One constant in the intermodal business is change. The fastest growth occurred when the flood of imports from Asia hit West Coast ports. BNSF Railway and Union Pacific benefited greatly because the vast majority of imports had to be moved to inland and East Coast points.
But with ocean carriers under pressure to reduce their inland transportation costs and with concerns over West Coast congestion, labor negotiations and rising fees for everything from environmental mitigation to extended terminal hours, all-water service to the East Coast is increasing.
That benefits CSX Transportation and Norfolk Southern, the two big eastern railroads. And while it may slow intermodal growth for BNSF and UP, it probably does not represent a significant threat to either.
NS expects to do well regardless of which coast imports and exports move through. "We are coastally agnostic," Michael McClellan, NS's vice president of intermodal and automotive marketing, said at the annual meeting of the North American Rail Shippers Association in San Francisco last month.
A clever turn of phrase - and accurate. McClellan made clear that NS doesn't choose sides between East and West Coast ports. NS and CSX can afford to be relaxed about the shifts occurring in the intermodal business because they will get their share of volume and revenue regardless of where shipments originate.
If shipments come off the West Coast and are bound for destinations east of the Mississippi River, the eastern railroads are receiving carriers and will carry trainloads of containers to their final destinations near regional distribution centers in their territory. If the shipments start at East Coast ports, NS and CSX are originating carriers. Either way, they gain.
However, the business may not be as profitable for the eastern railroads as it has been for the western rails. Western carriers have an average length of haul that exceeds 2,000 miles, which gives them pricing leverage because trucks are not competitive with intermodal pricing and service over that distance.
In the East, where average length of haul is in the 500- to 1,200-mile range, NS and CSX must compete with motor carriers for much of the intermodal business. That limits their pricing freedom and subsequent intermodal profitability. Intermodal still will be profitable, so don't cry for NS and CSX; it just won't be the growth driver for them that it has been for BNSF and UP.
NS and CSX will benefit from the economic difficulties that motor carriers face: congestion, insurance costs, high fuel costs and limitations on driver hours. Both rail systems are investing huge sums to upgrade routes and service between East Coast ports and Midwest destinations, focusing on high-density corridors.
NS is enlarging tunnels on its route from Hampton Roads to Columbus, Ohio, and the West. Its ability to handle stacktrains on its Heartland Corridor will reduce the route by some 200 miles and the transit time by a day, taking cost out of its system and making its intermodal offerings more competitive with trucks.
CSX is investing $300 million in its $700 million National Gateway connecting mid-Atlantic ports and the Midwest, effectively making the old Baltimore & Ohio route a double-stack route as well as upgrading the north-south I-95 corridor.
NS and Pan Am Railway are creating the Patriot Corridor between Albany, N.Y., and Boston, a relatively short haul, conceptually like its Meridian Speedway joint venture with Kansas City Southern Railway, which connects Meridian, Miss., and Shreveport, La. In both corridors, NS puts up cash and the partner contributes track and facilities.
Intermodal traffic on the Meridian Speedway mostly moves between Los Angeles-Long Beach and distribution centers in the Southeast. The Heartland Corridor gives NS the same ability as the Meridian Speedway, only serving imports entering the U.S. on the East Coast. The Patriot Corridor, which needs Surface Transportation Board approval, will handle intermodal and automotive shipments from the West headed into New England.
While BNSF and UP are not likely to suffer, they already may have seen the best of times for intermodal import traffic growth. Now it may be NS's and CSX's turn - until the next set of outside factors causes a new shift in intermodal traffic flows.