Intermodal Shows its Mettle
Congestion in the intermodal network puts unprecedented stress on shippers and receivers. Intermodal operators are responding with
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The intermodal network is changing—at least for the short term. But recent changes exacerbating an already stressed intermodal network and this year's unprecedented volumes during the peak shipping season could linger beyond the short term—possibly evolving into a new intermodal model.
"This probably will be the most difficult surge period in the history of the intermodal industry," says Brian Bowers, vice president and general manager of intermodal services for Schneider National, Green Bay, Wis.
Congestion could force the intermodal network into crisis mode during the late summer and early fall peak shipping season. "We see a crisis coming and it looks like when it gets here it will be with us for a long time," says James McCarville, executive director of the Port of Pittsburgh Commission. "And it will only get worse."
Everyone is trying to move products and capacity is full. Prices are rising throughout the intermodal network.
"Trucking companies are not expanding their fleets because of new engine qualifications," says George Ward, vice president of Atlanta-based UPS Supply Chain Solutions. "Until we get this all sorted out, there will continue to be capacity restraints on the system."
The infrastructure is reaching the limits of its capability, adds McCarville, "and it doesn't look like Congress will be able to appropriate much money to expand capacity, so we will have to learn to live with what we've got."
Cog in the Wheel
Several factors have contributed to network congestion such as the industry has never experienced. First is an unprecedented number of products now arriving in U.S. ports, especially to West Coast destinations such as Los Angeles and Long Beach.
"We have to get used to the fact that most everything we buy comes from China—and that is our new labor market," says Ward. As volumes continue to surge at the ports of Los Angeles and Long Beach, dwell time can last up to several days.
Los Angeles, however, is working to become more fluid, notes Bowers: "I think we have seen the worst of that corridor. The big question is, when surge hits this fall, how critical will the impact be on Los Angeles? We absolutely must keep this port fluid."
The Pacific Northwest is another highly congested area, with many problems in Portland and some in Seattle, Bowers says.
A second factor contributing to congestion is the "wheel of fortune" intermodal model. Its cogs include terminal capacity, experienced train crews, flatcar capacity, locomotive availability, and mainline capacity.
"These components drive capacity in the network," Bowers explains. "If one component is deficient, it has a cascading effect throughout the other components."
The need to run more trains to handle larger volumes of incoming containers from Asia also contributes to congestion. When the railroads have fewer train crews, the reduced availability of locomotives backs up the system.
"Terminals start getting clogged, causing railcars to move out of sync because of the backups," Bowers says. "And the mainlines get congested because the trains don't have the crews to run them."
Equipment shortages just make a bad situation worse. "We are experiencing steel shortages, so we can't even manufacture the additional containers, locomotives, and trucks the industry needs," says McCarville.
Add to this the shortages of coke used to manufacture steel and it is easy to see why rising steel prices are further impacting the industry.
Working on the Railroad
BNSF Railway says its current intermodal business is fluid, but many in the industry point to the two major railroad companies serving the West Coast—Union Pacific Railway and the Burlington Northern Santa Fe—as struggling to keep up with the numerous challenges.
Union Pacific Corporation discontinued a small portion of its intermodal traffic because of congestion issues and, in some instances, suggested to customers that they should use over-the-road trucking companies, according to John Bromley, director of public affairs for the Omaha-based rail. "There has been an upward pressure on prices because of capacity constraints," he adds.
Railway operational problems have resulted in longer transit times, which in turn, affects the productivity of available containers.
"The cycle is now longer," says Larry Yarberry, CFO and executive vice president of Pacer International, Concord, Calif., the world's largest buyer of rail intermodal services. "Normally there's always a container shortage during peak season, but now additional transit time affects moving containers back to the West Coast to deliver throughout the country again.
"Rail service has reached the bottom, and it should improve as we move forward," he says.
A shortage of train crews is placing a great deal of stress on the intermodal network, and Union Pacific has been responding. "We are hiring more aggressively than ever before," says Bromley. The railway hired about 2,400 people during the latter part of last year, and will hire about 4,200 more this year.
In addition to having to respond to the higher-than-normal volume of intermodal shipments, the railway company also had to deal with a higher-than-normal attrition rate, as a large portion of its workforce became eligible for retirement.
"In addition to replacing these individuals, we are also expanding our workforce," says Bromley.
