Modes Of Operation - Global Trade Magazine
  October 2nd, 2015 | Written by

Modes Of Operation

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Michelin is a long-standing user of intermodal transportation services. The tire manufacturer, which has 18 plants across the United States, usually pays the transportation charges both for inbound raw materials and outbound products, so the cost savings associated with intermodal have been a strong incentive for the company.

Albert Saphir, president of logistics consulting firm ABS Consulting, devised a transportation plan for shipping fruit from Florida to the Pacific Northwest a few years ago. The fruit was sent in reefer trucks from Miami to Memphis, where it was transloaded onto a train to Seattle. “Trucking all the way to Seattle would have been too expensive,” he recalls.

According to Chris Kravas, chief marketing officer of the Hub Group, the largest intermodal marketing company (IMC) in North America, intermodal prices tend to be 10 to 30 percent lower than truck rates. “Our customers use intermodal because it is a lower cost, environmentally friendly alternative to trucking that operates at or near truck transits in most markets,” he remarks.

“The cost is usually a few hundred dollars more on a pure truck movement,” says Bob Imbriani, executive vice president, International at forwarder Team Worldwide.

Intermodal traffic is on the rise. “Overall intermodal volume increased 3 percent in the first six months of 2015 compared to 2014,” notes CSX spokeswoman Melanie Cost. “Domestic volume increased 9 percent in the second quarter, which is similar to what we’ve seen the past several years. We continue to expect to grow domestic intermodal two- to three-times faster than GDP as our customers continue to see value in the rail solution and we are successful in converting more freight from the highways. Overall, the intermodal market has grown nearly 50 percent since the economy came out of the recession in 2009.”

Global logistics provider Kuehne + Nagel sees promise in the U.S. intermodal sector. In early August it took over ReTrans, a multimodal logistics firm and one of the largest IMCs in the country.

For their part, U.S. rail firms have bolstered their intermodal capabilities. Kansas City Southern completed a new intermodal terminal in Wylie, Texas, this summer. Up in Canada, CN is planning a C$250 million intermodal and logistics hub west of Toronto, as its existing facility in the area is nearing capacity. When it unveiled the plans this summer, CN management indicated that intermodal has been one of the fastest growing segments of its business. CSX, which launched a sustained drive to convert road business to intermodal a couple of years ago under the “H2R” moniker, opened intermodal centers in Florida and Quebec last year and expanded its facility in Louisville.

“Significant rail capital investments in recent years have opened many new geographic markets and have improved transits in key shipment lanes, particularly in the Eastern U.S.,” reports Kravas.

For the most part, railroads do not deal directly with shippers, though. For international moves that involve ocean containers moving most of the inland portion of their journey by rail, shippers usually deal with IMCs or with shipping lines who will arrange the rail portion of the move.

Although currently growing at a slower pace than domestic truck-rail traffic, this segment constitutes the lion’s share of intermodal volumes in North America, most of it moving to and from the main container ports on the East and West coasts. When the Panama Canal expansion is complete, Imbriani expects to see intermodal corridors evolve from ports in Florida and the Gulf of Mexico. The port of Miami is already building new rail tracks in anticipation of larger vessels and flows, he points out.

For shippers looking for intermodal transportation within North America, IMCs are typically the players to deal with, but they can also approach truckload operators like Schneider or J.B. Hunt about intermodal services and prices, notes Saphir.

According to Cost, intermodal solutions are primarily relevant for customers who move consumer goods, such as appliances and clothing, as well as industrial products and refrigerated products, including some types of food.

“Our largest customer segments are retail, consumer products, and durables. While the consumer products and durable segments have always been strong intermodal users, we’ve seen the highest intermodal growth with our retail customers in recent years,” says Kravas.

As previously noted, cost is the strongest driver in the rising interest in intermodal transportation. “If shippers can live with the longer transit time, they will put their cargo on intermodal because of the lower price,” Saphir comments.

“In shorter haul lanes of 500 to 1,000 miles, we are typically about a day slower than a pure truck move,” says Kravas. “In longer-haul, 2,000-plus mile moves, the transit difference is more like one to two days. For most of our customers, this slightly slower transit is worth it to realize the 10 to 30 percent cost savings that intermodal typically offers relative to truck.”

“In general, intermodal service can take a day longer than trucking,” Cost notes. “But as trucking remains challenged and demand for intermodal services is strong, part of the value proposition of intermodal is that our customers continue to see discounts compared to truck.”

According to Saphir, intermodal usually comes into play over distances of at least 400 miles. He adds that proximity to railheads is an important factor, as is volume. For a company that looks to ship a single container per week, the extra effort is probably not worthwhile, he figures.

To some extent, it is also a question of shrinking alternatives. Intermodal traffic has benefited from challenges for trucking companies, notably the driver shortage and regulations limiting drivers’ shifts. In part, shippers have deliberately shifted part of their traffic to intermodal providers because of these developments. Jim Gaw, Hub Group’s executive vice president of Sales, reports that some customers are retaining their trucking providers for certain lanes and increasing their use of intermodal for other lanes.

Shippers are often not even aware that their cargo moves part of its journey on rails. Increasingly, trucking firms are putting trailers on rail to cope with shortages of drivers, Imbriani says.

These dynamics are expected to continue. “Given the regulatory impacts and issues that continue to challenge over-the-road driver availability, BNSF expects and has planned for additional highway conversions on top of our organic growth and geographic market expansions such as our product offering to and from Silao, Mexico,” says Amy Casas, director of Corporate Communications for BNSF. She adds that the billions of dollars that her company and other railroads have been investing in infrastructure and equipment are boosting their intermodal capabilities.

A fair amount of investment is going into technology. As transits augment the risk of problems, end-to-end visibility is crucial for shippers, notes Saphir.

According to Kravas, the rail element has historically been well covered, and visibility on the drayage portions has been improved in recent years through the deployment of tracking technology in the power units. In addition, Hub Group is in the process of equipping its intermodal containers with GPS satellite tracking devices that will report location, load/unload status, and door opening events in real-time. “We expect to finish installing these devices on all of our fleet in the first half of 2016,” Kravas states.

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