THE RISING APPEAL OF CROSSBORDER INTERMODAL SHIPPING
In mid-September, Schneider National announced that it had obtained the green light for streamlined Customs clearance for select commodities moving to Mexico at Kansas City Southern Railway’s intermodal terminal in Toluca, some 40 miles from Mexico City. This moved the inspection for peat moss, soybean flour, pet food and cream substitutes from the border to the inland location under a pilot program with Mexico’s food and drug administration. Upon completion of the program, Schneider expects other commodities to be added to the list.
“This seamless border crossing saves time and is a more cost-effective alternative since there are fewer handoffs during the move,” declares Bernardo Rodarte, Schneider’s vice president, Mexico division.
Paul Smith, president of XPO Logistics Intermodal, reports that intermodal traffic heading south across the border is on the rise.
“Intermodal is stronger than ever into Mexico,” Smith notes. “One significant driver is the expanding production capacity with auto manufacturers. We’re also seeing volume increases related to other types of hard goods, such as appliances, electronics and footwear.”
Compared to Mexico, U.S.-Canada flows have been more muted, Smith adds. Still, operators have ramped up intermodal capabilities in this trade lane. CSX Transportation implemented a door-to-door service from Atlanta to Valleyfield in Quebec this year that includes on-site customs inspection and expedited border clearance. Schneider introduced intermodal service between the Southeast and Montreal on a route that bypasses the Great Lakes states.
“We saw a desire for capacity, especially for our customers in Montreal who would ship containers northeast via intermodal to fill in tough service lanes,” said Jim Filter, Schneider senior vice president of Intermodal at the launch of the service. “This additional lane opens up possibilities for current and new customers to ship product quickly and more efficiently to the Southeast instead of by truck and trailer.”
According to Smith, the more rapid expansion of intermodal options into Mexico has benefited from a shift in production as well as increased investment from both U.S. and Mexican rail operators.
“The two primary drivers are interrelated: rail infrastructure investments and near-shoring,” he says. “Near-shoring continues to be the No. 1 tailwind for crossborder intermodal. A number of manufacturers that had been Asia-based are shifting production to Mexico to cut labor and transportation costs, shorten cycle times, reduce inventory in the pipeline and move production closer to end-customers. Mexico’s two rail operators have responded to this opportunity by upgrading interior lines, expanding intermodal yards and increasing capacity.”
U.S. rail companies have opened a host of new intermodal routes over the past two years. CSX underscored its stronger focus on the sector when it rebranded its national door-to-door service and established a service recovery team to ensure loads arrive on time. According to Dean Piacente, vice president of Intermodal, this was an industry first.
Moreover, multimillion-dollar investments in network and infrastructure upgrades from the railroads have elevated their service levels and reduced transit times. At the same time, question marks over the trucking industry—from driver shortage (particularly hitting the long-haul sector) to the impact of new legislation mandating data logging—have added to the appeal of intermodal solutions.
A white paper published this past summer by intermodal service provider J.B. Hunt also highlights substantial service improvements from rail investments as a big driver for the rising appeal of intermodal solutions.
“Coupled with scalable capacity and predictable schedules, intermodal’s overall cost effectiveness makes it a must-have for shippers managing supply-chain efficiencies and costs,” said Terrence Matthews, executive vice president and president of J.B. Hunt’s Intermodal division, at the time the white paper was released.
J.B. Hunt invested $534 million in 2015 net capital expenditures for trucks and trailing equipment and budgeted to invest another $468 million in 2016.
“Intermodal can make sense for just about any product where you have at least a full container-worth of dry or non-perishable goods,” Smith says.
“For a shipper, typical considerations are transit time and the reliability of other supply-chain relationships. For example, it helps if the shipper has suppliers at the ready to meet ship windows. Other factors are the flexibility or rigidity of the supply chain, the timing and profile of capacity needs and the ability to forecast production flows. All of these factors come into play in an intermodal purchase decision.”
Smith lists cost efficiency, security and the Customs clearance process as the three key advantages of intermodal solutions.
“While intermodal tends to be somewhat slower than trucking, it’s generally more economical, even with the drop in fuel prices,” he explains. “It’s also better for the environment. From a security standpoint, intermodal boxes stacked on a container car are very difficult to breach. The containers can clear customs once inside Mexico, which avoids congestion at the border.”
While transit times have improved, they are slower than direct trucking services. One industry executive says focusing on speed misses the point, arguing that schedule information and integrity matter far more.
Smith points out that the imbalance in import and export flows are a challenge for intermodal operators, both in terms of empty miles and positioning containers where they are in demand.
“The city of Guadalajara is a good example of the challenges that stem from trade-flow imbalances,” he says. “Guadalajara has more outbound freight than inbound, so pricing is stronger outbound. When capacity gets tight, some shippers are willing to pay to reposition equipment to service outbound loading cities like Guadalajara. Having balanced equipment flows in the interior of Mexico is as important as having capacity at the border.”
For all the improvements that intermodal networks and the infrastructure that supports them have seen in recent years, there are still performance issues. Shippers have complained about bottlenecks (especially around Chicago), about slow unloading of trains and interchanges that can take as many as four days to complete. In many cases dwell times of intermodal shipments at major interchange points have still been too long for comfort, and rising volumes threaten to aggravate this problem, shippers have warned.
Problems lurk at the border, too.
“For crossborder shipping, it’s important to use an experienced carrier that has strong relationships with brokers at the border,” says Smith.
“Even more important, consider your entire supply chain when evaluating intermodal. “Ideally, you want to ship with a multi-modal provider that offers more than just intermodal.”
For instance, to expedite the flow of parts into Mexico and avoid a plant shutdown, a company like XPO can divert shipments from rail or truck to air transport, he notes.
IS WORKING TOWARD A SUSTAINABLE
GLOBAL SUPPLY CHAIN A GOAL FOR YOUR COMPANY?
72.2% | Yes
27.8% | No
LEARN FROM THE PROS…
WHAT SHOULD SHIPPERS AND LOGISTICS PROFESSIONALS LOOK FOR WHEN CHOOSING AN OCEAN CARRIER TO AVOID HAVING SHIPMENTS HELD UP DUE TO BANKRUPTCIES?
“Start by looking at the financial statistics like revenue, long-term debt levels and working capital levels. Second, pay attention to industry updates and announcements related to charter payment vessels and payments to key vendors by an ocean carrier. Last, and most important, understand the alliances for the carrier. Although you may have booked your cargo with a financially solvent carrier, your container may actually be moving on a less stable carrier through the vessel sharing agreement.” – Derek J. Leathers, President and CEO, Werner Enterprises
ARE ADVANCEMENTS SUCH AS DRIVERLESS TRUCKS, 3D PRINTING AND DRONE DELIVERY OVERBLOWN, AND IF NOT, HOW SHOULD SHIPPERS BE POSITIONING THEMSELVES TO TAKE ADVANTAGE?
“They are not overblown. The future creates the present and shippers always must be on top of what the next advancement might be.” – Scott Weiss, VP of Business Development, Port Logistics Group
DO YOU EXPECT HYPERLOOP OR OTHER POTENTIAL LOGISTICS INNOVATIONS TO ALTER THE LOGISTICS LANDSCAPE WITHIN 15 YEARS, AND IF SO, HOW?
“Yes, by minimizing delivery times at reduced costs.” – Allan J. Miner, President, CT Logistics
CSX Customers Invested $9.5 Billion in 2016