January 2004 | Commentary | Carriers Corner

Rail Intermodal: One Arrow in Your Quiver

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At a time when demanding investors are closely scrutinizing your company's bottom line, finding solutions to reduce distribution and other operating costs seems a natural place for executive focus. Companies are also feeling an even greater sense of urgency to manage expenses due to the new Hours of Service changes.

In addition, some retail companies create an even more efficient and effective distribution system by positioning new distribution centers closer to specific consuming markets. Then, instead of tying up scarce assets by trucking product from distribution centers to local stores, rail intermodal service completes the transportation solution, which often includes " last mile” drayage services.

Finding the Right Partnership

The right partnership with a high-quality railway that offers a portfolio of intermodal services can help reduce costs in both the short and long term. But more importantly, it provides a strong marketing tool—an additional profitable growth arrow for your company's quiver.

The right intermodal solution should become an integral part of any retailer's distribution system. Retail companies that invest capital to build direct rail connections to warehouses or position new distribution centers closer to their target markets can mitigate these initial costs by reducing time to market, using employees more efficiently, reducing inventory and transportation operating costs, and better utilizing their own assets.

Rail carriers offering quality intermodal services provide truck-like service at favorable economics, especially when delivering products to consuming regions of the United States where little is manufactured or produced.

Instead of tying up drivers and assets in markets where outbound shipments are hard to find, intermodal service addresses this dilemma by allowing companies to re-deploy assets in more efficient markets. Plus, empty equipment can be quickly repositioned to heavy forward haul markets via rail, further increasing equipment utilization.

In general, retail companies that expect consistent, on-time, and damage-free service; dedicated trailer pools; and high-quality customer service are ideal candidates for truck-like intermodal service.

Intermodal not only helps control the cost side of the business, but it also helps grow revenue and increase margins. Some companies avoid challenging imbalanced markets altogether. The right intermodal solution, however, can open up new market growth opportunities and help companies grow their top line by expanding their customer base.

Retailers have been moving in this direction for some time, using rail intermodal service to transport products inland from ports to regional distribution centers and from distribution centers to actual retail stores.

In addition, some retail companies create an even more efficient and effective distribution system by positioning new distribution centers closer to specific consuming markets. Then, instead of tying up scarce assets by trucking product from distribution centers to local stores, rail intermodal service completes the transportation solution, which often includes " last mile” drayage services.

Forecasting for Cost-Effective Solutions

Closer distribution centers mean local stores can better forecast the products needed because the cutoff time for requests can now be made much later. This improves customer service, reduces safety stocks, and avoids stockouts. This strategy not only saves money, but also provides a market competitive advantage arrow for your quiver.

The right rail transportation strategy allows your company to respond to changing market demands quickly and take advantage of consumer trends. Plus, this type of transportation partnership ensures that scarce capital dollars are invested wisely on the best projects—those providing the best return on investment. In fact, rail carriers will invest their own assets to help ensure that high-quality truck-like transportation service is sustained during high surge or peak demand periods.

What about motor carriers' use of intermodal? A collaborative relationship rather than a competitive approach between motor carriers and railways would benefit both parties. Rail carriers typically provide high-quality intermodal services along routes that parallel our interstate highways system, offering an attractive opportunity for truck freight to move by rail.

Intermodal service providers, partnering with motor carriers, usually represent an excellent win/win solution. Moving freight off increasingly congested highways and into intermodal service gives carriers enhanced ability to access markets quickly and more efficiently, providing that elusive market competitive advantage.

Intermodal also helps address major public policy, or " green" issues, including reducing congestion and improving the quality of the environment. At the same time, intermodal addresses thorny cost issues such as fuel, insurance and driver turnover exacerbated by the new Hours of Service rules changes.

For these reasons, motor carriers are increasingly recognizing the economic and service benefits of intermodal and are working even more closely with rail carriers to develop intermodal solutions to help them grow with their customers.

Companies also are increasingly recognizing the role rail intermodal can play in their distribution networks. Intermodal provides a cost-effective transportation solution to move goods to market on time, safely and damage free—a potential market advantage arrow you cannot afford to have missing from your quiver.

We all need to satisfy our valued investors who are focused on cost. Let's remember that those same investors, however, are expecting profitable growth as well. Next time you are looking to reduce distribution and operating costs, explore how rail intermodal service can help improve the bottom line. The real intermodal bonus will be the marketing advantage and the profitable top-line growth you achieve.

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