The conversion of over-the-road freight to domestic intermodal could accelerate in the next few years if federal hours-of-service limitations are implemented as planned and motor carrier costs keep rising, according to a third-party logistics executive.
David Wedaman, chairman and CEO of Re: Transportation Precision Logistics, told the Los Angeles Transportation Club Tuesday that railroads are making intermodal more attractive by improving their level of service and by offering intermodal service on shorter routes.
Domestic intermodal volumes are growing at twice the rate of growth of the nation’s gross domestic product, a strong indication that it is gaining market share. Also, railroads are aggressively expanding their intermodal business, Wedaman said.
The Class 1 railroads are each investing $2.5 billion a year in their operations, with much of the investment geared toward intermodal. As publicly traded companies, railroads must grow, and intermodal volume is increasing while the past year saw declines in other commodities such as coal, grain and boxcar merchandise, he said.
The railroads are going after over-the-road freight where motor carriers have always been strongest, which is over shorter distances. The railroads have invested billions of dollars in projects such as the Crescent Corridor in the Southeast with the intention of gaining market share in these dense traffic lanes, Wedaman added.
Much of the short-haul competition has taken place in the East, where population centers are closer together, but the western railroads are also competing for domestic freight in the I-5 corridor on the West Coast and from port cities to inland locations such as Salt Lake City, Wedaman said.
Intermodal has certain disadvantages. More city pairs are served by highways than by rail, and intermodal transit times are longer. The rule of thumb is that truck transit time plus one day is good performance for intermodal.
However, intermodal costs 5 to 10 percent less than truck service, Wedaman said. Railroads generally show little flexibility in pricing, but they are beginning to engage in spot pricing in certain lanes at certain times of the year, he said.
Because playing the spot market involves risk, a balanced approach for a shipper might be to reserve 10 percent of the freight for the spot market with the goal of reducing transportation costs by 10 percent on that segment, Wedaman said.
Transportation costs will be more of an issue if proposed hours-of-service limitations for truck drivers take effect in July. The limitations could reduce driver efficiency by 3 to 7 percent. The industry already has a shortage of 100,000 drivers, and the loss of driver time would result in an immediate equivalent loss of another 75,000 drivers, he said.