Intermodal: Ready To Roll
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.
Intermodal Case Study: Sunsweet Hits Sweet Spot with Truck and Rail
Intermodal transportation forms an essential part of the strategy Sunsweet Growers Inc. uses to deliver prunes and other dried fruit from its processing plant in Yuba City, Calif., to an assortment of third-party distribution centers. Distance determines which lanes Sunsweet services via intermodal and which by over-the-road truckload, says Melanie Foster, distribution and transportation manager at the 400-member growers’ co-op.
A combination of truck and rail delivers containers full of product to five warehouses located in Dallas and points east. But for the short hops to three West Coast facilities, truckload is the most economical choice.
To pick up a load, one of Sunsweet’s intermodal marketing companies (IMCs) sends a container to the Yuba City plant. “We load the container just like we would load a truck,” Foster says. “The container then moves to the rail yard, where it’s lifted off the chassis and put into a train.” At the destination city, the container is transferred to a truck for the last leg of the trip to the warehouse.
This pattern holds for nearly all Sunsweet products. “We use over-the-road transport for some specialty products—for example, refrigerated products that we ship via reefer carrier,” Foster says. It’s not as easy to get refrigerated service from the railroads as it is from trucking companies. Sunsweet also might send a load over-the-road if it needs to move fast and can’t get onto an express rail service.
Besides putting containers on rail to position products for delivery to domestic customers, Sunsweet uses container ships to serve its markets overseas. The heaviest volume moves to the United Kingdom, the Mediterranean region, and Asia, but the company also ships to Australia, New Zealand, and many other locations around the globe.
The procedure for moving those loads is similar to the procedure for a rail move. “The empty container is picked up at the port, brought to our processing plant, and loaded. Then it is drayed back to the port and put on the ocean vessel,” Foster says. Generally, customers take possession of the cargo at the destination port; otherwise, the steamship line arranges for drayage to the customer.
In the domestic arena, lower cost is the biggest incentive for choosing intermodal over truckload services. “Intermodal takes longer than over-the-road,” Foster says. But if a company can align its replenishment cycle with available intermodal transit times, the choice works well.
And in lanes where express train service is available, the shipper doesn’t necessarily have to accept longer transit times. The railroads and intermodal carriers tout these services as a way to move freight at speeds comparable to a truckload move.
While Sunsweet’s intermodal strategy remains consistent from year to year, the challenges of using that mode vary, depending on equipment availability. Domestic rail transportation is subject to the same container imbalances that plague ocean shipping. Some years, for example, many container loads move over the rails from California to Chicago, but few loads make the reverse trip.
Sunsweet competes especially hard for capacity during the pre-holiday season, as containers stuffed with consumer goods come pouring across the Pacific and onto the rails. “During peak season, it’s sometimes harder to get equipment and gate appointments,” Foster says.
It’s up to Sunsweet’s IMCs to secure the capacity. Sunsweet awards individual lanes to IMCs, but it generally has a backup provider for each lane. “If one provider can’t supply us with equipment, we go to another one,” Foster says. That doesn’t work 100 percent of the time, however. In those instances, “we get the containers a few days later, and it throws us off schedule a bit,” she says. “But for the most part, the IMCs try to keep us supplied.”
Remaining flexible about the modes and providers it uses gives Sunsweet a delicious advantage.
Intermodal Case Study: Electrolux Sweeps Up Savings
If you use IANA’s classic definition, intermodal transportation is how everything that Electrolux Home Care Products North America imports from overseas gets here. Like any freight that crosses via ocean carrier, Electrolux’s floor cleaners need a second mode to get them from the port to the distribution center.
Even if you use the term “intermodal” only to describe a rail-plus-another-mode move, Electrolux is a significant player in that transportation market. The company brings 4,500 to 5,000 containers to the United States annually, and slightly more than 90 percent of them travel to the company’s El Paso, Texas, distribution center via rail, says Jennifer Hughey, Electrolux’s vice president, supply chain.
Electrolux contracts with several ocean carriers to move products from ports in Asia to the DC door. “Typically, the carriers provide an all-in quote,” Hughey says. But it’s easy enough to break out the ocean and inland components of that quote, and Electrolux continually weighs its mode choices to make sure it’s moving freight as efficiently and cost effectively as possible.
In 2008, when rail prices were on the rise, Electrolux considered a variety of inland transportation options. But ultimately, the company stuck with rail. “It’s still the least expensive and most sustainable transportation mode,” Hughey says.
Most of Electrolux’s inbound freight enters the United States through the Port of Los Angeles/Long Beach. One exception is products made in Europe, which land in Houston then travel to El Paso by truck. Some imports also go to Savannah, where they’re cross-docked for direct delivery to customers.
A container that’s trucked from Los Angeles to El Paso typically gets to the DC three to five days faster than a container that travels by rail. Still, when the company weighs speed against cost for the lane, cost usually wins.
Although Electrolux contracts directly with its ocean carriers, it uses freight forwarder DHL to coordinate with suppliers in China and book loads onto the vessels. Electrolux taps DHL’s Log-Net technology to track shipments as they move from location to location.
“We receive constant feeds about product location, when shipments arrive at the port, when they leave the yard, and when they’ve been loaded on the rail,” Hughey says. “If an issue arises, we’ll see it. But DHL will see it before we do.”
One challenge Electrolux faces in managing intermodal freight is generated by the ocean carriers. Like all companies these days, they are struggling to bring in more revenue. Some carriers have taken vessels off line, or rearranged their routes, making it harder for Electrolux to get the capacity it needs at a price it is willing to pay.
Although higher prices recently forced Electrolux to cut one carrier out of the mix, the company generally tries to nurture its partnerships with steamship companies, even through difficult times. “Obviously, we don’t want to see any company go out of business,” Hughey says. “It’s a matter of working together to create a win-win for all parties.”
Among the rail carriers, revenue problems have settled down. “We don’t see as much turmoil in our rates from the rail side,” Hughey says. Sometimes, getting enough drayage equipment to move containers from the rail yard in El Paso to the DC is challenging, but usually the land side component of the trip runs smoothly.
Although Electrolux mainly uses rail intermodal for inbound freight, the company also is starting to use that strategy for some shipments to customers. “We send a few containers a week to Canada via intermodal,” Hughey says. “We also use intermodal for some of our shipments to Walmart, if we have long enough lead times.”
Few customers build enough lead time into their orders to make rail a feasible option, but in the future, to the extent that it can, Electrolux probably will choose intermodal more often for outbound shipments. “We’re always looking for more affordable, efficient, and sustainable ways to move product. And so are our trade partners,” Hughey notes.
In fact, intermodal makes a good selling point with customers. “It’s beneficial to tell customers we’re moving our product in as green a manner as we can,” she says. “Most of our trade partners are doing what they can do to reduce their carbon footprint.”
Intermodal is a safe, reliable way to ship, Hughey says, and “the loss or damage of product is minimal.” Add in the cost savings and the chance to reduce diesel emissions, and it all adds up to a compelling argument for using intermodal on the outbound side. “It makes sense for us to use intermodal the way we are,” she says. “In the future, we’ll likely continue to increase our use.”