Hauling temperature-controlled goods is the last "billion dollar intermodal market” in the U.S. yet to be penetrated, a railroad analyst says. But it will take daring and major investment to realize the potential of hauling refrigerated goods on the rails, and no company has yet to step up to the plate.
Determining how much refrigerated freight moves on the tracks is tricky, largely because Norfolk Southern Railway, CSX Transportation and Union Pacific Railroad don’t recognize the cargo type in their tariffs, said Tom Finkbiner, senior chairman for the Intermodal Transportation Institute. BNSF said it moved about 150,000 refrigerated units in 2011, and Finkbiner estimates UP hauls about 50,000 units annually. The majority of CSX and NS’s refrigerated hauls are from interchanges with the western railroads, he said.
That’s a fraction of the potential market, considering the Department of Agriculture estimates more than 800,000 temperature-controlled loads are hauled more than 1,000 miles annually, with the railroads only touching about 1.2 percent of the total. And that just includes domestic transport, cross-border moves and very limited import cargo, not all refrigerated freight coming into and out of the country via ocean lines, said Finkbiner, a member of the Intermodal Transportation Institute at the University of Denver's board of directors.
So what needs to happen for more shippers to join the likes of Jack-in-the-Box in shifting more temperature-controlled cargo onto the rails? First, a company — whether it be an intermodal marketing company or a shipper — needs to make a major investment in temperature-controlled 53-foot trailers, Finkbiner said.
The railroads are loth to buy new railcars and containers, choosing instead of focus their investments on networks and more fuel-efficient locomotives. Domestic trailers are what’s needed to attract produce, meat and confectionary shippers because such products tend to “weigh out before they cube out” in boxcars. Refrigerated boxcars are primarily used to haul frozen french fries and meat for export, as the heavy product is more suitable for rail transport than truck.
Second, the railroads need to take more liability for refrigerated cargo. BNSF Railway is the only major U.S. railroad that acknowledges temperature-controlled cargo when receiving the loads from shippers. “Those other three (railroads) are consciously ignorant,” Finkbiner said. “That doesn’t mean they don’t want to haul it, but they don’t want to recognize it because of the liability.” He said the railroads would also need to provide even faster intermodal service.
“Nobody in the railroad or intermodal industry wants to be the first to do these things,” Finkbiner said. “Private equity people don’t want to invest in an untested product.”
Despite the reluctance to be the first one to dive into the market in a big way, there will soon come a time when the opportunity is so great that the risk is warranted. Increased federal regulation, higher gas prices and a shriking driver market will squeeze those who are most vulnerable to the industry changes and much of the refrigerated cargo: owner-operator truck drivers. The hours-of-service rules will make refrigerated truck service slower, providing more of an incentive to shift loads onto the rails, Finkbiner said. That and the trucking industry’s increased focus on regional hauls, rather than long-hauls, will make a bold move into intermodal refrigerated cargo more attractive.