Intermodal: Ready To Roll

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Although volumes dipped in nearly all transport sectors this year, a small boost in domestic intermodal points to a better future for multi-mode transportation as the economy rebounds. In the meantime, intermodal facilities are taking advantage of the lull to upgrade so they'll be ready when business picks up again.

Like all forms of commercial transportation, intermodal has taken a big hit since the start of the global recession in 2008. In the second quarter of 2009, total intermodal volumes for North America were 18.7 percent lower than they were during that same quarter in 2008, according to the Intermodal Association of North America (IANA), Calverton, Md. That's a big disappointment to an industry that has enjoyed steady growth for decades.

But the future for intermodal is bright, insists Thomas Mallory, IANA's vice president, member services and communications. More companies than ever plan to make intermodal a larger part of their logistics strategy, he says. So, as the economy recovers, more loads will make the transition from one mode to another as they move from origin to destination.

"Analysts are talking about intermodal more now than at any time during the past five years," Mallory says. "They're saying it's here to stay, it's a viable transport option and a solid offering, and if it's not in a shipper's mix of transportation options, then they're missing the boat on a few fronts."

By its classic definition, the term intermodal refers to any move that involves more than one mode—transferring freight from ship to truck, for example, or ship to rail, or rail to truck. Generally, these moves involve freight that is loaded into a container at its origin and doesn't leave the container until it arrives at its destination. Intermodal freight, however, may be "transloaded"—from 40-foot ocean containers to 53-foot domestic containers, for instance.

This "any two modes" definition is the one IANA uses; its members include carriers that provide transportation by truck, rail, and ship.

But many people use the term intermodal to refer only to moves in which rail plays a part. And, in fact, when IANA tracks intermodal volumes, it uses data supplied by six Class I North American railroads—Burlington Northern Santa Fe (BNSF), Union Pacific (UP), CSX, Norfolk Southern (NS), Canadian National (CN), and Canadian Pacific (CP). So while IANA's own definition of intermodal is broad, its statistics encompass only moves that include rail.

That intermodal volumes have fallen since 2008 is no surprise. "A large part of intermodal business is based on international trade," says Ted Prince, principal consultant at Ted Prince and Associates in Richmond, Va., and a member of IANA's board of directors.

A large volume of international trade is also based on consumers buying new homes. The mortgage crisis, combined with rising unemployment and falling consumer spending, has slashed demand for international transportation.

"Carriers moving coal, for example, are dealing with some issues," Prince says. "But those depending on people building, buying, and filling new houses are facing greater problems."

The drop in demand for automobiles is another key factor. "And it's not just automobiles themselves, it's the parts: engine blocks, tires, batteries," Mallory explains. With fewer people buying cars, fewer companies are shipping those components and the materials used to make them.

One Bright Spot

Although intermodal volume has been down overall, one sector of that market has seen an increase: domestic intermodal. As they try to cut costs, companies moving product within North America, especially between manufacturing plants and distribution centers, are more often choosing truck-plus-rail rather than making the entire move over the road. The gain in domestic container volumes has been modest—just 0.9 percent more in 2Q 2009, compared with 2Q 2008, according to IANA—but it's the only segment of the North American intermodal market that showed any gain at all.

When an intermodal service can get freight to its destination within an acceptable time frame, shippers choose that option to gain more favorable rates and lower fuel surcharges.

Shippers are also trying to reduce their carbon footprint by choosing more fuel-efficient rail services when they can. "The Environmental Protection Agency and local jurisdictions are flexing their environmental control muscles," Mallory says, "and that has captured the attention of shippers."

Whether companies will start moving more of their freight via intermodal services as the economy recovers and transportation volumes rebound will depend in part on whether carriers can meet service expectations. Congestion has caused service delays in the past.

"Prior to the recent business downturn, some key railroad corridors were running at or over fluid maximum capacity as railroad tonnage had increased around 50 percent in just the last 10 years," write Randy Garber and Peter Appel, logistics analysts with consulting firm A.T. Kearney, in a 2009 whitepaper on infrastructure investment for intermodal transportation.

Railroads are ready to meet increasing demand because they've been investing in improving their infrastructure, according to Steve Branscum, group vice president for consumer products at BNSF. During the economic good times starting in 2002, when intermodal rail business was growing by double digits year over year, BNSF, like many other carriers, built a lot of capacity.

"Now that there has been a downturn in business, we finally have that capacity in place, making it easier to operate the network," Branscum says. The improvements also will make it easier to handle more freight when volumes increase.

Some improvements have involved upgrading rail corridors to double or triple track, which allows the railroad to handle more traffic. BNSF also has been working to operate more efficiently.

"In simple terms, that means running more freight on fewer trains," Branscum explains. For example, while three or four years ago the railroad rarely ran a train longer than 8,000 feet, capacity improvements now allow for 10,000-foot trains. Greater capacity and improved productivity allow the rail to run faster and provide more consistent service.

Railroads also have been using the recent lull in demand to make rail yard improvements that will help them handle more volume in the future.

"Rail carriers are automating gates and being more prepared to maintain terminal velocity—making sure trains arrive and depart as quickly as possible," Mallory says. They're also adding wide-span cranes that can reach across eight to 10 rows to lift containers, with computerized systems to help operators find and retrieve containers efficiently.

"All these improvements are taking place behind the scenes, so when we return to more stable volumes, the system will have additional capacity without increasing its physical plant," Mallory notes.

As long as carriers can meet service expectations, shippers are likely to keep turning to intermodal as a cost-effective alternative for longer trips. Mallory recalls a recent conversation with a supply chain executive at a consumer goods company, who planned to raise the portion of his freight that moved via intermodal from less than 12 percent to 25 percent. The executive's message was: "It will be better for the company and for the environment," Mallory says. "Intermodal can now meet our high standards of transportation demand."

It looks like intermodal really is ready to roll and here to stay.

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