Piecing Together the Intermodal PuzzleJune, 2006

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Stumped by transportation challenges such as rising costs, capacity congestion, and infrastructure meltdowns? Here's a clue: try mixing up modes to see if intermodal is a fit.

Supply chain management, with all its complexities and permutations, has become a modal puzzle. How can shippers best move product—often within tight time parameters—from disparate offshore manufacturing locations through numerous distribution points to stateside customers? Which transport mode or modes is most efficient and cost effective?

Given the multiple handoffs and business partners involved in cargo exchanges, even the slightest hiccup as a result of poor communication, insufficient transportation options, unforeseen congestion—and therefore poor visibility—or lack of capacity can create problems for shippers.

Because these hiccups impact profitability and customer relationships, shippers and their transportation partners must think strategically to piece together transportation options that balance cost and service requirements.

The good news is that cargo carriers and intermediaries are now collaborating to develop innovative intermodal solutions and provide real-time visibility to supply chain partners, ultimately creating a more reliable and flexible supply chain. U.S. industry is quickly following their lead in an effort to reduce costs and access additional capacity.

"Over the past five years, railroad and truck services have started to converge. This is partly because transportation carriers and intermediaries offer an abundance of intermodal services," says Steve Weiby, vice president of C.H. Robinson, a third-party logistics provider (3PL) and intermodal marketing company (IMC) headquartered in Eden Prairie, Minn.

This growing number of experienced intermodal partners has driven greater accountability into modal handoffs, creating a more granular level of measuring performance. New metrics force better compliance and make for a more viable and reliable supply chain structure.

"Only big companies traditionally vested themselves in the complexities of managing intermodal transit," says Weiby.

But that too is changing. 3PLs and carriers are marketing intermodal services to small businesses that previously did not have the resources or wherewithal to court these solutions.

An Intermodal Crossroads

In the United States, intermodal loadings have grown steadily over the past five years. This growth suggests that carriers and intermediaries are evolving their services to meet marketplace demands.

Between 2001 and 2005, intermodal units (trailers and containers) grew from 10.3 million to 13.6 million, according to the Intermodal Association of North America's (IANA) Intermodal Market Trends & Statistics Report.

Much of this increase is attributed to growing import volume, says Tom Malloy, vice president, member services and business development, IANA. Interestingly, total IMC activities during the same time decreased from 2.4 million loadings to 2.1 million loadings. Part of this discrepancy is due to the trucking industry becoming a more integral part of the U.S. intermodal scene.

"More motor carriers are participating in intermodal activities, and carriers that own private equipment are growing through the roof," Malloy explains.

"Cost savings opportunities drive many shippers to use intermodal," says Weiby. "As long as they can get comparable or better service at a similar price, they gain considerable advantages by moving more shipments via multiple modes—especially when capacity is tight in certain markets."

Capacity Challenges

Other trucking industry issues such as capacity and driver shortages have contributed to growing interest in intermodal solutions.

"Truck capacity concerns are only going to get worse, especially as new engine and fuel restrictions go into effect in 2007. Equally challenging is finding and keeping qualified drivers," says Jim Hertwig, president of CSX Intermodal, a subsidiary of CSX Corporation, based in Jacksonville, Fla.

But the real key to intermodal growth is the continuing development of the U.S. freight railroad, especially as shippers look to shift long-haul freight from trucks to the track to achieve better economies of scale. Rail shippers are also seeking services that complement trucking, especially in deadhead markets such as Florida and New England, adds Hertwig.

"Intermodal is a core growth opportunity for the railroads. But to successfully capitalize on these new demands, they must adapt to the expectations of typical truckload customers," says Weiby.

This begins at the ports, where inbound container volume continues to spike. Shippers need greater flexibility in terms of securing capacity and engaging railroad carriers, and service providers—ports included—must utilize existing capital more effectively, and invest in intermodal interchanges to support future growth.

"In specific lanes where freight volume is increasing and capacity is shrinking, shippers have equal opportunities to leverage the breadth of smaller railroads," says Hertwig.

The Jacksonville, Fla., area, for example, is poised to become a major intermodal nexus, thanks in dual part to increasing East Coast container volume and the success of Florida East Coast Railroad (FECR), Hertwig notes.

FECR operates 351 miles of track between Jacksonville and Miami, and serves as a major cargo conduit to one of the country's fastest-growing regions. The Jacksonville-based carrier has made a name for itself in south Florida as a result of its innovative intermodal solutions.

Unlike large railroads, shortline and regional operators are able and willing to tailor their services to specific customer needs—offering door-to-door intermodal service, for example. Though Jascksonville is traditionally a deadhead market with few backhaul opportunities for carriers, truckload operators are now aligning themselves with FECR to better utilize and allocate equipment in the area.

Tackling Tricky Markets

"Florida is a tough market for drivers. Concerns about congestion and cargo theft are rampant," says David MacInnes, vice president of intermodal, FECR. "Outsourcing deliveries in this market to companies that have the resources, expertise, and breadth of services to do the job securely and efficiently is a clear advantage for shippers."

FECR has had equal success targeting retailers:

  • In 2002, it began working with BJ's Wholesale Club to deliver product direct to store. Its truck-rail-truck service was such a success with the wholesaler that the railroad now serves 10 stores directly in the region.
  • Wal-Mart recently opened a 1-million-square-foot distribution facility in Fort Pierce, Fla., where FECR has a non-operational ramp. "We opened a new intermodal ramp specifically for Wal-Mart and its carriers, which has a large distribution presence in the region," says MacInnes.
  • The carrier is also working with Home Depot and Pier 1 in Savannah, Ga. For Pier 1, FECR picks up product in Savannah, delivers it via rail to Jacksonville, then leases a driver to the retailer to make individual deliveries to its mall outlets in the area.

