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Rails Try New Route to Intermodal Growth

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Post Rails Try New Route to Intermodal Growth   Sat Aug 13, 2011 12:55 pm

For decades, international commerce has dictated the foundations of engagement within the U.S. intermodal industry. Seagoing containerized imports have been offloaded at U.S. ports of entry, transloaded onto railroads, and moved inland.

That enterprise is hardly going away. Nonetheless, the times when domestic intermodal operations were viewed strictly as a "bolt on" to worldwide service that involved a previous or subsequent ocean freight movement are fast changing into history. Right this moment, the 4 U.S. Class I railroads are placing greater emphasis than ever on the domestic market as they search for ways to gasoline intermodal growth. In so doing, they will attempt to transfer past their consolation zone of close to 2,000-mile hauls and muscle in on the brief- to intermediate-distance markets dominated by truckload carriers.

To make certain, it isn't a zero sum game. Collectively, the trucking business is the nation's largest intermodal user and has for years relied on the service to chop its linehaul costs. UPS Inc., known to many as a floor service, can also be the single biggest intermodal customer.

Nonetheless, there are still many shippers who will not use intermodal service and rely solely on truck, a fact that railroads know all too well. For example, the Burlington Northern Santa Fe Railway (BNSF) estimates its clients use intermodal for less than about one-quarter of their complete transport needs.

The railroads consider U.S. companies may be prepared for a change, particularly as trucking prices escalate, highway congestion intensifies, and fears of a driver shortage persist. The rails preserve that the pace and reliability of their domestic intermodal service has now improved to the purpose where they'll offer a compelling worth-service solution on shorter stage lengths.

A wide-open alternative

If rail trade estimates are accurate, there may be plenty of incentive to give attention to the domestic business. Omaha, Neb.-based Union Pacific Railroad Co. (UP) says eleven million truckloads are up for grabs in its service territory, whereas Fort Price, Texas-based mostly BNSF puts its potential market at 7 million. In 2010, BNSF handled between 2.25 million and 2.5 million home intermodal loads, whereas UP handles, on common, about 2 million a year.

Jacksonville, Fla.-based mostly CSX advised analysts recently that of the 14 million truckloads that usually transfer in the Japanese United States each year, about 5.1 million have already been transformed to intermodal, leaving a potential market of someplace around 9 million. CSX stated it handles about 40 p.c of the 5.1 million loads which have already been converted.

Senior rail executives acknowledge the potential bonanza that awaits them should they persuade shippers that they'll ship on their intermodal service commitments and proceed to do so at decrease rates than truckload. "We've a singular alternative, and the chance is big," says Steve Branscum, BNSF's group vice chairman, client merchandise marketing.

To capitalize on this opportunity, the rails are constructing out their intermodal networks. Norfolk Southern's "Crescent Corridor," a 2,500-mile joint public-private mission linking New Jersey with Louisiana, is expected to divert 1 million trucks per 12 months from 10 interstate highways when the work is accomplished in 2013. Executives for the Norfolk, Va.-primarily based railroad have been unavailable for comment.

Earlier this yr, CSX opened an intermodal facility in the Northwest Ohio city of North Baltimore. The power serves because the pivot of a hub-and-spoke operation where freight arriving from nationwide points is transferred to double-stack trains for supply all through the East. It permits shippers to bypass the infamous "choke point" of Chicago, and thus can cut back transit instances by as much as two days between West Coast ports and distribution centers within the Ohio Valley, CSX officers say.

"It's our gateway to the West," says Michael Rutherford, director of intermodal advertising for CSX Transportation.

Out west, UP has upgraded eight of its 10 main corridors to allow intermodal to better compete with truckload, in accordance with Matt Gloeb, the railroad's assistant vice president of home intermodal. The 2 remaining lanes, Los Angeles-Seattle and Los Angeles-Houston, are expected to succeed in service parity by 12 months's end, Gloeb says.

UP has raised tunnel clearances at Donner Cross, ninety miles northeast of Sacramento, Calif., to accommodate double-stack container trains, based on spokesman Tom Lange. The railroad has constructed intermodal terminals in Chicago, San Antonio, Dallas, and Salt Lake City. It's also laying a second observe on its Los Angeles-El Paso "Sundown Route"-a transfer that will double practice capability on the closely used intermodal corridor by permitting two trains to function over it at the similar time, Lange says.

Hurdles to clear

But with the opportunity come challenges. To be "truck-aggressive"-which railroads define as competing with a solo driver on short and lengthy hauls-railroads have to make sure their very own networks, as well as these of the draymen accountable for bringing items to the intermodal ramp after which taking it off at destination, are synchronized to ship what vans already do: a flexible, dependable service, albeit at greater prices than intermodal.

