East vs. west

East vs. west

Standard gauge for U.S. railroads is 4 feet, 8 inches, and all major carriers are standard gauge. The distance between the rails is about the only thing that's standard in the industry.

Intermodal, for example, has become one of the railroads' largest businesses. But there is a fundamentally different approach to intermodal by the two big western railroads -- BNSF and Union Pacific -- and the two big eastern railroads, CSX and Norfolk Southern.

Western railroading is long-haul railroading. BNSF's "short" route between Southern California and Chicago is 2,300 miles. UP's isn't much longer. BNSF operates premium trains at up to 79 mph; UP isn't much slower. Distance and speed allow both railroads to compete with trucks. BNSF makes the Southern California-Chicago run in as little as 51 hours, 12 minutes, beating even trucks using team drivers.

Efficiency and fuel consumption favor the railroads -- they can move a ton of freight 436 miles on a gallon of fuel, while trucks use up to three times more fuel for the same tonnage. In an environmentally conscious world, railroads produce fewer emissions and have a smaller carbon footprint.

The economics of long-haul railroading allowed BNSF and UP to create a business out of the flood of containers arriving at U.S. ports, driven by globalization. Modern container ships were too large to transit the existing Panama Canal, and not all steamship lines wanted to send their ships through the Suez Canal to reach the eastern United States. Ship-rail service (intermodal) filled the bill.

Railroads had excess capacity and signed low-priced contracts with ship operators to haul containers from West Coast ports to U.S. East and Gulf ports and inland destinations close to population and manufacturing centers.

Intermodal has been a different story in the East. Much of the business that NS and CSX did was interline from the industry leaders in the West. Trainloads of double-stack containers destined for distribution centers and factories in the eastern third of the country moved onto the NS and CSX rail systems at Chicago and Mississippi River gateways such as Memphis, New Orleans and, in the case of NS, at Meridian, Miss.

Domestic intermodal was a different story, too. Western railroads began to penetrate domestic markets, using their competitive advantages to convert competing truckers into steady customers.

Distances were shorter in the East, giving trucks a service advantage.

Unlike their western colleagues who saw thousands of containers arriving weekly at West Coast ports, NS and CSX had far fewer containers available at East and Gulf ports. Many destinations were within drayage distance for containers that did arrive there.

Intermodal dynamics are changing, and even greater changes are likely. Most significant, higher truck rates now hold an economic umbrella over rail intermodal, enabling NS and CSX to compete over shorter distances -- 500 miles no longer is out of the question, while 1,000 miles is attractive. As rail capacity was absorbed, rates jumped when contracts with ocean carriers came up for renewal, especially in the West.

Eastern railroads are preparing for the surge in international business that will come when the Panama Canal completes an expansion in 2014 granting access to 8,000-TEU-plus ships. All-water service to the East Coast is less expensive than transcontinental intermodal movement.

CSX is pushing development of the National Gateway, a public-private partnership, to clear its routes from mid-Atlantic ports to the Midwest for double-stack trains. NS is building the Heartland Corridor, a similar public-private partnership, to shave nearly 250 miles and a day off the run from Hampton Roads, Va., to the Midwest by clearing the route for double-stack operations.

Change always occurs at the margin. While eastern railroads expect to play a larger role in intermodal, that does not mean the western carriers will lose their intermodal business. It does mean that ocean carriers will charge point-to-point rates that reflect different levels of service and will give customers multiple ways of getting their goods to destinations.

Larry Kaufman, former intermodal editor of The Journal of Commerce, has worked in and written about railroads for nearly 40 years. He is now a consultant to the Association of American Railroads. He can be contacted at Lkauf81509@aol.com.