CSX Transportation and Norfolk Southern Railway may be taking different tracks to lure more truckload freight to the rails, but the outcome for intermodal shippers will likely be the same: a greater opportunity to blunt higher trucking costs by using increasingly faster and more reliable train services.
CSX is betting the best way to spur shippers to shift more truckloads onto the rails is by using its state-of-the art Northwest Ohio terminal as a hub to its spokes, or intermodal lanes. The $175 million terminal “is allowing us to assemble density so we can generate more origins and destinations for customers, so we can be more truck-like,” said Whilby Whitt, president of CSX Intermodal Terminals.
The hub, situated halfway between Chicago and Buffalo, N.Y., cuts 24 to 48 hours off of transcontinental transit times for trains that don’t need to stop in Chicago
NS, meanwhile, is focusing more on building direct train services that connect to smaller hubs on its corridors and gaining load density along the way. “We try to engineer hubs out of our service as much as we can,” said Michael McClellan, vice president of intermodal and automotive marketing. NS is considering how to add nodes, or pick-up and drop-off ramps, along the network to reduce shippers’ drayage and gain density, he said.
The drive by CSX and NS to gain more intermodal business, particularly from domestic shippers, highlights how the U.S. rail industry is adapting to changing dynamics. Declining coal volume, the historical cash cow for railroads, is spurring the archrivals to capture growing business related to Mexican trade and domestic energy consumption.
But even before those trends emerged, NS and CSX saw their greatest opportunities in intermodal. After more than a decade of planning and hundreds of millions of dollars in investment, 2013 is shaping up as a defining year, when their efforts could truly deliver — or disappoint.
NS this year began 34 new intermodal services on the Crescent Corridor, its 2,500-mile network connecting the mid-Atlantic and the Gulf Coast. The railroad’s first wave of new intermodal terminals on the corridor — Memphis, Tenn.; Birmingham, Ala.; and Greencastle, Pa. — opened in the last six months, supporting the new services.
In addition to its slate of planned new terminals and facility expansions, CSX has ramped up its operations at its North Baltimore, Ohio, hub and shifted more cargo through the terminal in the last six months.
It’s too soon, however, to determine which carrier is best positioned to grab a larger share of the intermodal market, said Tom Finkbiner, a past chairman and a current board member of the Intermodal Transportation Institute in Denver. “What it will come down to is execution,” he said. “The jury is still out on (CSX’s North Baltimore, Ohio, hub) … and NS just began new services on the Crescent Corridor.”
Reaching for the Intermodal Prize
How high the ceiling could be for intermodal growth depends on the railroad and analyst. CSX sees an opportunity to convert about 9 million truckloads that move more than 550 miles, while NS says the Crescent Corridor alone will take more than 1 million trucks off the highway.
The eastern intermodal market totaled some 5.8 million units last year, with NS handling about 58 percent and CSX taking the rest. CSX appears to be closing the gap, as its intermodal volume rose 7 percent year-over-year in 2012, compared with NS’s 4.5 percent traffic growth.
The long-haul intermodal market of more than 1,100 miles, generally used for international shipments, “is relatively mature,” Finkbiner said. But even the length of haul for international freight has shrunk in recent years. The average length of haul was 1,529 miles in the fourth quarter of 2012, down from 1,580 miles five years ago, according to industry analyst and consulting firm FTR Associates.
The railroads might see more international business originate from the East Coast when the expanded Panama Canal opens in 2015. A major shift is unlikely, however, as most analysts expect East Coast ports to see marginal volume gains. Still, even if the impact of the enlarged canal is more hype than real, the eastern railroads’ investment in double-stack clearance from mid-Atlantic ports will provide significant efficiencies.
As part of its $282 million Heartland Corridor initiative, NS in the fall of 2010 began double-stack service to the Port of Virginia. The port, one of the few East Coast hubs with a channel deep enough to handle vessels too big to transit the Panama Canal, was the only import gateway on the NS network that didn’t have double-stack clearance.
The expansion of tunnels on the route running through the Appalachian Mountains from Hampton Roads to Portsmouth, Ohio, cut the trip by 250 miles, reducing transit times by a day.
CSX has nearly finished a similar project on its network connecting the mid-Atlantic ports to the Midwest. Through its $850 million National Gateway initiative, CSX will provide double-stack service on the remaining leg from Greenwich, Ohio, to Chambersburg, Pa. Both of the railroads’ double-stack initiatives received state and federal government funding.
The potential shift of cargo from the West Coast to the East Coast isn’t necessarily a good thing for the eastern railroads. CSX would “prefer West Coast port growth,” CEO Michael Ward said last year, because shipments from ports such as Los Angeles and Long Beach are less likely to be diverted to truck than loads coming from the more densely populated East Coast.
Neither railroad has a clear advantage when it comes to tapping international intermodal volume through East Coast ports, according to Finkbiner and Ron Sucik, president of RSE Consulting. NS has a bit of an edge at Savannah and Virginia, although its advantage has narrowed as CSX has improved access, Sucik said.
CSX has a better hand at Baltimore, Philadelphia and Jacksonville. The railroads are about evenly matched at Charleston and New York-New Jersey.
