US intermodal rail in ‘fight for flexibility’

US intermodal rail in ‘fight for flexibility’

Norfolk Southern.

The echo of that “ELD impact” still reverberates deep in the supply chain in warehouses, at port terminals, and in intermodal yards. Photo credit: Shutterstock.com.

ATLANTA — Thirteen months after the US electronic logging device (ELD) mandate for truck drivers took effect, intermodal rail is in a “fight for flexibility” linked directly to the loss of time and truck capacity attributed partly to the ELD mandate. It’s an example of the wide ripple effect a regulation aimed at truck drivers has on other transportation modes and the US economy.
 

The initial wallop from the ELD mandate — which took effect in December 2017 and began to be fully enforced last April — has been absorbed, Terrence Matthews, J.B. Hunt’s executive vice president of intermodal, and other speakers told the SMC3 Jump Start 2019 conference here Monday. “It made a great impact,” Matthews said. J.B. Hunt saw freight capacity begin to “tighten up” in May 2017, and disruption continued through June 2018.

For motor carriers, the ELD mandate was a “one-step function,” he said. “It was similar to what we saw after hours of service [HOS] changes in 2004.” Those changes, which included introduction of the 11-hour daily driving limit and 14-hour work day, also led to tight capacity and higher truck pricing. Now, as then, “the [trucking] industry will find its new watermark,” he said.

The ELD’s impact ‘echo’ continues

But the echo of that “ELD impact” still reverberates deep in the supply chain in warehouses, at port terminals, and in intermodal yards. Many shippers have yet to fully adapt to the loss of time in their supply chains that occurred when truck drivers began to follow US HOS rules to the letter after installing electronic equipment that monitored their hours.

“I call it the fight for flexibility,” said Matthews. “The railroads want to have more flexible operations at their [intermodal] terminals, and then you have the customer who says, ‘don’t deliver early,’ because they have on-time/in-full delivery requirements. That means a battle over flexibility needed by the dray operator,” or by the truckload or less-than-truckload driver.

Intermodal rail yards already are plagued by container congestion, chassis and dray driver shortages, and disruption caused by winter weather sap productivity and efficiency. “The terminals are the biggest concern,” Matthews said. “Every railroad seems to be trying to get more freight through the same footprint. How do you get more out of less?”

That is the question for 2019 as the US economy slows, perhaps loosening truck capacity along the way, but also putting renewed emphasis on persistent transportation pain points. Speakers and attendees at Jump Start 2019 are trying to puzzle their way through a year that, based on an early rush of imports, already looks volatile and unpredictable.

Norfolk Southern Railway plans to expand intermodal terminal capacity to improve productivity and efficiency, but expansion is not easy, said Jeffrey Heller, vice president of intermodal and automotive for Norfolk Southern Corp. “We’re [focused on] terminal capacity first, but the network is just as important [as] our ability to keep freight cycling in and out of terminals.”

Norfolk Southern is willing to expand terminals where it can, but the railroad faces space limitations at many sites, and there are no remaining “greenfields” for new construction, Heller said. “We built our network so we could continue to add capacity to existing facilities, but it does take capital; and it also assumes we get a certain amount of productivity out of the terminal.”

Heller, speaking on a panel with Matthews, also saw the ELD impact on intermodal as past. “The biggest impact was on lanes of 500 to 700 miles,” he said. “Drivers were no longer [able] to make a sufficient number of turns, so we saw freight come over to us. Now that freight is converted, and we look forward to trying to convert as much existing trucking freight [as we can].”

The ELD mandate magnified other issues that tightened truck capacity, directly or indirectly complicating operations for intermodal networks, he said. “Folks didn’t anticipate ... that [ELD compliance] would come during one of the greatest freight peaks we’d seen in some time,” Heller said. “We saw a pretty big uptick in volumes, especially in lanes that were more ELD-sensitive.”

Ongoing problem lane — regional jobs over 250 miles

That included lanes from Chicago to Cleveland, Cincinnati, and Columbus, all of which became much more difficult for drayage drivers to serve in one day. As those lanes are all well over 250 miles, fewer drayage drivers were interested in making those runs, staying overnight, and returning the next day. “Regional jobs over 250 miles continue to be a problem,” Matthews said.

“Ever since motor carrier deregulation in 1979-1980, the whole supply chain has been built on the assumption there will always be available truckload capacity, and it will be available 24/7,” said Ted Prince, chief operating officer of Tiger Cool Express, a refrigerated intermodal company. That assumption no longer holds, even as spot market capacity becomes more available.

One under-reported result of the ELD mandate is greater segmentation of the driver pool into “day” and “night” drivers, Matthews said. “The random driver is not as available from 6 at night to 7 in the morning” as he or she used to be, he said. Shippers dependent on finding a driver and truck at that time “need to go to a dedicated model,” and many of them are, he said.

“The HOS rules really set the clock, and you’re either on the day shift or the night shift,” Matthews said. Before the ELD mandate, “some folks really took advantage of that particular space to run a little hot, if you will. Now they’re finding they need two days’ worth of revenue rather than a day or a day-and-a-half of revenue for that particular run.”

Even if drivers are available, not all segments of the supply chain have adapted to be more flexible, which keeps constraints on truck capacity in the ELD era. “The warehouses may not be open when the driver arrives, or stores may not be open,” said Heller. “It’s really important that other segments of supply chain adopt the same philosophy” to gain or restore flexibility.

Contact William B. Cassidy at bill.cassidy@ihsmarkit.com and follow him on Twitter: @willbcassidy.