Commentary: Building Domestic Intermodal

When APL developed the stacktrain in the mid-1980s, it effectively launched the modern intermodal era by going beyond the basic concept of placing truck trailers on flatcars that dated back to the 1950s.

Others had developed domestic containers, but weren’t gaining widespread traction. International intermodal, the term applied to 20- and 40-foot marine containers transferred from a ship to a train or vice versa, was the vanguard in what is today a full-fledged intermodal heyday fueled as much, if not more, by domestic cargo transitioning from over-the-road trucking to double-stack 53-foot containers.

Just as international containers pioneered the modern intermodal market, the concept of locating distribution centers near railheads was developed for international cargo. The concept of the “inland port,” where DCs are positioned adjacent to a rail intermodal facility near a population center such as Dallas or Chicago, is, for now, applied exclusively to international intermodal.

The DCs at the CenterPoint Intermodal Center outside Chicago, which handled 2.9 million TEUs last year, are meant to receive or process primarily cargo arriving or leaving in 40-foot marine containers. The shipper benefits from the lower cost of intermodal versus truck for the long-haul segment, as well as substantially lower fuel costs on the short drayage move from the railhead to the DC. It’s a formula that works, as the success of inland ports at Alliance, Texas, Kansas City SmartPort and elsewhere shows.

But what about domestic intermodal, which has grown consistently faster than the international segment? In the first half of this year, domestic intermodal was up 15 percent compared to the first half of 2010, while international was up 9 percent, according to FTR Associates.

Do logisticians and site-selectors see the same opportunity? Do they see cargo moving in a domestic intermodal environment — whether international containerized cargo transloaded into 53-foot domestic containers near a seaport, or more pure domestic cargo moving intermodally — as benefiting from the same proximity of the DC to the railhead? The idea isn’t farfetched, given the demonstrated cost savings importers have realized by positioning DCs close to inland ports.

But if domestic shippers are thinking along these lines, they’ve yet to translate it into investment, construction or industrial real estate activity. “I don’t see any DC development that is focused around domestic intermodal,” said Blaine Kelley, senior vice president of the global supply chain practice at commercial real estate firm CBRE. For now, the focus of domestic intermodal is converting truck shipments to rail as opposed to a broader effort to re-imagine supply chains around rail.

Seeing an opportunity to convert millions of over-the-road shipments to intermodal, railroads are reducing the distance needed for intermodal to make sense and thereby are greatly expanding the universe of potential intermodal shipments.

Shippers under pressure to reduce costs are biting at the 15 to 18 percent savings intermodal offers over trucking, even if transit times may be longer. They’re also gaining environmental benefits they can tout to customers.

Still, the trend hasn’t led to the creation of domestic intermodal parks or even many site selection decisions based on proximity to domestic intermodal railheads. Although the benefits of reducing drayage on the inbound move into the DC are arguably the same, the formula doesn’t transfer easily from international to domestic. For example, e-commerce is a key driver of DC development this year, yet DCs built to serve Internet buyers — such as the network of warehouses Amazon.com is setting up — are optimized based on proximity to the customer to achieve benefits such as next-day delivery, not the inbound flow that would incorporate intermodal. “Inland ports are dealing with the inbound, and e-commerce is dealing with outbound,” Kelley said.

Another point is that, unlike CenterPoint’s Joliet/Ellwood, Ill., hub, where the nexus of intermodal and DCs was the idea from the start more than a decade ago, domestic intermodal ramps — which tend to handle domestic containers exclusively — weren’t located with industrial real estate in mind, and there is usually limited space nearby to locate DCs.

Today’s domestic intermodal market is just a different mode used often for the same supply chain, whether linking a North American factory to a DC, shifting cargo between an import and a regional DC, or goods transloaded near a seaport. This may change. Major intermodal centers such as CSX Transportation’s hub in North Baltimore, Ohio, may attract DC activity nearby.

But that’s in the future. For now, the idea of a domestic “inland port” is just an idea. Tim Feemster, senior managing director for real estate services firm Newmark Grubb Knight Frank, said industrial activity tied to domestic rail ramps likely will grow faster than international-based activity, if only because international is further along the road toward maturity. He sees “not nearly as many” domestic-based industrial real estate deals as in the international market, but that will change over time.

Peter Tirschwell is senior vice president of strategy at UBM Global Trade. Contact him at ptirschwell@joc.com, and follow him at twitter.com/PeterTirschwell.
 

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