Union Pacific's locomotive acquisition is also on a very aggressive track. "Although we are limited by the number of locomotives manufacturers can provide to us, we will be taking delivery of 270 new locomotives this year and we've taken a short-term lease on another 300 to add to our current fleet of 7,000," Bromley says. "We will negotiate for additional new locomotives as we require them." Union Pacific will also add another 6,250 freight cars to its current fleet of 87,500.
Peak Season Redefined
In addition to these operational challenges, the intermodal industry is also preparing for some major changes as it revises its definition of "peak season."
"Normally, you have less demand in the first quarter of the year, with March strong, April and May slower, then the peak starting in August and lasting through October," says Yarberry. "But this year, the volumes have been heavy all year long."
In fact, peak season seems to be evolving into the norm. "As a commodity mover, we will have to adjust to this new model by making sure we have rail and trucking capacity, and by making sure ocean containers arrive on time, says Ward at UPS SCS. "Our responsibility is to make sure we can always deliver our customers' products on time—period.
"The industry will have to monitor what's coming in, where it's coming from, and how long it takes to produce it," he says. "We will continue to respond to the changes and learn the new model."
Most observers agree the challenges facing the intermodal industry are fixable. "Business has a way of curing itself," says Ward. "Many of the East Coast ports have expanded and shippers will start using them more for shipments through the Panama Canal or around the Horn."
The Port Authority of New York and New Jersey recently became the largest port in the country to handle inbound and outbound products to and from China.
"Shippers moving freight to the East Coast will be less impacted than those using West Coast ports," says Bowers. "It may take another day or two of sailing time to get to New York, but all-water diversion continues quietly within certain segments of the industry."
A short sea component is also beginning to emerge as the industry considers the feasibility of running containerships on short routes from one point of the country to another. "This is an interesting concept to watch," says Bowers.
The two western railroads are planning a more structured strategy for intermodal operations. "For instance, the way in which empty equipment is moved into the market will be a lot more scheduled than it has been in the past," says Bowers.
Because of the higher demand for outbound capacity in Los Angeles than the local market can support, railroads and trucking lines have repositioned thousands of empty trailers and containers into the Port of Los Angeles.
"In the past, the empty trailers and containers were brought in haphazardly, and the rails would load up empties as space or trains became available," says Bowers. A more systematic approach of getting empties to ports will have empty trains operating on specific days, into specific terminals, at specific times.
Blending Truck and Rail to Combat Congestion
Schneider National offers a product that fits serendipitously into the changing intermodal model. Rolled out in 2002 as an intermodal option, TruckRail Express seems designed to help combat today's congestion.
"It was a niche market we thought would be interesting to develop at that time," Bowers says.
TruckRail Express uses Schneider trucks and runs strictly on expedited express trains across the country. "It's an intermodal service option, designed to address the needs of shippers, that moves over the highway with a single driver," he explains. "It rides on trains at a price point that's more expensive than traditional intermodal, but less costly than traditional over-the-road shipping.
"It's an option that works well for shippers who are struggling to find truck capacity, giving them some of the economic advantages of intermodal with the service consistency of truck," notes Bowers.
As of the end of May, Schneider was a full year ahead of its financial projections for the TruckRail Express service.
Another evolving solution to West Coast congestion involves shippers re-establishing all-water services directly to the East Coast from Asia, says Peter Zantal, general manager of analysis and industry relations for The Port Authority of New York and New Jersey.
"All-water service to the East Coast is a lot cheaper than shipping to the West Coast, then using intermodal to the East Coast," he says, noting that the perceived time advantage in shipping to the West Coast is starting to disappear.
Freight shipped from Asia to the West Coast, then shipped intermodally to the East Coast, and finally to a customer's warehouse, takes about 28 days.
"Now with express services coming directly to New York from Asia, that same shipment can arrive at a warehouse within that 28-day period at a cost that's about $400 or $500 less per container," Zantal says. Depending on where in Asia the shipments originate, express ships use either the Panama Canal or the Suez Canal.
Last year, for the first time ever, Asia became the largest marketer of the Port Authority of New York and New Jersey. "Traditionally, the port had been very Euro-centric," notes Zantal. "But last year, 41 percent of our cargo came from Asia and 38 percent came from Europe. We see that trend continuing this year."
Shipments into East Coast ports are competitive with shipments arriving in West Coast ports. "Our market has progressed to the point where we can receive shipments here through the Panama Canal, and ship them west intermodally almost as far as to the Indiana border within a time and cost that's competitive," says Zantal.