Many quick- to intermediate-distance segments are located in what are often called "secondary markets" that lie outdoors of the railroads' primary corridors. It's in these lanes that the rails' intermodal efforts have been harm by an absence of great site visitors density and a much less-sturdy infrastructure relative to their major corridors.

David Howland, vp of land transport providers for third-social gathering logistics big APL Logistics, says intermodal service in the secondary markets-he cites the Ohio Valley-Kansas Metropolis corridor for example-nonetheless wants work and would require vital funding by trade, authorities, and personal sources to stand up to speed. Howland adds, nevertheless, that the railroads are doing a better job than ever earlier than in assembly their intermodal commitments.

Gloeb of UP says the railroad is committed to the secondary markets and is addressing the concerns over service inconsistency. "The 11 million highway conversion truckload alternatives [for] Union Pacific embrace secondary markets that we're targeting," he says. Rutherford of CSX says its new Northwest Ohio hub will serve as a vital conduit to its secondary corridors.

As rails set their sights on shorter distances, in addition they face cost hurdles. The revenue generated from the 1,500-mile and longer hauls which have been intermodal's bread and butter can more than offset the expense of constructing and maintaining giant intermodal terminals that flank major corridors. Nevertheless, because the length of haul diminishes, there will be inherently much less income to pay for the system, thus shrinking that motion's profitability, in keeping with Thomas L. Finkbiner, senior chairman of the Intermodal Transportation Institute at the College of Denver.

The identical value pressures apply on the dray portion of the transfer, which Finkbiner says must remain beneath one-quarter of the whole length of haul for it to be profitable. At a 2,000-mile stage length, the dray community can lengthen up to 250 miles at both end and nonetheless create sufficient income and site visitors cushion for a worthwhile move. As the gap of the rail line-haul contracts, nonetheless, so does the cushion that protects the profitability of the dray portion of the move, Finkbiner says.

Regardless of those considerations, Finkbiner says intermodal will proceed to draw domestic shippers as truck charges climb resulting from rising costs. He adds that intermodal can achieve larger share of traffic transferring about 750 miles should diesel fuel prices stay at present ranges-about $3.ninety five a gallon in mid-June-or go higher. Should diesel costs spike to the $6 a gallon range, intermodal will be competitive at distances as short as 550 miles, he says. "But it's not prone to be a straight-line penetration, and [future gains] are largely dependent on points beyond the rails' control," he says.

Charles W. Clowdis Jr., managing director, transportation advisory companies for the consultancy IHS International Perception, says intermodal's bettering reliability and transit instances will achieve it new converts whether or not oil prices rise, fall, or stay static. "Even when oil costs decline from these levels, customers who strive intermodal will keep it up, no less than for a few of their freight," Clowdis says.

One other challenge for the railroads is educating truck shippers on the benefits of domestic intermodal, and convincing them the rails can deliver on their service commitments.

It hasn't been easy. "Quite a lot of customers preserve freight on the highway as a result of they do not suppose there's an intermodal answer," says Branscum of BNSF.

Gloeb of UP provides that the reluctance of shippers to convert to intermodal is essentially as a result of "an issue of confidence" in the high quality of rail service.

The past has so much to do with that. For years, shippers complained about inconsistent and unreliable rail service, a reality that hampered intermodal growth despite what's conceptually a strong worth proposition. Whereas rail executives tout the service improvements, they also admit prior missteps aren't simply forgotten by huge shippers. "The greatest problem is historical past," says Rutherford of CSX.

Rates on the rise?

As intermodal good points traction, it is a safe wager users will be paying extra for the service than they have for several years. Intermodal rates in 2011 are projected to rise between 3 and eight % over yr-ago ranges, with the high end being considerably above the increases anticipated to return from the truckload carriers.

At a current business conference sponsored by New York City investment agency Wolfe Trahan, a panel of executives from companies that tender much of the intermodal freight to the railroads-Hub Group Inc., Schneider National Inc., J.B. Hunt Transport Companies Inc., and Pacer Worldwide Inc.-predicted rate will increase of between three and 5 %, with Schneider saying charges could go higher than that, according to a post-assembly report revealed by the firm.

However, Branscum says the increases, if any, will simply slim the existing rate gap between intermodal and more-expensive truckload service. "If intermodal was already discounted at 15 to twenty % compared with over-the-road, then the will increase may reduce the low cost to five to 10 percent," he says.

One other subject that might affect intermodal rates is the provision of the containers wherein most domestic intermodal visitors moves. Faced with a worldwide shortage of ocean containers, steamship strains arriving at a U.S. port of entry might wish to transload inbound freight into domestic containers rather than have the international packing containers moved "intact" to inland points. That might put additional pressure on an already-tight home container market, some analysts contend.

