Union Pacific Railroad expanded its intermodal volume about 20 percent in 2010 from 2009, and did that at a remarkably profitable pace, increasing its revenue per intermodal unit an industry-leading 8.1 percent in the third quarter.
But UP believes the best intermodal years are still to come. The railroad is eyeing the 11 million or so truckloads of freight that move domestically each year and believes it can convert some of that traffic to its intermodal network.
Kansas City Southern Railway has similar ambitions at the U.S. border for its Mexican subsidiary. About 1.9 million truckloads of freight cross the border each year at Laredo, Texas, and KCS is keen to convert a portion of that traffic to rail.
The same story can be repeated for all of five Class I railroads. Over-the-road trucking in the U.S. faces a looming driver shortage, increased operating costs and myriad other challenges in expanding truck capacity to handle growing freight volumes, and rail carriers are offering what they believe is truck-competitive service to increase their market shares.
Domestic intermodal rail volume hit a new peak in the third quarter of 2010, advancing 11.7 percent over the same quarter in 2009, according to the Intermodal Association of North America. Growth was due in part to the recovering economy and to conversion of truckload freight to intermodal. Rail carriers expect strong growth in intermodal to continue in 2011.
“We currently see improvements supported by an expanding manufacturing sector, with inventories below historical target levels,” said CSX Intermodal spokesman Gary Sease. “That has driven increases in virtually all of the markets we serve.”
That’s backed up by surveys of shippers, including a report from investment analysts Wolfe Trahan released in December that showed the percentage of shippers planning to shift truckload shipments to rail was growing steadily through 2010 after a roughly even split between rail and truckload competition in 2009.
The growth comes as railroads are investing heavily in infrastructure with projects that figure to change nation’s intermodal map. The past year saw the opening of Norfolk Southern’s Heartland Corridor, offering service from Virginia to Ohio, and CSX in 2011 will open the first of its National Gateway rail corridors from mid-Atlantic ports to Ohio. Both projects are aimed at international double-stack business, but they create new intermodal pipelines that can connect with the networks of western railroads and could pull truck traffic from the highways along the East Coast.
Intermodal rail volumes are driven largely by consumer spending and retail sales, BNSF Railway spokeswoman Krista York-Woolley said. However, given the issues facing the trucking industry, intermodal should increase “almost regardless of how fast the retail sector grows,” she said.
The rail industry’s focus on domestic intermodal does not mean the important international sector has been underperforming. International intermodal volume increased 19.1 percent during the first three quarters of 2010 compared to the first nine months of 2009, according to IANA. International growth in the third quarter was up
28.1 percent from the third quarter of 2009.
The railroads also bumped up their rates this past year but improved efficiency by running longer trains and through other operational improvements. That helped railroads carry more intermodal cargo at generally higher freight rates while keeping a lid on costs. In short, it was a very good year for intermodal.
At the same time, rail carriers expanded networks by offering services on new lanes and constructing intermodal hubs and inland port facilities. Retail customers took notice of these developments. Logistics directors told the annual Transcomp/Intermodal Expo in Fort Lauderdale in November they plan to ship more freight by intermodal in the years ahead.
Retailers and manufacturers fear the trucking industry will not be able to expand quickly enough to handle increasing freight volumes. Some cargo interests believe a truck capacity crunch could emerge as early as 2011. Shippers are therefore reducing their risks in various ways, including expanding international gateways, diversifying inland distribution channels and using more intermodal rail.
Saving on transportation costs is a significant motivation: As motor carriers hustled last year to rebuild their fleets that had been ravaged during the recession, they had no choice but to increase their freight rates. This enhanced the cost advantages that are inherent in intermodal.
Railroads this year intend to capitalize on shippers’ desire to diversify their transportation options. UP, with domestic shipments up 24 percent during the first three quarters of 2010, has identified 2.9 million truckload opportunities on 10 specific lanes. “We already have truck-competitive service in eight of those 10 lanes, and plan to launch service in the other two lanes in the future,” spokesman Tom Lange said.
KCS anticipates its intermodal growth will exceed the industry average both in domestic east-west volumes on its Meridian Speedway between Meridian, Miss, and Shreveport, La., and in the north-south route between Mexico and the U.S.
KCS offers service from the new Lazaro Cardenas port to the interior of Mexico and across the U.S. border at Laredo. Carlson said KCS expects cross-border volumes to grow “at solid double-digit rates” in the coming year. Continued growth is also anticipated in KCS’s car parts intermodal business.
CSX is teaming with UP in an interline agreement known as UMAX. The arrangement, which gives shippers access to containers and additional service lanes, “creates more conversion opportunities by improving the availability of intermodal solutions between more markets,” Sease said.
CSX already is trumpeting support from shippers in its National Gateway, pointing to UPS, The Limited and Big Lots! as supporters of the series of projects that will stretch across six states. A terminal in Northwest Ohio will serve as the central hub for all intermodal traffic moving across its northern tier network. By driving density into the hub and out again to markets across the network, CSX will provide faster, more reliable service and bypass the congested Chicago area, Sease said.
BNSF, which expanded intermodal about 10 percent in 2010, will build a second main line across Abo Canyon in New Mexico. This is part of its Trans-con route, which will soon be double-tracked from Los Angeles to Chicago. BNSF will also continue the build-out of its Kansas City Intermodal Facility.
UP last August opened its $350 million, 785-acre Joliet Intermodal Terminal west of Chicago. UP double-tracks its Sunset Corridor between Los Angeles and El Paso, Texas, and is relieving bottlenecks on its Central Corridor through the Blair, Neb., double-track project and the Mississippi River bridge project in Clinton, Iowa. The result will be shorter transit times through those locations, Lange said.
Norfolk Southern on Sept. 9, 2010, officially opened its Heartland Corridor, which provides clearance for double-stack trains from Norfolk, Va., to the Midwest. NS shifted 30 percent of its overall volumes through Norfolk to the new route. NS is scheduled to complete double-stack clearances between Cincinnati and Columbus, Ohio, and improvements to its Toledo, Ohio, yard in the second quarter, allowing for an additional 10 percent traffic shift to the Heartland route.
NS, which increased its domestic intermodal traffic by 30 percent and its international traffic by 11 percent in the third quarter of 2010, expects the growth to continue throughout 2011, Don Seale, executive vice president and chief marketing officer, told a third quarter analysts meeting.
To accommodate that growth, NS is building intermodal terminals in Birmingham, Ala.; Memphis; Greencastle, Ind.; and Mechanicsville, Pa. NS has a clearance project under way between Columbus and Cincinnati and plans to offer double-stack service between the Port Authority of New York and New Jersey and Buffalo in 2011.
Contact Bill Mongelluzzo at email@example.com.