Challenging times often strengthen the mettle of the contenders. Such is the case with companies that continue to conduct business as usual under unusual circumstances. Companies are discovering the wisdom of using more than one intermodal corridor, especially those shippers moving high volumes of containers.
Pacific Cycle Inc., for example, receives approximately 10,000 containers a year from Asia—4,000 of which are terminated in Oakland for the company's DC there, while the rest head to the company's other DC in Olney, Ill., for distribution to the Midwest, the East Coast, and the South.
"We are feeling the congestion," says Wayne Thompson, director of global logistics for the Madison, Wis.-based company. Pacific Cycle owns the Schwinn and Mongoose brands and its largest customers are Wal-Mart, Target, and Toys R Us.
Spreading Out the Carrier Mix
Pacific Cycle has containers arriving from Asia delivered to Long Beach, where they are put onto BNSF and UP trains for delivery to St. Louis. From that point, the containers are trucked to the company's Olney DC. Containers are then trucked from Olney to customers' DCs.
Early last spring, the company began using the Port of Vancouver to handle some of its inbound containers. "We wanted to spread out our carrier mix and not be so dependent on coming through Southern California," says Thompson.
No sooner had it started using the Port of Vancouver when that port also became congested. "There's not enough rail capacity to handle inbound containers and the port was getting backed up there too—but it's getting better," Thompson explains. "In some cases we had up to 10-day dwell times."
For Pacific Cycle, continuing to serve customers without interruption was crucial. "Although the stressed network affects the length of our supply chain, we accommodate that by moving up production time so we can continue to serve our customers," Thompson says. "We're also using more carriers this year to give us more options with rail links into St. Louis."
Pacific Cycle tried all-water transit from Asia through the Panama Canal to the Port of New York, then shipped by rail to Olney from there.
"We used this with success earlier this year, but we've gone back to using the West Coast now," says Thompson. "Even though we feel peak season will be tough for everyone, we're confident that our steamship partners will ensure our containers will move through to our inland point."
Rayovac North America imports finished goods such as batteries, flashlights, and other consumer products, which it then sells to retailers. The company also is finding success in expanding its intermodal options.
"We've seen some delays from the time the ship gets into West Coast ports to the time freight is put on a railcar; we've had containers sit at the port for several days, which creates problems when you operate in a JIT delivery environment," says Tom Petersen, international transportation manager for the Madison, Wis.-based company.
Incoming products then travel to by truck to the California DC and by rail to DCs in Illinois and Tennessee.
Rayovac also uses shipping lanes docking in the Pacific Northwest, then uses intermodal rail transportation provided by Canadian National, Canadian Pacific, and BNSF.
"All of these companies have also had some major intermodal problems due to a lack of equipment," Petersen says. "Vancouver is also having trouble with containers sitting for some time on the docks."
A number of people in the industry report that a big issue of concern for this year's peak season is the lack of available empty containers throughout the intermodal network.
Trek Bikes, Waterloo, Wis., receives about 100 containers of finished bicycles, raw materials, and aftermarket products per month. The majority of products come from Asia through the Port of Los Angeles, and the remainder through the Port of Newark. Partnering with Schneider Logistics for its intermodal requirements has kept to a minimum any blips caused by the current stressed network, says Gary Ryan, corporate distribution manager for Trek Bikes.
"Prior to about three years ago, we used multiple intermodal companies to cover our needs," says Ryan. "Then we partnered exclusively with one existing intermodal supplier. We developed an understanding with them—if we are going to use only one supplier, it's important that we can count on them to meet our needs every day, because our products move 12 months a year."
"Once in awhile we do deal with some congestion in terms of getting containers offshore and into our warehouse," he adds. "But as far as our intermodal provider being able to give us equipment and get shipments out of California in a timely fashion, we have not been adversely affected for any significant length of time.
"If I moved 500 loads a day out of the L.A. basin, I am sure my business model would be significantly different than for the small amount of containers we are dealing with," Ryan says.
The company also uses some all-water service from Asia to the Port of Newark, as it operates another warehouse there.
One mode of transportation gathering increasing interest is utilizing containers on barge on the nation's inland rivers. Two organizations—Inland Rivers, Ports and Terminals Inc. (IRPT) and the Heartland Intermodal Partnership (HIP)—are working to increase awareness of these inland waterways, the majority of which are located in the Heartland region of 24 states. The region has half the nation's largest deepwater ports and all the major shallow-water ports.
