WHEN TO BOOK RAIL SERVICE, AND HOW TO DO IT
THE LONG HAUL
The American railroad industry has a storied history, given the important role railroads played in the industrial development of the country. Exporters who ship their products to ports by rail have the opportunity to participate in that romance.
Of course, that’s no reason to rely on the rails to deliver your containers to port. But there are other reasons to consider, and to be knowledgeable about, rail transportation.
Rail freight rates compare favorably to trucks, especially for longer hauls, and that situation may be getting even better in the not-too-distant future. For the environmentally sensitive, rail beats trucking from the standpoint of good corporate citizenship.
Unless you’re an exporter of bulk commodities like coal or grain, which go by the carload, intermodal rail transportation is what you’ll be interested in. The typical intermodal move has a trucker—known as a dray carrier—pick up a container from your facility and deliver it to an intermodal terminal. There, the container is loaded on board a train chassis for the voyage directly to the dock.
North American railroads have seen a falloff in their mainstay coal transportation business in recent years and have been increasingly emphasizing and investing in their intermodal offerings.
“Rail service is as strong as it’s been in a number of years,” says Phil Shook, director of Intermodal at logistics provider C.H. Robinson. “The railroads are investing tremendous capital to enhance reliability and the breadth of their service offerings.”
The intermodal business of CSX, one of less than a dozen Class I railroads in North America, is currently growing at a rate of 7 percent per year.
When it comes to rates, “average inflation-adjusted rail rates were 45 percent lower in 2015 than in 1981,” says Ed Greenberg, a spokesman with the Association of American Railroads, an industry group. “That means the average rail shipper today can move close to twice as much freight for about the same price it paid 35 years ago.”
Developments in the trucking industry will likely see rates in that mode of transportation increasing in the next couple of years, a development which will also favor rail. “With the ongoing truck driver shortages and expected regulatory changes, we think truck capacity will tighten quite significantly over the next year and a half,” says Dean Piacente, vice president of Intermodal at CSX. “They will be demanding higher fees to get product to ports.” CSX runs a 21,000-mile rail network east of the Mississippi River, serving 23 states, the District of Columbia, two Canadian provinces and more than 70 ports.
“Railroads are the most environmentally sound way to move freight over land,” notes Greenberg. “On average, trains are four times more fuel efficient than trucks. They also reduce highway gridlock, lower greenhouse gas emissions and reduce pollution.” Each intermodal train takes some 300 trucks off the roads, Piacente says.
Intermodal shippers will invariably book rail freight through an intermediary. “It’s important to make sure they are dealing with a qualified freight forwarder,” says Shook. “The forwarder will book the rail portion of the haul on behalf of the shipper and will work with the steamship lines to identify the appropriate service to the destination. The forwarder will also source the container, chassis and drayage provider and will monitor the shipment from origin to destination.”
The railroads essentially wholesale intermodal services to logistics providers such as C.H. Robinson, Piacente points out. “We educate shippers on the value of rail and aggressively attempt to understand whether they have business that could benefit from intermodal,” he says. “If so, we work with an intermediary to put the package together. The complexity of the move is such that it’s important to work with a knowledgeable intermediary.”
The length of the haul is one important factor which will determine whether intermodal is going to pay off for a given move, as compared with trucking. “Our rule of thumb is that the haul should be about 650 to 700 miles or greater,” says Shook, “and that the shipper be located within reasonable proximity to the origin rail head—within 150 miles or so.”
CSX’s average export move is around 800 miles, and Piacente says the carrier’s sweet spot is located at 550 miles or greater. But he cautions against rigidity in this thinking. “Sometimes distances of 200 or 300 miles can pay,” he says. “The length of haul is important but not solely determinative.”
Rail carriers continue to make impressive investments in their networks. “Over the last five years, the freight rail industry has spent an average of $25 billion a year, and more than $600 billion since 1980, on maintaining and further modernizing the 140,000-mile network,” notes Greenberg. “Railroads are constantly incorporating new technologies to improve rail safety, including sophisticated track-side detectors that monitor train and track integrity and specialized cars that monitor track safety.”
CSX is investing $2 billion a year in its system, including intermodal facilities, in an attempt to expand the reach of those services. Intermodal has traditionally specialized in corridor services, such as Chicago to New York. CSX’s recent investments have emphasized infrastructure development at intermediary points, allowing intermodal services to become available to a broader range of shippers.
Within the past five years, CSX has developed intermodal facilities in Pittsburgh, Montreal, central Florida, Louisville and northwest Ohio. “Our investments in capacity enable us to run longer trains,” says Piacente. “This makes us more efficient and makes rail a more viable alternative compared to trucks.”
Investments in technology are also an important element in promoting efficiency and controlling costs. CSX has invested in mobile apps that help to coordinate intermodal moves with drayage drivers. The railroad has also deployed advanced camera technologies at its gates that automate the inspection of incoming equipment while it’s on the move. CSX has also made available to its customers an extensive suite of e-commerce tools that automate many of the transactions among shippers, freight forwarders and the railroad.
“Technology,” says Piacente, “is at the core of the value we provide to customers as we move things forward.”
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