Nonetheless, the 4 firms collaborating in the Wolfe Trahan convention say they are including hundreds of containers between now and the start of the height holiday delivery season. And UP, which controls about 60 % of the home container fleet, added 14,000 containers in June 2010 to container pooling preparations it has with CSX and Norfolk Southern. As of now, UP has entry to 63,000 containers, according to Gloeb.

[subhead] BRIGHT PROSPECTS Whereas there are many variables that could disrupt the railroads' plans to seize home intermodal share, what is obvious is that a rising variety of shippers are all for no less than exploring what the rails need to offer. Howland of APL Logistics, whose firm is reserving an increasing quantity of domestic intermodal freight, says clients using intermodal for 15 to twenty % of their visitors want to boost that ratio as high as 50 percent. Some shippers, Howland says, are taking a look at intermodal to maneuver as much as 70 % of their merchandise traffic. "We are seeing a really aggressive stance on the a part of our shippers to using intermodal," he says.

The Container Store's intermodal leap of faith

The Container Retailer took a leap of religion final 12 months when it switched some of its outbound distribution from over-the-highway truck to intermodal. It is nonetheless early, but, so far, its religion seems to have been rewarded.

In 2009, the Coppell, Texas-based retailer of storage and group merchandise began using Burlington Northern Santa Fe Railway and its intermodal companion, J.B. Hunt Transport Companies Inc., for inbound actions from West Coast ports to its lone DC, an 825,000-square-foot facility additionally located in Coppell. In 2010, Container Retailer decided to develop the relationship to some of its outbound movements as part of a "steady strikes" operation geared toward grouping multiple one-method hauls into round trips. It began with a pilot program masking two shops in Northern California.

At this time, the operation serves thirteen of Container Store's 49 stores, and the community is set to broaden because the retailer provides shops in cities like Indianapolis later in the year. (A further three stores are served via an intermodal relationship with Union Pacific Railroad Co. and trucker NFI Inc.)

Container Store's typical intermodal length of haul is about 1,330 miles, though Indianapolis can be served at an 875-mile stage length, whereas Chicago, an current market, is served at 900 miles.

Container Store expects to avoid wasting $300,000 in transportation costs this 12 months via the switch to intermodal, said Tom Sangalli, the corporate's logistics and transportation director. That quantity might fluctuate depending on network expansion and volume progress, he added.

Initial hiccups

This system was not with out its risks. At a window of plus or minus quarter-hour, Container Store's retailer supply schedules are among the strictest in retailing. "I've worked in retail for 20 years, and these are the tightest home windows I've ever seen," stated Sangalli.

Because the delivery schedules couldn't be changed, Sangalli's greatest concern when making the change grew to become the reliability of J.B. Hunt's draymen, the truckers chargeable for bringing items from intermodal ramps to the stores. Because the draymen had different clients to serve and other deliveries to make, the Container Store wouldn't have full management over the drayage operations' routing and scheduling. "We could not be sure if we'd be first on the listing, or second or third on the list," mentioned Sangalli.

After some preliminary hiccups, Hunt and Container Store labored out a plan where Container Retailer's deliveries would primarily be given "seniority" status. This eventually resulted in the same drivers making the identical deliveries to the same stores. While deliveries fluctuate relying on the individual store, a retailer receives, on common, three truckloads per week.

Sangalli acknowledges that Container Retailer's network is nicely fitted to home intermodal. Its shops are located in densely populated urban and suburban areas that have sturdy rail connections. As well as, the distances between its DC and its stores are long enough to make intermodal work. By contrast, many retailers have multiple regional distribution facilities located within 200 to 300 miles of shops, distances extra price-successfully served by truck.

Nonetheless, Sangalli mentioned intermodal may work properly even for those retailers with larger network density than the Container Store has. "It comes right down to attention to detail, and paying close attention to the efficiency of a selected market's draymen," he said.

That is to not say the Container Retailer is going wholly over to intermodal, however. Sangalli stated it might be impossible to change the retailer's entire outbound network to intermodal service. Container Store has 10 shops in Texas, all of which, given their proximity to the DC, should be served by truck. Its New York Metropolis facility has advanced delivery requirements which can be extra appropriate for direct supply by truck than through a rail-dray network, Sangalli said.

Regardless, Sangalli mentioned that intermodal has turn into a permanent a part of the company's outbound distribution strategy and that he'll continue to expand its position even at non-conventional distances. "If intermodal works, we'll use it and not let distance be a figuring out issue," he said.
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