Why CEOs Are Focused on Their Truck-to-Rail Connections

When Roy Paulson, president and CEO of Paulson Manufacturing Corporation in Temecula, California, steps outside his facility, he can hear the truck traffic on nearby Interstate 15.

“It’s that close to me,” he says. “I’m sitting right next to this big, beautiful interstate. It’s wonderful. Transportation issues for me are not a big factor because we have this good system. So I’m in good shape. Interstate 15 runs north and south all the way up to Canada. We export to Canada and that all goes up there by truck.

“All of our exports start by highway because I don’t have direct access to rail. So everything has to go from here at least 60 miles by highway before it can be loaded onto rail.”

When Paulson’s family-owned business, which manufactures safety equipment specializing in eye and face protection, was incorporated back in 1947, the lack of a good highway system “was a holdup for us, a real problem,” he says. “But now it’s no longer a problem because of the increase in speed [limits] and the number of these interstates. Our key thing in California is the interstates. The railroad system is secondary for me in my own personal business.”

But when an export destination is Europe or the Middle East, rather than Asia, he explains, containers are carried by truck to a rail connection and then go by rail to a Texas port.

“I’m about 25 percent export sales out of total sales that this year will be about $17 million,” points out Paulson, who is a member of the President’s Export Council, the California Chamber of Commerce Council for International Trade and chair or vice-chair of four different California export-focused groups.

Sacramento, California-based McWong International Inc., which has divisions for energy-efficient lighting and environmental equipment, manufactures in both China and, increasingly, the U.S. The company also purchases heavy environmental equipment in the U.S. for sale to China, most recently making a purchase in Chicago for shipment to China through the Port of Long Beach.

“We had to use rail because of the distance and this equipment is very large,” explains CEO Margaret Wong. “Rail is very important. There aren’t any problems with rail. The rail system’s logistics are pretty good, except that it’s quite expensive and it’s getting more and more expensive. But the system itself is well managed because we have shipments coming from different directions and consolidating in Long Beach. So it’s all workable.”

Paulson, however, charges, “The poor rail system is choking off the imports and the exports of the United States between the Port of Los Angeles and the rest of the country. There’s a choke-point there. There’s an urgency to improving this rail system to the port.”

But Jim MacLellan, director of Trade Development for the Port of Los Angeles, defends the railways.

“Two railways serve the ports [of Los Angeles and Long Beach]—Union Pacific and Burlington Northern Santa Fe,” he says. “The railways keep their equipment up to an excellent standard and they’re always investing in their equipment. We get 100 trains a day of cargo containers. We don’t have any waiting lines and we don’t have any backlog.

“The infrastructure does need upgrading all across the country,” he admits, “but we’re still able to operate fairly efficiently. We need some investments. There’s a new bridge [that’s] going to be built at Long Beach. That’s a fairly substantial investment. So efforts are going on to improve the infrastructure.”

Any problems are mostly highway related, he notes.

“We have two highways,” MacLellan says, “110 goes to the L.A. Port and 710 goes to Long Beach, and sometimes 710 does get a bit congested.”

Some relief was provided a few years ago, he explains, when terminal operators instituted a special fee for containers picked up or delivered during the daylight shift, a fee that is not charged during the second shift.

“That shifted at least 30 percent of the cargo to the second shift,” he says, “eliminating a lot of congestion.”

Truck, rail and port scheduling, says Paulson, is tailored around when the customer wants the product and the time it will take to get from the foreign port to the customer’s location. After determining the latest and safest port arrival time, the latest ship departure date from a U.S. port and the delivery deadline are determined. Finally, Paulson continues, the time for making a rail connection and then a truck delivery to either the rail or port is established, as well as the truck pickup time from the manufacturing facility and the product completion deadline.

“It’s called backwards scheduling,” he says.

Meeting these deadlines “becomes crucial,” he notes, because, if there are any delays, “letters of credit can expire” and “sometimes you’re charged for storage.” So logistics is all-important.

For Paulson, like for many other company heads, the freight forwarder, who arranges everything, is “key,” and he says developing a close personal relationship with that person is the number one job for sales managers.

Memphis-based project location specialist J. Michael Mullis says that for the large projects for which he finds sites, the top criteria is logistics—“How we receive product and components and then how we distribute final product to the customer base, whether it be U.S. or global.”

For many, rail is important, but “access to highway is critically important, either U.S. four-lane highway or interstate highway,” he says. “Those projects will generally be located within a 10-mile access to an interstate system in order to move products quickly over a seven-day basis every week.”

Rail, he points out, is “critically important” for shipping high volumes of heavy manufactured goods, because costs are lower than for use of trucks.

“The challenge you have in the rail system today,” Mullis says, “is that all the Class One rail systems are at capacity or above capacity. So when you’re siting projects that have major rail needs, even though you may have rail next to the site, can you use that rail, can you access that main line rail that has so much traffic that the railroads really don’t want to slow them down? That pushes many of the projects to look at short-line systems where they’ve got a really good, high level of service and reliability on short-line rail that will be tied back into the Class One rails.

“Generally you will be looking for sites that are served by mainline rail but are not necessarily adjacent to mainline rail.”

And in addition to inland river ports, there are inland ports that are not river ports, Mullis explains. These include such ports in the Greenville-Spartanburg area of South Carolina and near Cordele, Georgia, each located where major interstates link with major rail lines for transferring goods from truck to rail for delivery to deep-water ports.

“Logistics,” concludes Mullis, “is what it’s all about today.”