Intermodal’s Reefer Prospects Heat Up

Intermodal’s Reefer Prospects Heat Up

Fast-food restaurants are tough transportation customers with little appetite for receiving late or spoiled food products from their suppliers. So it speaks to how far temperature-controlled intermodal service has come that Jack in the Box increased its share of frozen and chilled goods moving inbound via rail from 6 percent to 42 percent between fiscal 2011 and 2012.

Granted, total intermodal only accounts for about 6 percent of the San Diego-based restaurant chain’s inbound moves. But the growth in refrigerated rail traffic and equipment serves as a strong signal that U.S. railroads are snatching back business some 60 years after the creation of the interstate highway system helped trucking take command of the temperature-controlled market.

“BNSF modeled our options,” said Jeff Brady, who led the intermodal push at Jack in the Box before the fast-food chain handed transportation to a third-party provider. “They will tell you where there is a fit (for intermodal) even when it’s with another railroad. I find that level of transparency amazing.”

More shippers are expected to shift reefer goods such as produce, meat, confectionary products, wine and beer onto the railroads as fuel costs rise and truck capacity tightens. Trucking companies, for their part, are willing participants in the shift as increasing federal regulations put more pressure on a tight driver market and as motor carriers focus on profitability and shorter hauls rather than market share.

Jack in the Box’s over-the-road trucking costs, for example, spiked 8.5 percent between 2011 and 2012. Like dry intermodal, reefer intermodal rates are generally 10 to 15 percent less than truck hauls. Beyond that, the main draw for shippers is that they’re guaranteed to get their products delivered, because reefer truckload capacity is at an all-time low, said Steve Lawson, president of Rail Logistics, operator of a temperature-controlled intermodal service for produce.

And the deliveries are happening faster because railroads’ steady investments in their intermodal networks provide quicker services. Meanwhile, reefer motor carriers and third-party logistics providers are expanding their 53-foot container fleets, providing shippers with more capacity. 

It’s the last “billion-dollar intermodal market” in the U.S. yet to be realized, but determining just how much refrigerated freight moves via the tracks is tricky, said Tom Finkbiner, senior chairman for the Intermodal Transportation Institute at the University of Denver.

That lack of visibility is mainly because Norfolk Southern Railway, CSX Transportation and Union Pacific Railroad don’t recognize refrigerated cargo in their tariffs. BNSF said it moved about 150,000 refrigerated units in 2011, and Finkbiner estimates UP hauls about 50,000 units annually. The majority of refrigerated hauls at CSX and NS are from interchanges with the western railroads.

That’s a fraction of the potential market, considering the Agriculture Department estimates more than 800,000 temperature-controlled loads are hauled more than 1,000 miles annually, with the railroads only touching about 1.2 percent of the total. The estimate just includes domestic transport, cross-border moves and limited import cargo, not all refrigerated freight coming into and out of the country via ocean carriers.

What is certain is that temperature-controlled intermodal business is expanding briskly. BNSF’s reefer intermodal volume has grown 33 percent since 2005, spokeswoman Krista York-Woolley said. UP’s temperature-controlled intermodal volume experienced triple-digit growth last year, making it the fastest-growing segment of the railroad’s domestic intermodal business, said Jon Panzer, assistant vice president of intermodal marketing. He also sees opportunity in cross-border service hauling produce and other temperature-controlled goods via interchanges with Kansas City Southern Railway and Mexican railroad Ferromex.

What needs to happen to propel reefer intermodal from a niche market to a major tenant of the domestic long-haul supply chain? First, railroads must speed up their intermodal services, Finkbiner said. That’s already in the works, with the major North American railroads on track to spend
$13 billion on capital projects this year, with much of that going toward intermodal initiatives.

Intermodal service also needs to become more consistent, said Coby Bullard, president of C.R. England’s intermodal division. “You can’t have a fast train for the first three days and slack off on the fourth,” he said.

Third, additional 53-foot trailer capacity is needed to get more produce, meat and confectionary shippers on-board, because such products tend to “weight out before they cube out” in boxcars, Finkbiner said. Refrigerated boxcars are primarily used to haul frozen french fries and meat, because those heavy products are more suitable for rail transport than truck.

The railroads have been loath to buy new reefer equipment, choosing instead to invest in their networks and more fuel-efficient locomotives. But that may be changing. UP this year will be the first railroad in a decade to add boxcars. The carrier is receiving the first of its order for 225 72-foot boxcars from Greenbrier Industries. 

The onus for container additions is on 3PLs and refrigerated motor carriers, and they are stepping up to the loading dock. C.R. England has been one of the leaders in reefer equipment growth by doubling its equipment pool in 2011 and expanding last year by 75 percent to 1,100 pieces. The company’s equipment fleet includes some trailers but is mostly containers.

NFI Industries, a Cherry Hill, N.J.-based 3PL and trucking company, also is providing shippers with more capacity for their temperature-controlled goods. NFI plans to acquire 50 more 53-foot containers in April, bringing its fleet to 170, said Scott Webb, senior vice president of intermodal operations. “We doubled our fleet size last year and are increasing it another 50 percent,” he said. “We may double it again this year, depending on the market.”

Rail Logistics, an Overland Park, Kan.-based equipment provider, also is adding capacity to its temperature-controlled produce service from the Northwest to the Greater Chicago area and the East Coast. President Steve Lawson said the company would acquire 200 containers this year, boosting its fleet to 500.

“I think we are going to continue to add density,” he said. “Ultimately, over the next two or three years, we could have 1,000 containers originate out of the Northwest.”

Rail Logistics’ Cold Train also has expanded its service offerings from just the Chicago area, now penetrating the Jacksonville, Atlanta, Philadelphia, Boston and Buffalo, N.Y., markets. Lawson said the service, which backhauls frozen food shipments, could expand to the New York City region.

The temperature-controlled intermodal market is primarily focused on domestic moves, but that’s not likely to always be the case. The Port of Savannah, with it large reefer market, for example, would benefit from CSX and NS increasing their temperature-controlled intermodal service to their on-dock terminals. Nearly all the temperature-controlled containers moving into and out of the port are hauled via truck, said Curtis Foltz, executive director of the Georgia Ports Authority.

“Candidly, there hasn’t been a lot of attention” to international reefer intermodal service at Savannah, he said. “But to me, there is no doubt it will come. For the long haul, intermodal is increasingly becoming the modal choice.”

Contact Mark Szakonyi at mszakonyi@joc.com and follow him at twitter.com/Szakonyi_JOC.