Although bulk commodities have long moved via barge transportation on inland rivers, this industry is taking a closer look at shipping containers on barge.
"We see the current state of intermodal stress as an opportunity to cultivate an improved delivery system using inland waterways," says McCarville, former chairman of the board of directors for IRPT, the trade association servicing and representing the inland rivers, ports, and terminals segment of the intermodal transportation industry.
"We will work in a different way to get cargo delivered using river barges and the network of inland rivers," McCarville says.
Although container-on-barge services have been used extensively in China and Europe for years, and in the Pacific Northwest for some time, only in the last few years have commodities started to move in containers on the Mississippi and Ohio Rivers.
"Short-haul intermodal rail traffic, as well as containers on barges, will have to become more prevalent and common in order to alleviate the stresses in the intermodal system today," he says.
McCarville says the Port of Pittsburgh is working with customers to establish a barge service that would travel up the Mississippi and Ohio Rivers, delivering containers to and from the Pittsburgh area without having to use over-the-road service.
"It would primarily involve services calling on the Port of New Orleans from South America," he says. Legislation in Congress is helping to build awareness of the impact of intermodal congestion and the need to devise other strategies of moving freight, McCarville says.
"Because of the problems on the West Coast, many Pacific carriers are calling the Gulf," says Rick Couch, president of Osprey Lines, a ocean freight carrier based in Houston. "Pacific carriers are starting all-water services into the Gulf, changing the dynamics from what used to be exclusively West Coast destinations."
Couch says shippers are finding it's not prudent to entrust all their volume to one route. "Large shippers such as Wal-Mart have vowed never again to get caught up in service disruptions, such as the strikes on the West Coast last year," Couch says.
The Potential of Container-on-Barge
Osprey Lines is working to increase awareness about using inland waterways as a component of the trucking and rail intermodal network. Currently, its east-west movements are primarily petrochemical containerized shipments. In many cases, the company operates its terminals within chemical plants. It also moves steel, lumber, cotton and food products by containers on barges.
"The impact of fuel costs on ocean carriers is significantly less than it is on the trucking companies because I can spread out my fuel hit over 150 containers—whereas a trucker has only one container," Couch says.
Cleveland-based Garick Corporation is optimistic about the potential for container-on-barge service for its business. The company is a distributor and processor of sustainable natural resource products such as lightweight aggregates, wood chips, compost, topsoil, and salt used in de-icing applications. Its products are used in landscaping and other industries. Garick also distributes to large retailers such as Wal-Mart, Home Depot, and Lowe's. It currently uses several barge carriers to move its bulk shipments.
Although Garick currently does not use container-on-barge shipments, it plans to soon.
"This is a viable option for us and it's a service that up to just several months ago we hadn't thought about because it's still in its infancy," says Scott Waring, director of operations, marine/rail/terminals division. "The inland waterways system is probably the most undervalued and unrecognized natural transportation gift we have. It's by far the cheapest, safest, most convenient and most fuel-efficient mode of transportation we have available."
Facing the Future
Although the nation's intermodal health is rife with current and impending challenges, the industry is confident it will rise to meet these challenges. "Long-term, all of these challenges are fixable and intermodal does continue to grow because of the cost advantages," says Yarberry at Pacer.
The experts agree that one segment of the intermodal whole need not be sacrificed over another—for example, truck over rail or vice versa. "There's enough business for everyone," says Waring.
"There is a direct relationship between how much pre-planning is going on today and how successful that surge period will be," says Bowers at Schneider. "During this surge period, large intermodal shippers working out of southern California are not going to be able to work through this on a day-to-day basis. These shippers will need to have an overall plan."
McCarville at the Port of Pittsburgh cites the wisdom of using public funds for the purposes of congestion mitigation and air quality improvements. "Europe has been dealing with these issues for a long time and the government provides incentives for efficient intermodal models that reduce congestion and help keep the environment clean," he notes.
The industry will have to evolve to a new model of intermodalism to contend with the numerous challenges to the network.
"We will have to re-evaluate the concept of both short-haul intermodal rail and the movement of containers on barge," says McCarville. "Each of these can help solve some of the problems of congestion and pollution that are not addressed in some of the current mechanisms to fund national transportation initiatives."