Grabbing Headlines

Forty years ago, Dr. Hook and the Medicine Show released “The Cover of the Rolling Stone.” The song is a fictional band’s lament that despite garnering the usual trappings of success, it has yet to get its picture on the cover of Rolling Stone magazine.

Many of us in the transportation industry suffer similar feelings of neglect. With the exception of the high-flying airline industry, it’s rare for surface freight transportation to receive such prominence. So it was with some surprise that I noted two leading business periodicals featuring freight transportation on September covers.

Business Week reported on “Maersk’s titanic bet on the biggest boat (sic) ever built.” Although the article acknowledged the risk of such deployment (“If you get it wrong, you can end up dead. When a company like Maersk orders these vessels, it’s betting the company.”), the article focused mainly on the ship’s engineering and construction. It wasn’t until the end of the article that the author briefly noted the “wildly cyclical” nature of the shipping industry. While the engineering is impressive, it’s merely the latest increment of straight-line growth in vessel size. 

Future changes for our industry may be much more drastic. Deployment of the aforementioned vessels will concentrate volumes among alliances — with possible far-reaching consequences for customers. Will an industry that hopes to shed the North American nuisance of chassis also look to end the expense of inland trucking and rail movement? Will the few ports selected for handling these vessels be able to accommodate so many eggs in so few baskets? Moreover, what will happen to the ports built (with public money) when nobody comes?

These vessels also have caused another change. Capacity surge has altered the dynamics for ocean intermediaries. Where these third parties had been enjoying increased volumes and earnings for many years, their market share has evaporated as ocean carriers have increasingly sold directly to small and medium-sized shippers. 

Many of these third parties are also intermodal marketing companies that expanded into ocean services, along with 3PL and truck brokerage offerings. The latter two traditional cash cows also have been disappearing recently. Small 3PLs are struggling to compete with larger ones, and all parties seem to be suffering in the truck brokerage business. 

Because there are almost no barriers to entry in these non-asset businesses, what are the implications for railroads that have relied extensively on IMCs to sell door-to-door intermodal? If the third-party industry retreats, railroads without asset-based bimodals will suffer, as further industry consolidation seems inevitable.

In another magazine article, Forbes pictured Ross Perot in a cover story about the Alliance Logistics Park. The article (which focused largely on the airport) related how “their inland port has created the family’s $3 billion fortune.” The AllianceTexas project has been wildly successful, but the article failed to mention that the facility opened at roughly the same time as intrastate trucking deregulation began, which transformed Dallas into one of the major distribution hubs in North America. 

Inland ports have become the latest intermodal “must have” for areas seeking industrial growth. In the last 10 years, real estate developers have sought to develop logistics parks all over North America, while some railroads have looked for “free” intermodal terminals. Neither have been able to replicate the success of the first two: Alliance and Elwood, Ill.

“Win-win” solutions aren’t guaranteed. Part of the problem has been a proliferation of real estate developers, local economic development agencies, and overly optimistic ports, all posturing as overnight “intermodal experts.” We should expect some rather embarressing — and expensive — inland port disasters attributable to a weak understanding of intermodal’s asset-based, network-operating basis  (Remember Stark County Neomodal?). In fact, the article highlighted the failure of Allen Group’s logistics park project in Dallas.

The Intermodal Expo last came to (Dallas) Texas in 1998, when intermodal was experiencing a self-induced downturn. At that event, a local music group opened for the Lawmen, Norfolk Southern’s country western band. Since then, intermodal, and that local group, The Dixie Chicks, have gone on to global fame and glory.

As the industry assembles this month in Houston, it might be worthwhile to consider Dr. Hook’s lyrics about “groupies, who’ll do anything we say.” The intermodal industry’s success has generated cheerleaders and groupies looking to make money “on” — rather than “in” — intermodal. Past results have been impressive, but future success likely will require more hard work.

Ted Prince is chief operating officer at Tiger Cool Express. Contact him at ted@tigercoolexpress.com.

 

 

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