While railroads have historically existed within their own continuum and dictated terms specifically to meet the demands of their core constituents, bipartisanship is increasing among rail and motor freight carriers and shippers. That a rail carrier such as FECR offers customers time-definite service is a testament to intermodal's changing dynamics.

Ecolab Experiments with Intermodal

Thanks to diminishing capacity, pushing product to market has become more challenging for St. Paul, Minn.-based Ecolab, a multimodal shipper that manufacturers and distributes chemical cleaning agents and sanitizers to the health care industry.

Because a high percentage of its shipments are hazmat, Ecolab transports product via a variety of modes including parcel, LTL, TL, and intermodal. In its North American business, most of its product is produced stateside and remains there, with less than six percent exported abroad.

"We have expanded our intermodal shipments considerably," says Scott Wheeler, director of North American distribution for Ecolab. This is largely because carriers have become less accommodating of hazmat cargo.

"TL carriers are getting out of the hazmat business, and are imposing surcharges on these types of shipments. The railroad, by contrast, has been a great option for us and poses fewer capacity concerns," he explains.

Ecolab's growing dependence on intermodal is clear. Indeed, two of its top three partners for TL volume—C.H. Robinson and Triple Crown Trucking—are both intermodal companies. Three years ago, by contrast, C.H. Robinson was fifth on Ecolab's TL volume ranking.

Ecolab has also found using an IMC to be effective. Though IMC-fed intermodal traffic has remained static for the past several years, IMCs still hold value for shippers, says IANA's Malloy.

"IMCs still have a valuable business proposition, and they have more flexibility in leveraging their carriers' connections than other transportation service providers," he says.

For Ecolab, this is clearly the case. One of the advantages of partnering with C.H. Robinson is that it offers greater access to capacity, says Scott.

"In the over-the-road market, capacity continues to shrink while costs rise. It is easier for us to get 40-foot and 53-foot containers with a service provider that has multiple contacts versus an asset-based carrier with a finite pool of equipment."

Additionally, with all the inbound container business now coming into ports, backhaul opportunities returning to the West Coast are plentiful. This makes it easier for Ecolab to secure capacity.

One key challenge for intermodal shippers such as Ecolab—and others moving hazardous or time-specific cargo—is making sure they have predictability. Traditionally, railroad transit times have been unreliable—an issue that is further constrained by multiple handoffs, notes Weiby.

"One key to intermodal transportation is making sure visibility and communication are not jeopardized by mode switches," he says. "Shippers need well-defined operating procedures so they can acquire carrier events—regardless of mode—in near real time."

Preparing for the Future

Businesses courting intermodal partners need to make sure they are flexible and offer the technology necessary to drive intuitive decisionmaking.

"Visibility is key. Shippers should align themselves with partners that offer services and opportunities beyond the norm," Wheeler adds.

Case in point: Ecolab uses C.H. Robinson's visibility and reporting tools to keep tabs on shipments, especially on the outbound leg. With appropriate reporting and tracking technology that measures and records historical data, service providers are able to offer customers frequent shipment updates that better predict arrival times and keep supply chain movements flowing.

Businesses are more willing to outsource intermodal to IMCs because of these challenges; and intermediaries such as C.H. Robinson are doing their part to make their services and technologies more in line with customer needs.

Given the current transportation obstacles, as well as the growing import volumes stateside consignees face, the key to maintaining a fluid supply chain is investing in intermodal transportation infrastructure.

While much has been discussed about congestion on U.S. highways, the shortage of truck drivers, and motor freight capacity concerns, rail shippers have concerns as well. Railroad infrastructure in its current state can only accommodate a finite level of growth.

"Railroads are complex networks with many layers of capital investment, from tracks and terminals to equipment. They require a great deal of coordination and collaboration," says Weiby.

Overcoming Obstacles

And it is considerably more difficult for carriers to coordinate transportation activities when shipments have multiple handoffs. In the United States especially, poor transportation infrastructure can be a major obstacle to a seamless intermodal network.

Carriers, port authorities, intermediaries, and local government must address these transportation obstacles—especially around ports, where efficient rail interchanges are necessary for smooth transitions to inland distribution.

"Many railroads refined their networks in 2005 following 2004's record volume growth. One target of this effort has been improved lane balance. If railroads can improve balance within major lanes, this improves network fluidity and controls costs," according to IANA's Q1 2006 Intermodal Market Trends & Statistics Report.

Some carriers, ports, and government entities are making improvements. Anticipating greater intermodal volume, CSX Intermodal, for instance, is increasing line-haul capacity in high-volume lanes, doubling—and in some cases, tripling—track to manage and meet demand. Also, interchange terminals are pooling chassis to help minimize transshipment delays between trucks and rail, Hertwig reports.

Ports such as Savannah are similarly looking to develop more effective partnerships with the railroads to speed throughput in and out of their facilities.

"Our efforts will be focused on communicating our customer demand forecasts to the railroads well in advance to ensure their capacity is in line with our expansion plans within the port," says Curtis J. Foltz, CEO, Georgia Ports Authority. "Additionally, we recognize the increasingly important role of intermodal service through our ports, and have identified $75 million of expanded intermodal service capability in our 10-year capital programs."

Growing Interest in Intermodal

Intermodal growth in the United States will continue to peak as businesses look for alternative transportation solutions that ensure timely transit without compromising service and cost constraints.

The key for U.S. supply chain partners is to stay ahead of this growth curve and invest in the necessary infrastructure and intermodal partnerships to help foreign and domestic trade thrive.

For Ecolab's Wheeler the challenge is clear: "Realistically, as a country, we need a comprehensive plan for evolving our transportation infrastructure," he says.

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