Full-Throttle Domestic Gains
The biggest opportunity for intermodal growth is in the 700- to 1,100-mile market, which is mostly in the East and tends to consist of domestic shipments, Finkbiner said. Domestic intermodal traffic rose 6.5 percent year-over-year in 2012, outpacing international intermodal growth by 4.8 percentage points, according to the Intermodal Association of North America.
To capture even more intermodal business, CSX and NS are working to attract midsize intermodal customers. Key to that effort is making shorter hauls work for customers by providing faster and more reliable services.
The industry already is having some success achieving the shorter intermodal hauls. The average length of a domestic haul was 1,468 miles in the fourth quarter of 2012, down 43 miles from five years ago, according to FTR Associates. Although the decrease in the average haul has flat-lined in recent quarters, network improvements at CSX and NS likely will help lower the average further, said Larry Gross, a senior consultant at FTR.
“One of the goals of all our services is getting within zero to 20 hours of what a single driver transit time looks like,” McClellan said. “When it comes to domestic intermodal service for 53-foot containers, NS rarely has success in converting truckloads beyond one truck driver’s day of service. “Even then, we may not have the economics to make it work, but we generally don’t have a conversation if it’s below one-truck driver day,” he said.
Two Railroads, Two Strategies
But the means to the end are different for NS and CSX. The differing strategies “punctuates that intermodal is effectively in its early innings of its development because mature industries tend to have a confluence of strategies,” McClellan said.
Part of the reason for different approaches is that the railroads’ networks vary, forcing them to adapt their existing infrastructure the best way they can to gain intermodal volume, Sucik said. NS’s Crescent Corridor, for example, parallels Interstate 81. CSX’s intermodal network doesn’t parallel the busy highway, but its north-south lane mirrors that of Interstate 95. “If you are CSX and you don’t have a parallel service lane, than the most favorable approach is a hub-and-spoke network,” Sucik said.
Surging domestic business at CSX’s new Louisville, Ky., terminal is one of the strongest testaments to the success and potential of the Jacksonville-based railroad’s hub-and-spoke model, said Ryan Houfek, assistant vice president of intermodal marketing. The $15 million terminal opened last year, and CSX already is working to expand the 34-acre facility because of increasing highway conversions.
“We just gained a huge one to Baltimore that would never have been possible without the hub,” Houfek said. “If a customer wanted to go from Louisville to Buffalo, for example, the response in the past was, ‘You need to call a trucker.’ Now, we can say, ‘yes.’ ”
CSX also is strengthening its network by opening a facility in Quebec in 2015; bringing a Winter Haven, Fla., terminal online next spring; and having its new Baltimore terminal running by 2015. In addition to three terminal expansions, CSX plans to open an intermodal facility in Pittsburgh within three years.
One of the major strengths of the CSX strategy is that it makes it easier to load shipments for railroads originating from the West, largely because its hub allows trains that don’t need to drop off or pick up freight in Chicago to avoid bottlenecks there, Finkbiner said. Shippers moving freight westbound gain the same advantage. South Korean container line Hyundai Merchant Marine cited the facility as a reason for switching its business in 2010 from NS to CSX.
The question circling CSX’s hub approach is whether the railroad will sacrifice service in its attempt to gain train density. Containers at the hub, which handles 32 to 36 trains a day, stay on site 12 hours on average, but many containers are loaded within the first six to eight hours, said Gary Van Tassel, manager of the hub. NS, by comparison, can load and unload freight at nodes, or ramps, along its network in less than an hour.
“I think there is a perception from some customers that, ‘Now, you’re taking it someplace and handling it, and that seems like you are adding time,’ ” Houfek said. “In fact, we are handling (freight) less in the past and the reliability has improved. We hear customers talk about speed, but they respond and act on reliability.”
NS does have a hub-and-spoke model through its Triple Crown Intermodal Network, connecting Jacksonville, Dallas, Minneapolis, Toronto and Bethlehem, N.Y., and other cities to its Fort Wayne, Ind., hub, Gross said. But as a whole, the NS intermodal approach is simpler than CSX’s.
That simpler take might become a challenge, however, as the network becomes more complicated through additional services and new terminals, he said. NS this year plans to open an expanded intermodal terminal in Harrisburg, Pa., and a new facility in Charlotte, N.C.
The carriers also are taking different approaches to the types of equipment allowed on their intermodal networks. CSX doesn't handle trailers at all of its terminals, while NS will take containers and trailers throughout its terminal network. That could cost CSX, considering truck companies, particularly those hauling temperature-controlled goods, prefer trailers for domestic moves because they can be loaded heavier than containers and their equipment is a better fit with rigs. But dealing with trailers also can complicate terminal operations.
“If a trucker wants to try intermodal, it’s so much easier if they can get a trailer on flatcar rather than having to deal with a container,” Gross said.
The big question isn’t just whether the railroads will be able to pull off their strategies but what the next untapped intermodal market is. Finkbiner thinks that in the next five years the carriers will turn their investments westward. The market 350 miles on each side of the Mississippi River will be the next frontier, with potentially improved services from Columbus to Minneapolis, or Louisville to Kansas City. How well CSX and NS fare in their current intermodal pushes will likely determine how soon and forcefully they take on the 600- to 700-mile market.
Shippers have an exciting ride ahead.