Copyright 2004, Traffic World, Inc.
The nation''s largest truckload carrier will start charging its customers more if Union Pacific Railroad doesn''t recover from its service problems soon.
The rate warning from Schneider National came as UP was struggling to unscramble service problems that have jammed up portions of the country''s largest rail network amid indications that other railroads were seeing capacity shortages.
The problems at UP that have built up since the beginning of the year have sent shippers looking for alternatives and one key customer, UPS, was hoping to get its intermodal traffic back on the UP network this week after pushing trailers meant for express trains onto the highways.
Schneider National gives UP 3,000 53-foot domestic containers a year for line-haul between ports, distribution centers and retail outlets. Most of the truckload giant''s intermodal business moves with UP rival Burlington Northern Santa Fe Railway. Still, the Green Bay, Wis.-based $3 billion transportation and logistics company says its intermodal pricing will rise as the strain on UP''s network grows.
"So far UP''s service issues have gone unnoticed by our customers because we''ve been able to manage through the issues," said Brian Bowers, vice president and general manager, Intermodal Services for Schneider. "But retailers are starting to feel (equipment shortages) across their carrier base. We''re maneuvering around the service issues today, but we won''t be able to continue if the underlying transportation doesn''t improve soon."
Bowers noted it may be difficult to raise rates when there are service problems but UP''s congestion comes as highway capacity also is tight and shows no signs of opening up. Several trucking companies are pressing rate hikes as the nation''s economic recovery puts more freight into networks strained by equipment and driver shortages.
"The natural next step is that intermodal pricing will move up, particularly in highly congested lanes," Bowers says, pointing to movements between Chicago and the Pacific Northwest, and "from Los Angeles to anywhere."
How high rates will go depends on how severe demand rises and how flexible the rail network is and how much capacity it can add, he said. But he expects Schneider to look for rate increases of between 3 percent and 5 percent in the next several months.
Bowers says Schneider works closely with the four major Class 1 carriers and has the flexibility to shift freight between carriers and between containers and trailers. "Often the trailer network is more fluid than container network because that''s where the premium freight is moving," Bowers said. "We can get in or through markets on trailers that we can''t with containers."
But Bowers said he also sees changes at BNSF that are meant to better use its rail system. "BNSF is very confident that they''ve put changes in place that will improve their consistency," Bowers said, which includes reconfiguring trains to eliminate in-transit stops and dropping certain lanes. "They''ve shut down their Shelby, Mont., ramp, where we used to average five loads a day. We can truck it to those customers instead - not the best alternative. But if that''s what it takes to get reliable service to and from Chicago to the PNW, that''s a good thing."
With world trade booming and signs pointing to a heavy fall shipping season, Bowers says it''s a critical time for the rail industry to show that it can handle the traffic. "The trucking industry will stabilize, capacity will come back, and if at that point rail service isn''t improved, that freight will go back on the highway. But if intermodal can stabilize and they can expand the premium component, it will convert a significant amount from the highway and retain it."