquire better share of site visitors moving about 750 miles should diesel gas prices remain at current levels—about $3.95 a gallon in mid-June—or go higher. Ought to diesel prices spike to the $6 a gallon range, intermodal could be aggressive at distances as short as 550 miles, he says. “But it surely’s not likely to be a straight-line penetration, and [future gains] are largely depending on issues beyond the rails’ control,” he says.
Charles W. Clowdis Jr., managing director, transportation advisory services for the consultancy IHS International Insight, says intermodal’s enhancing reliability and transit instances will gain it new converts whether or not oil prices rise, fall, or stay static. “Even when oil costs decline from these ranges, customers who try intermodal will stick with it, at least for some of their freight,” Clowdis says.
One other problem for the railroads is educating truck shippers on the benefits of home intermodal, and convincing them the rails can ship on their service commitments.
It hasn’t been easy. “A lot of prospects preserve freight on the highway as a result of they don’t think there’s an intermodal answer,” says Branscum of BNSF.
Gloeb of UP provides that the reluctance of shippers to convert to intermodal is essentially as a consequence of “a problem of confidence” within the high quality of rail service.
The past has quite a bit to do with that. For years, shippers complained about inconsistent and unreliable rail service, a reality that hampered intermodal development despite what’s conceptually a solid worth proposition. While rail executives tout the service enhancements, in addition they admit prior missteps are usually not simply forgotten by big shippers. “The best problem is history,” says Rutherford of CSX.
Rates on the rise?
As intermodal good points traction, it’s a secure wager users will likely be paying extra for the service than they’ve for several years. Intermodal rates in 2011 are projected to rise between 3 and 8 p.c over yr-in the past levels, with the excessive end being considerably above the increases expected to come from the truckload carriers.
At a latest industry convention sponsored by New York Metropolis funding firm Wolfe Trahan, a panel of executives from corporations that tender much of the intermodal freight to the railroads—Hub Group Inc., Schneider Nationwide Inc., J.B. Hunt Transport Companies Inc., and Pacer Worldwide Inc.—predicted fee increases of between 3 and 5 percent, with Schneider saying rates could go higher than that, according to a publish-meeting report published by the firm.
However, Branscum says the will increase, if any, will simply narrow the existing fee gap between intermodal and extra-expensive truckload service. “If intermodal was already discounted at 15 to twenty p.c in contrast with over-the-street, then the will increase would possibly cut back the discount to 5 to 10 percent,” he says.
One other situation that would have an effect on intermodal rates is the supply of the containers by which most home intermodal visitors moves. Confronted with a worldwide shortage of ocean containers, steamship traces arriving at a U.S. port of entry might wish to transload inbound freight into home containers reasonably than have the worldwide bins moved “intact” to inland points. That could put extra pressure on an already-tight home container market, some analysts contend.
However, the 4 firms collaborating within the Wolfe Trahan convention say they’re adding 1000′s of containers between now and the beginning of the peak vacation transport season. And UP, which controls about 60 % of the home container fleet, added 14,000 containers in June 2010 to container pooling arrangements it has with CSX and Norfolk Southern. As of now, UP has entry to sixty three,000 containers, in line with Gloeb.
[subhead] BRIGHT PROSPECTS Whereas there are a lot of variables that could disrupt the railroads’ plans to capture home intermodal share, what is clear is that a rising variety of shippers are eager about not less than exploring what the rails have to offer. Howland of APL Logistics, whose company is booking an rising quantity of home intermodal freight, says clients using intermodal for 15 to 20 % of their site visitors wish to increase that ratio as excessive as 50 percent. Some shippers, Howland says, are taking a look at intermodal to maneuver as a lot as 70 percent of their merchandise traffic. “We’re seeing a really aggressive stance on the part of our shippers to using intermodal,” he says.
The Container Store’s intermodal leap of religion
The Container Retailer took a leap of religion last year when it switched some of its outbound distribution from over-the-road truck to intermodal. It is nonetheless early, but, so far, its religion seems to have been rewarded.
In 2009, the Coppell, Texas-based retailer of storage and group products began utilizing Burlington Northern Santa Fe Railway and its intermodal accomplice, J.B. Hunt Transport Providers Inc., for inbound movements from West Coast ports to its lone DC, an 825,000-sq.-foot facility also positioned in Coppell. In 2010, Container Retailer decided to expand the connection to some of its outbound movements as part of a “continuous strikes” operation geared toward grouping a number of one-way hauls into spherical trips. It began with a pilot program overlaying two stores in Northern California.
As we speak, the operation serves 13 of Container Store’s 49 shops, and the community is about to expand as the retailer provides shops in cities like Indianapolis later within the year. (An additional three stores are served through an intermodal relationship with Union Pacific Railroad Co. and trucker NFI Inc.)
Container Store’s typical intermodal size of haul is about 1,330 miles, although Indianapolis will be served at an 875-mile stage length, while Chicago, an present market, is served at 900 miles.
Container Retailer expects to save $300,000 in transportation prices this 12 months through the change to intermodal, mentioned Tom Sangalli, the company’s logistics and transportation director. That number might fluctuate depending on network growth and volume growth, he added.
Initial hiccups
This system was not without its risks. At a window of plus or minus quarter-hour, Container Retailer’s store delivery schedules are among the many strictest in retailing. “I’ve labored in retail for 20 years, and these are the tightest home windows I’ve ever seen,” mentioned Sangalli.
As a result of the supply schedules couldn’t be changed, Sangalli’s largest concern when making the change grew to become the reliability of J.B. Hunt’s draymen, the truckers responsible for bringing items from intermodal ramps to the stores. Since the draymen had different prospects to serve and different deliveries to make, the Container Store wouldn’t have full management over the drayage operations’ routing and scheduling. “We could not make sure if we might be first on the checklist, or second or third on the list,” mentioned Sangalli.
After some initial hiccups, Hunt and Container Retailer labored out a plan the place Container Retailer’s deliveries would basically be given “seniority” status. This eventually resulted in the same drivers making the same deliveries to the identical stores. While deliveries vary relying on the individual store, a store receives, on common, three truckloads per week.
Sangalli acknowledges that Container Retailer’s community is effectively suited for home intermodal. Its shops are located in densely populated city and suburban areas that have strong rail connections. In addition, the distances between its DC and its stores are long enough to make intermodal work. Against this, many retailers have a number of regional distribution services situated within 200 to 300 miles of shops, distances extra price-successfully served by truck.
Nonetheless, Sangalli stated intermodal may work effectively even for those retailers with higher community density than the Container Retailer has. “It comes right down to attention to detail, and paying close attention to the performance of a selected market’s draymen,” he said.
That’s to not say the Container Store goes wholly over to intermodal, however. Sangalli said it would be impossible to change the retailer’s total outbound community to intermodal service. Container Retailer has 10 stores in Texas, all of which, given their proximity to the DC, should be served by truck. Its New York Metropolis facility has complex supply requirements which might be extra suitable for direct supply by truck than through a rail-dray community, Sangalli said.
Regardless, Sangalli stated that intermodal has turn into a everlasting a part of the corporate’s outbound distribution strategy and that he will continue to increase its position even at non-traditional distances. “If intermodal works, we are going to use it and not let distance be a determining factor,” he said.
About the Author
Brad Hollister is an Seasoned Supply Chain Executive with Freight Access (Freight Access.com ). Hollister carries a appreciation for Business Development interest in latest technologies. Contact him with at BradHollister.com. (Brad Hollister ).
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