As shippers and intermodal market companies figure out how to handle cargo movement through Chicago on lanes in which interline service will be eliminated, options such as dedicated drayage, paying exorbitant rates, or adjusting to longer transit times appear to be the only solutions available this peak season.
For nearly 200 origin-and-destination pairs, shippers will become responsible for booking the middle mile interchange in Chicago. Trains will continue as is into Chicago and out of Chicago to destinations, but Union Pacific Railroad to CSX Transportation will no longer transfer boxes between terminals on the impacted routes. Last week, UP and CSX announced that the interline service would cease on the lanes effective Sept. 17, a decision sending shippers and logistics providers scrambling to discover what it means and how to adjust their supply chains. For shippers frustrated by chassis shortages, inconsistent service, and accessorial fees, the announcement is a new wrinkle in a love-hate relationship with Class I railroads.
It’s unclear exactly what will happen after Sept. 17 because railroads don’t disclose what percentage of containers are transferred on steel wheels versus trucks. If the containers were mostly taken on trucks, house carriers may simply work for shippers and logistics providers instead of railroads. But if steel wheels were used, new volume could overwhelm truckers because available drayage is exceedingly difficult to find in Chicago.
Even if there aren’t new trucks on the roadways, shippers will have to forge new relationships with draymen already booked up with cargo from long-term customers. Below are some options for when those conversations begin.
Guarantee volume to guarantee capacity
Dedicated drayage has been a popular option for cargo owners unwilling to chance the rising spot markets and difficulty to locate a driver.
Trips from UP’s Global 1 terminal to CSX’s 59th Street facility are about $80 to $90, according to Jason Hilsenbeck, founder of LoadMatch and Drayage.com, an online intermodal directory and container-matching service. Crosstown hauls from UP’s Global 2 or Global 4 can cost about $125 and price tags from Global 3 in Rochelle are $250 to $300. Those prices exclude fuel surcharges on diesel, which is about 50 cents higher than a year ago.
“I would sit down with a carrier and sign a dedicated contract with dedicated volumes and guaranteed payments within seven to 10 days to keep the cash flow moving,” said Jim Apa, CEO of Fore Transportation. “If someone came to me with guaranteed business and guaranteed rates where there is no question I can make money each week and I get a two- or three-year commitment, I would do it tomorrow in a heartbeat.”
Traditionally only carriers with company drivers have had the scale to offer dedicated drayage, but it can be done under an owner-operator model too.
“I would tell a driver that I’m paying him $800 or $1,000 per day to get a specific number of jobs done. The owner-operator will love it because he knows when he gets into the tractor at 5 o’clock in the morning, he knows exactly what he’s making that day, so drivers are more apt to sign up,” Apa said.
Not all trucking companies, however, are as interested in such business because current core customers are already using all available capacity. Mike Burton, president of C&K Trucking, for example, said he’s unwilling to bump core customers for new business in any scenario. About half of the company’s Chicago business is crosstown drayage between rail yards.
“If someone came to us and said they would guarantee 50 or 100 crosstowns per week, we’d still say no. We’re not really big on guarantees because things will change when volumes slow down. We have enough business right now with long-time customers it just wouldn’t interest us,” Burton said.
Money talks, sometimes
An old maxim goes, “Every man has a price.” People in the trucking industry have publicly and privately said that “no freight is bad freight if it’s priced correctly.” Toss out an insane quote, maybe the shipper says yes. Less-than-truckload companies in recent months have been known to employ this practice on spillover truckload freight, which otherwise they would not entertain.
Shippers who have flexibility in their budgets could move up the pack if they outbid their competitors. Such a scenario, however, could exacerbate the wave of ocean carriers ceasing door delivery services.
“If I am doing a load out of Chicago to Indianapolis and get $1,000 from a shipper, or do it for a steamship line or someone else for $750, who am I going to do it for? Who’s going to get the truck? Obviously the job that pays more,” Apa said.
But like dedicated drayage, Burton said offering a huge sum of cash would not make a difference to him because it would be harder to find a driver to haul loads of core customers.
Not every trucking company thinks the same.
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In Burton’s opinion, there is no ‘line cutting.’ Shippers cannot guarantee or purchase their way to the front. The only option is to stand by because C&K is nearing full utilization, and volume from existing customers is expected to grow 20 percent in the peak season.
“When new people knock on our door asking if we can help them, our answer is unfortunately no unless you can wait to Wednesday or Thursday,” Burton said. “Friday, Saturday, and Sunday are the busiest days. Monday and Tuesday we get caught up on other jobs. Wednesday and Thursday is when we have a little more available capacity.”
Just like being a shipper of choice, it’s one thing to ask for help when capacity is tight. But will you be there for the carrier when capacity is abundant? Burton doesn’t want fair-weather friends.
So unless you acquire a trucking company, there are no good solutions for a shipper with time-sensitive cargo on interline routes folding up on Sept. 17.