While other transportation modes were losing market share last year during the freight recession, domestic intermodal was growing. Now that most of the indicators in the U.S. economy point up, the movement of 53-foot containers on double-stack trains in North America is expected to take off.
Union Pacific Railroad, for one, is bullish about the future of domestic intermodal. In an April 13 address to the Los Angeles Transportation Club, Brian McDonald, vice president of intermodal, said the industry was at an “inflection point,” where the short- and long-term prospects are better than ever.
UP has been more active lately than any other rail carrier in expanding its domestic intermodal portfolio. UP lured much of Hub Group’s business from BNSF Railway, giving UP a big increase in volume. It also renegotiated its domestic contracts with Pacer and CSX Intermodal in a move that will produce a sizable increase in revenue from that business.
As a result, domestic intermodal was the only business unit of UP’s 40 commodity lines to experience an increase in volume last year. Even greater growth is projected for 2010. “Last year was the biggest ever for domestic intermodal, and 2010 will be even bigger,” McDonald said.
Other railroads plan to expand their intermodal business, based in part on developments in domestic transportation and because of optimism that the freight recession is over and growth may return at a brisker pace than previously anticipated.
“We’re prepared for growth when it comes. All the macro measures of the economy seem to be improving, and we are cautiously optimistic,” BNSF spokeswoman Suann Lundsberg said. BNSF’s domestic intermodal business last year fell 12.8 percent, while its international intermodal business plunged 23 percent.
Norfolk Southern is demonstrating its optimism by upgrading its domestic intermodal network. The Crescent Corridor project provides a good example, said Robin Chapman, manager of public relations. That project runs from New Orleans, through Memphis and up to northern New Jersey and is geared primarily for domestic intermodal.
NS also is developing intermodal hubs in Memphis and Birmingham, Ala., as part of the Crescent project. The railroad, Chapman said, is receiving $105 million in TIGER grants for development of the hubs, indicating the Obama administration sees value in projects that will take trucks off the road and move the freight via cleaner, greener trains. The Crescent corridor has the potential to shift 1 million truck trips a year to rail, he said.
UP believes domestic intermodal’s potential is boundless, with some 70 million annual truck moves nationwide being potential targets for a shift to intermodal.
Growth in domestic intermodal is accelerating, according to the latest numbers from the Intermodal Association of North America. Domestic intermodal moves nationwide in the first quarter totaled 1,034,036, up 15.7 percent from a year earlier. The first quarter of 2009 was also up from the comparable period in 2008, according to Tom Malloy, the AAR’s vice president of business development.
If the freight recovery continues in the months ahead, as industry analysts anticipate, domestic intermodal will be an immediate beneficiary because it has the line capacity and equipment needed to transport increased shipments. Long-haul trucking, by contrast, may not.
Motor carriers took an especially big hit during the freight recession. Some companies went out of business, while most reduced capacity and saw many of their drivers move elsewhere in search of work. If domestic freight volume increases rapidly, “We will have a period where demand will exceed supply,” said Thomas Finkbiner, chairman of the Intermodal Transportation Institute at the University of Denver.
If steady growth in freight volume continues into this fall’s peak shipping season, domestic intermodal will be well-positioned to accept cargo that over-the-road trucking can’t handle. Scott Weiss, senior account executive at APL Logistics, said domestic intermodal in past peak seasons provided the assurances of capacity and equipment that shippers count on.
|UP’s philosophy is that controlling intermodal equipment gives it a strategic advantage and improves reliability during periods of high demand, so the railroad continues to invest in domestic containers.
Domestic intermodal’s biggest selling point is its cost advantage over trucking in distances of 700 miles and greater, and that advantage is even more important today. “In this economy, it’s all about money. Customers are going back for one more whack at the apple,” said Ted Prince, principal at T. Prince and Associates.
The savings can be startling. Weiss said he advises clients to use domestic intermodal whenever possible because on an average-length haul the savings is about $800 per move.
Many domestic shippers divide their freight at a ratio of 80 percent truck and 20 percent domestic intermodal. That formula should be reversed, Weiss said.
UP sees growth in transloading of international shipments on the West Coast as another reason domestic intermodal will increase. In Los Angeles-Long Beach alone, such shipments were up about 100,000 last year, McDonald said.
Transloading involves transferring the contents of 40-foot marine containers to 53-foot domestic containers. Fewer domestic containers are required compared to shipping the 40-foot marine containers inland. Ship lines that need their empty containers immediately for repositioning back to Asia also encourage transloading at seaports by pricing port-to-port shipments more favorably than inland shipment of loaded marine containers.
Jeff Siewert, director of International Logistics at The Home Depot, calls this “dynamic allocation” because it allows the home improvement retailer to aggregate initial orders to the West Coast and then make final quantity allocation decisions to regional distribution centers based on what products are selling best in various locations.
Splitting shipments between domestic intermodal and trucking makes sense, Weiss said. The retailer can peel the “hot sellers” for movement by truck and send the rest via domestic intermodal, Weiss said.
Domestic intermodal also is growing in favor because many companies have a carbon footprint program, NS’s Chapman said. Rail is much more fuel-efficient than truck on a per-unit basis, and reduced fuel consumption means lower carbon emissions, he said.
Despite these positive factors, domestic intermodal’s growth will likely be steady rather than explosive. Most of domestic intermodal’s advantages, Finkbiner said, have been known for years, and there has yet to be a wholesale shift from truck to intermodal. “There’s really nothing new there,” he said.
Domestic intermodal also must grapple with the logistics details, such as managing a large fleet of chassis and containers, maintenance and repair of this equipment and the costs involved in the inherent equipment imbalances that are part of international and domestic transportation, said Greg Stefflre, president of Rail Delivery Services in Southern California.
Stefflre said he is optimistic about growth prospects for domestic intermodal, but has yet to see a business plan so robust that it will push the industry to an inflection point.
Even the current enthusiasm for transloading international cargo into domestic containers is fickle, rising and falling because of economic conditions, said Ron Sucik, principal at RSE Consulting in Naperville, Ill.
Transloading’s share of cargo in Los Angeles-Long Beach peaked at about 27 percent in 2001, dropped to 21 percent in 2006, and appears to be on the rise again, he said. Ocean carrier policies discourage the inland movement of loaded marine containers, which favors transloading, but that policy could change unexpectedly, Sucik said.
Contact Bill Mongelluzzo at email@example.com.