After a 14 percent decline in intermodal traffic last year, the major western railroads are planning for increased container traffic in 2010. But in this uncertain economy, most of the growth may come from luring business from truck and ocean carriers rather than from a significant increase in trade volume.
BNSF Railway and Union Pacific Railroad see growth opportunities by offering truckload shippers improved transit times and cargo availability in domestic intermodal networks. Expedited intermodal services from West Coast ports to inland destinations may be the answer to flagging international volume.
|The railroads are bullish on intermodal because it is holding up in terms of profitability. And despite the slide in overall demand last year, UP reported record domestic intermodal traffic of 1.25 million shipments in 2009, up from the previous record of 1.19 million units in 2007.
In the fourth quarter, total intermodal volume at UP was up 5 percent, compared with a decline of 5 percent in all freight sectors.
BNSF reported a drop in domestic intermodal in 2009 to 1.86 million shipments from 2.13 million in 2008. International intermodal volume was 1.95 million compared with 2.54 million units in 2008.
Intermodal margins are improving, however, even in a weak economy, as the railroads shed non-compensatory legacy contracts. In its fourth-quarter report, UP said intermodal revenue was down 3 percent, compared with declines of between 7 and 28 percent in revenue from other business sectors. UP said 29 percent of its intermodal business is carried under legacy contracts, although the railroad will reprice that business as the contracts expire.
BNSF’s intermodal revenue fell 20 percent last year because of lower volume, although that was partially offset by improved yields.
Both railroads project modest growth in intermodal traffic in 2010 as the U.S. economy improves gradually. In this environment, more substantial growth in traffic may come from capturing domestic freight that now moves via truckload, or international cargo that moves to destinations in the eastern half of the country via all-water services from Asia to East Coast ports.
BNSF has made a concerted effort to capture truckload freight by improving its domestic services. The rail carrier noted in 2009 it implemented more than 70 service enhancements, and will introduce at least another 29 service enhancements this year.
After consulting with its service partners about measures needed to shift over-the-road freight to a “truck-rail solution,” BNSF reduced transit times on 60 percent of its domestic routes, said George Duggan, vice president of domestic intermodal. For example, it reduced transit time between Los Angeles and Chicago by seven to 10 hours, making same-day delivery possible at destination. Other improvements included reducing the Los Angeles-Memphis transit by four to six hours and increasing the frequency of services for Houston.
Maintaining train speed, or velocity, also reduces transit times and improves customer satisfaction. UP’s velocity in 2009 was 27.3 mph, compared with 21.4 mph in 2006, said Dennis Duffy, vice chairman of operations. UP’s customer satisfaction index for the year stood at 88, up from 83 in 2008 and 79 in 2007.
Some of these efficiency gains derive from capital expenditures for improvements such as double-tracking of BNSF’s route between Southern California and Chicago and UP’s Sunset Corridor between Los Angeles-Long Beach and El Paso, or by triple-tracking routes in high-volume locations such as Southern California.
The railroads have maintained aggressive systemwide capital-expansion programs for tracks, lift facilities and logistics hubs despite the weak economy. UP projects $2.5 billion in capital spending for 2010, the same as last year. BNSF’s capital expenditures in 2010 will be $2.4 billion, down about $250 million from last year.
The railroads for more than a year have attempted to increase the length of their intermodal trains, reducing the per-unit cost of moving containers over long distances. In its high-volume Los Angeles-Chicago corridor, BNSF is running trains as long as 10,000 feet. These double-stack trains carry about 325 containers, compared with the general standard of 7,000-foot trains that carry 250 containers. In the Pacific Northwest, BNSF bumped up the size of some trains to 8,000 feet.
Long trains are not an everyday occurrence. The railroads run them on their highest-volume corridors, and only on days when there is enough volume to fill out the train, such as after a trans-Pacific vessel arrives in port.
The railroads are experimenting to see how long a train can be without reducing its commercial viability or creating safety or operational problems. UP raised some eyebrows in Southern California in mid-January when it ran an 18,000-foot double-stack train from Texas to Los Angeles-Long Beach. The train, dubbed a “monster train” in some local reports, had nine locomotives and carried 600 containers.
Spokesman Tom Lange said UP, which runs trains up to 12,500 feet long on high-volume routes, ran the ultra-long train to test operational and safety issues and insisted it was not necessarily a harbinger of coming train lengths. Nevertheless, such tests indicate the railroads have not reached the upper limit of train sizes.
When it comes to domestic traffic, railroads have a clear cost advantage over trucks, an advantage that increases as the price of fuel rises. In the international arena, however, the delivered cost of moving a container from Asia via an all-water service through the Panama Canal to the East Coast is less than shipping the container by water to a West Coast port and by rail to the destination. Lower-value shipments that are not especially time-sensitive therefore move via all-water.
However, the western railroads are offering expedited intermodal services from the West Coast to certain distribution hubs, where they believe improved service can regain such shipments.
Contact Bill Mongelluzzo at email@example.com.