Navigating the Intermodal Landscape

Adriene BaileyDespite the economic uncertainty the U.S. has experienced since 2008, domestic intermodal traffic in North America is growing robustly. Overall year-over-year volume growth through August 2013 was a healthy 6.8 percent. Domestic containers continue to see conversion from trailers in rail service — growing 9.7 percent, while trailer volumes shrank 2.9 percent, according to the Intermodal Association of North America, Yusen Logistics estimates and TTX fleet size data.

Look for this growth to continue as shippers:

  • Seek additional supply chain savings.
  • Recognize improved intermodal rail service and new intermodal lanes.
  • Further commit to carbon emissions reductions.
  • Worry about medium- and long-term truck driver shortages and rising fuel costs.
  • Increase near-sourcing of production (converting from international containers).

Since 2008, overall intermodal capacity and market-to-market lanes have expanded dramatically, and service delivery is comparable in almost every lane to single-driver truck service. Significant changes also have been occurring in the domestic intermodal market, presenting increased opportunities and challenges for shippers and providers.

Consolidation of Box Supply

Between year-end 2004 and year-end 2013, the number of domestic containers in service in the U.S. has grown from 119,000 to an estimated 208,700. Over that same period, there have been substantial changes in the operators of those fleets, including:

  • Single-operator fleets have grown substantially, while third-party operator fleets have contracted.
  • Control of the containers is much more concentrated with individual players — with a dominant fleet emerging in both fleet sectors. Railroads control the largest third-party fleet, and J.B. Hunt Transport Services controls the largest single operator fleet. Combined, these two fleets represent more than 60 percent of North American domestic fleet capacity.

Today, the overall domestic container fleet in North America can absorb growth and seasonal surges. That capability, however, isn’t spread equally across all providers. When access to capacity again becomes an important differentiating factor for shippers in getting product to market, contract terms, long-term relationships and other controllable factors come into play in determining who is most successful.

Asset-Based vs. Non-Asset-Based Providers

Shippers tend to have clear guidelines on the value and appropriate use of brokers versus asset providers in their purchasing of trucking services. As the private fleet model has grown in the intermodal space in recent years, this terminology has been adopted and applied to intermodal providers. There are some important things to consider that set intermodal third-party providers apart from over-the-road brokers:

  • All truckers have access to the same underlying highway network, whereas each intermodal provider (private box or third-party provider) has a different underlying rail network as its primary service network.
  • Over-the-road brokers contract with tens of thousands of trucking providers, and bring shippers the ability to tap large portfolios of carriers for best-fit solutions. Intermodal third-party providers bring a portfolio of dray providers in each market, but rely on the same rail carriers that also serve the asset-based intermodal providers.
  • While some over-the-road brokers provide committed capacity solutions, many over-the-road broker product offerings are based on the spot market and don’t come with committed capacity solutions. Intermodal third-party providers offer committed capacity solutions using the 68,000 container rail fleets, backed by a joint capacity commitment from the railroad.

Highway-to-Rail Conversion

If saving money is a priority, then any shipper who hasn’t taken full advantage of all lanes that can be served by intermodal is leaving dollars on the table. The service improvements and network enhancements railroads and intermodal providers have made in the last five years mean that unless team service is required, there is no service-related reason to delay consideration of conversion to intermodal.

Some anecdotal market experience says there are still some shippers who haven’t fully adopted intermodal in their network because of historical biases or lack of comfort with the mode. This certainly represents a growth opportunity for providers, and a savings opportunity for shippers. Some data compiled by the railroads suggest that even existing intermodal users can find another 10 to 15 percent in lane conversion opportunities by taking a new look at their networks.

Whether it’s a breadbox or a behemoth remains to be seen, but if you have traffic that could move via rail intermodal that is still running in trucks, it’s worth a look.

Mexico: The Potential and the Challenges

There is general recognition in the industry that a major growth opportunity exists for intermodal transportation into and out of Mexico. The fact that more than 9,000 trucks cross the border between Mexico and the U.S. every day leads even the casual observer to contemplate the potential savings by transferring a portion of that freight to rail. Several new intermodal service offerings have emerged in the U.S.-Mexico trans-border market over the past 18 months, and providers are looking at how they can add more product offerings and value.

Challenges remain in the coordination between all parties involved in cross-border transactions. At the end of the day, after all, it’s an international import-export transaction. Decisions often are being made in multiple offices, perhaps one for north of the border one for selecting the customs broker, and another office for delivery in Mexico. Companies with such fragmented decision-making processes can be leaving savings of 10 to 30 percent of the delivered transportation cost unrealized. It often takes a C-level influence to align organizational goals and processes to meet internal corporate requirements and deliver these often-substantial savings benefits.

The Challenges for Providers and Shippers

The challenge for providers is responding to the unprecedented changes that have occurred in the last five years in this industry — and the likely additional changes to come. Providers have the opportunity to truly assess and improve their value proposition. (What is the value-add for their customers? How do they shore up their position in the market?) This will require a focus on technology and productivity in addition to continued innovation around emerging customer needs. There likely will be further consolidation in the market, and some providers won’t survive — or will shift their business model significantly.

Shippers have the challenge of being more strategic in evaluating and choosing the intermodal providers in their networks. Each rail network has its own unique strengths. In some cases, only one railroad offers an intermodal option in a certain lane. Having a portfolio of providers has advantages. Access to multiple rail networks, and hedging against capacity shortages are all reasons to keep multiple intermodal providers in your network. Shippers also will benefit from careful consideration of overall intermodal rail network access when locating a new distribution facility, or evaluating supply chain strategy shifts.

Intermodal will continue to grow in importance in the overall North American supply chain. Shippers and providers will deliver efficiency and competitive advantage by monitoring market developments, while continuing to drive improvements through innovation and collaboration in this new intermodal era.

Adriene B. Bailey is vice president of strategic business development in the Transportation Division of Yusen Logistics (Americas), chair of the Intermodal Transportation Institute board and a board member of the Intermodal Association of North America. Contact her at Adriene.Bailey@us.yusen-logistics.com.

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