Several decades ago, U.S. railroads decided refrigerated cargo was more trouble than it was worth; investment in new reefer boxcars virtually came to a stop, and reefer traffic moved to nation’s highways.
Then, several years ago, new equipment, facilities and service were added to the reefer rail sector. This time around, railroads weren’t the ones making the investment. Private companies such as Railex and Rail Logistics’ Cold Train built massive refrigerated warehouses that could handle unit trains, and they ordered the first domestic refrigerated intermodal containers.
Both companies are seeing solid growth, and there is talk in the industry of other investors entering the market to create another model of temperature-controlled rail service.
Railex built and operates three facilities — in Washington state, the Central Valley of California and upstate New York — in which unit trains can enter and have dozens of boxcars worked at once without breaking the cold chain for the produce shipped east.
“The thing that Railex did that makes it work is that they can simultaneously load or unload a number of cars at one time,” said John Philp, vice president of Union Pacific Railroad. “They can do a whole train in three cuts. In a typical operation, you could only unload one car and then button everything up again.”
Union Pacific owns the cars used in the Railex operation and also provides the transportation on the western side of the country. On the East Coast, the unit trains are hauled by CSX Transportation.
Philp sees a resurgence in demand for rail boxcar service, but said a lack of equipment restricts expansion.
“This last year was the first time we were ever completely over-subscribed and not able to handle any more cargo,” he said. “We plan to buy more cars, but it is a huge financial commitment, and we are standing in line for capital funds along with requests for new track and other types of equipment.”
In the 10 years since UP last purchased new reefer boxcars, the cost has skyrocketed to about $250,000 per car. “UP plans to buy about 5,000 new reefer cars.”
Because the cars are so expensive, getting the most use from each car in the existing UP fleet is important, he said. “With Railex, we get two turns a month. In other service, it’s about one turn a month.”
Railex executives have said publicly they want to expand, first into the Atlanta area and then into the Midwest. The timetable for new facilities was slowed by the recession, but the plans have not been scrapped.
Cold Train, a refrigerated intermodal service that operates between the Port of Quincy, Wash., and Chicago, also plans to expand its fleet and service.
“We are out of capacity,” said Steve Lawson, president of Rail Logistics and its Cold Train subsidiary. “We have 127 53-foot reefer containers and we are completely full.” Lawson said the company is finalizing plans to add 300 more containers over the next 18 months, with 100 cars delivered in the first half of 2012 and 100 late in the year. The final 100 are expected to join the fleet in 2013.
The Cold Train service operates as a unit train, with BNSF hauling the cargo in a three-day trip to Chicago. Eastbound, the containers are packed with produce, frozen french fries and nursery products. Westbound, the trains are full with half those cargoes temperature-controlled and the other half used to carry dry goods.
Lawson said Cold Train would like to expand its service area once it gets new equipment and will be testing service to several areas including Philadelphia, Atlanta, Jacksonville, Boston and New Jersey over the next 60 days. “We have to see how the moving parts work and if we can provide good service. We need to work with dray contractors, and see how reliable the service can be. We need to know how many days it will take to get produce from the PNW into those markets. If it isn’t reliable every single load, we don’t want to do it.”
He expects more competition in the sector as fuel prices remain high and the driver shortage worsens. “J.B. Hunt already bought a lot of containers, and I look for more reefer truck companies to put their equipment on the rails for long-haul.”
Transportation consultant Ted Prince is among those who see reefer intermodal as a very limited niche market.
“There is room for rail, and there is room for truck in the reefer market,” Prince said. “The question really is, what does rail look like? We don’t think it looks like intermodal. You can put 45,000 pounds in a highway trailer, 43,000 pounds in a rail trailer and 41,000 pounds in a rail container. If you are shipping lettuce, that doesn’t matter, but if you are shipping oranges or carrots, it matters a lot. It matters if you cube out or weigh out first. That is one of the determining factors for deciding how to ship.”
Prince acted as a consultant for trucking company CRST as it expanded into expedited, team-driver service for coast-to-coast refrigerated service. He is now working with investors who want to set up a reefer boxcar fleet and service. He expects customers to be produce and protein shippers that are suppliers to big box retailers such as Wal-Mart and Target.
“The big guys don’t want to buy transportation on the spot market,” Prince said. “They want to know what will be available and how much it will cost; they can’t really get that with the current system.”
UP’s Philp said he is aware of several different groups of investors looking at similar plans, but said the rail haulage would be provided by BNSF, not the UP.
“Railex invested huge amounts of money in their facilities, and we have picked them as our partner. As long as they are growing, we have no motivation to go out and find competition for them.”
Gary York, general manager at C.H. Robinson, said that although the reliability of refrigerated rail service has markedly improved, shippers are still leery of entrusting perishables to the railroads.
“Shippers are creatures of habit,” York said. “They are comfortable with truck service.” That will slowly change as demand for perishables grows and truck capacity tightens and becomes more expensive, he said.
“There are a couple problems with boxcar service,” York said. “You are moving the product a couple times and that provides more chance for damage. And it takes more time to stage both at the front end and the back end. As good as Railex is, it is a day longer than intermodal, which is a day longer than truck. Every time you add days to transporting perishables, you are cutting shelf life in stores.”
For reefer intermodal, backhaul and repositioning costs are the biggest challenge, he said.
“How willing are the railroads to provide pricing benefits to those that buy this equipment? If they were willing to give intermodal marketers and trucking carriers a break on backhaul rates, they would be more willing to enter the market. Shipping dry goods in reefer containers on the backhaul doesn’t solve the problem,” York said, “because any time you put reefer equipment on the rails, the railroads charge reefer rates.
“Truckers, especially owner-operators, give really good rates westbound in order to reposition their equipment. Sometimes it’s just the cost of fuel.”
Contact Stephanie Nall at email@example.com.
Correction: An earlier version of this story misidentified Norfolk Southern as the East Coast operator of Railex trains.