No doubt about it, intermodal rail has its critics, especially in today’s down market. There is no question that the industry is suffering, but so are many other industries in today’s weak and uncertain economy. Despite the nation’s murky economic future, intermodal rail is continuing to find stability through numerous initiatives contributing to a more unified and efficient industry.

Seeing the brighter side

The intermodal industry is suffering mightily, acknowledges Tony Hatch of ABH Consulting in New York City. “While I don’t think intermodal has lost any of its share, this has been the toughest year on record for the industry.”

The problems facing intermodal today are due primarily to two factors, states Toby Kolstad, president of Rail Theory Forecasts in Portland, Oregon. Kolstad has over 35 years of experience in the rail industry. “About 70 percent of the downturn in business is attributed to the drop in imports and the other 30 percent is due to the drop in domestic sales. I don’t see the traffic picking up substantially in the future because I think retail sales of goods will continue to lag. There is just too much unemployment, debt, and an overall feeling of loss of wealth.”

Kolstad uses a statistical analysis tool to forecast future rail intermodal traffic. “It is quite accurate. I use two variables: retail sales adjusted for inflation and imported goods, excluding oil, on a balance-of-payment method.” His forecast indicates that by 2014, imports could reach the levels they were a few years ago. “But I don’t see us growing by the leaps and bounds we had in the past.”

Furthermore, Chinese and U.S. currencies will continue to realign themselves over the next several years, much as Japanese and U.S. currencies did in the 1980s, Kolstad predicts. “So I expect imports from China will be slowing even with the return to normal prosperity here in the U.S. All of which says that the intermodal traffic the railroads enjoyed from the phenomenon of West Coast imports is probably not going to return to its heyday.”

It is important to consider that about two-thirds of intermodal traffic consists of steamship containers of imports, notes Jim Giblin, analyst for TranSystems in Kansas City, Missouri. “Until the consumer starts to spend again, the overall volumes will stay pretty low for some time.”

Giblin reminds that there are two intermodal markets: domestic and international, each with distinctively different characteristics. “The domestic market competes with truckload carriers,” he explains. “The good news is motor carriers recognize the quality of intermodal is substantially better than it was 25 or 30 years ago and many intermodal lanes are able to offer truck-competitive service. This is why you see JB Hunt putting a substantial amount of its highway business on rail and the company now receives over one-third of its gross revenues from its rail intermodal business. Schneider National is following that lead. And, JB Hunt just signed a long-term agreement with Norfolk Southern (NS) in the east, similar to what they have with BNSF in the west. So I think this is a strong vote of confidence from a one-time competitor that has now said ‘let’s work together to each do what we do best.’”

Although truck is still the preferred mode on shorter hauls of under 1,000 miles, railroad service has improved to the point that some intermodal lengths of haul have come down to as low as 700 miles, particularly in the east on Norfolk Southern and CSX, reports Giblin.

Hatch adds that this is an exciting domestic intermodal story. “What the rails would call short length of haul and what trucks would call medium length of haul-that is, anything between 500 miles and 1,500 miles-has shown a few quarters of growth over the last year and a half and this segment is doing a lot better than the general economy.”

Streamlining the eastern rail network

Another significant improvement is the streamlining of the eastern rail network through the acquisition of ConRail by CSX and Norfolk Southern, Giblin continues. “This has opened up a lot of new lanes, dramatically improving consistency in service. A good example is with the NS between Harrisburg and Atlanta, which used to be a two-line haul with ConRail. Now it is a single-line haul via NS, so you don’t have to change locomotives or crews. It is an NS operation all the way, which increases the reliability and shortens the transit time.”

International intermodal moves steamship containers from U.S. ports to inland points. The Ports of Los Angeles and Long Beach have continued to deal with long-term issues like port congestion, port capacity, and the increasing cost of environmental regulations, Giblin says.

The 'Buffet' factor

Will Warren Buffet’s recent investment of $26 billion to buy the BNSF have any effect on the industry? “This won’t change anything, but it is an endorsement for the largest intermodal carrier,” says Hatch. “Buffet has a lot of political clout in Washington and he might be able to be part of the debate there over regulations and carbon issues.”

The government’s attempts to re-regulate the rail industry would be a significant impediment to intermodal growth, states Hatch. He says some feel they have been overcharged to cross-subsidize other modes. “If they were to re-regulate the industry by capping rates, intermodal would suffer. One way to resolve this issue is if those who clearly benefit from the intermodal revolution over the last decade would enter the debate. This means the big-box retailers who would not exist if they didn’t have the free-flowing container movement allowing goods to be sourced from around the world. If they say they benefit from the vastly improved rail system and demand that it isn’t touched by government, that would end the argument.”

Kolstad doesn’t believe Buffet’s ownership will affect the industry at all. “I think the competitive landscape is fixed for an indefinite future with the four major carriers (UP and BNSF in the west, and CSX and NS in the east). Railroad rates are at a point near what they enjoyed in the recent past. Operationally they will continue to improve because they have not merged or realigned themselves over the last decade. So with those years of experience, the management teams have learned how to operate their systems and they will continue to achieve efficiency improvements.”

Tax credit update

There has been talk in the industry of a federal tax credit of 25 percent for Class I rail expansion, but that idea is stalled in Congress, reports Giblin. The reason is due to some degree to the fact that Class Is have been pulling out of local communities as they consolidated offices and dispatching centers. “People don’t have the connection to the rail line in their towns with Class Is like they do with short lines and regionals, which have local ownership and have an impact on local employment.” This is why there is strong support for extending tax credit for short lines and regional railroads, which serve small towns and connect to big cities shipping to Class I railroads and to trucks.

The greener side of rail

As for the voice of green in the industry, that is probably going to remain somewhat muted, even though rail is the winner over truck regarding carbon emissions. “I don’t know to what extent businesses will go against their economic interests to be green,” notes Kolstad. “If I were a shareholder and owner, I would have some concerns.”

Giblin adds that pushing rail over truck because of the green aspect could be a nice benefit if all things were equal. “I don’t think anybody would be willing to pay more simply to use a mode that is more environmentally friendly. If you offer competitive service and competitive pricing, the environmental benefits could prove to be the tipping point moving a shipper from truck to rail. There still has to be an economic incentive and rail is that incentive.”

On the other hand, Hatch reports that some large companies are demanding a sustainability index. “Lowering your carbon footprint has moved to something that must happen and one of the ways to do this is to increase your rail percentage. The expectation on the domestic side is we will see a significant share from highway to a combination of rail and highway and companies are planning this now. We expect the government is seeing the advantage of intermodal rail and we expect they will be backing that up with funds.”

A shift in the intermodal model

Kolstad points to a new phenomenon that will occur in four to five years with the widening of the Panama Canal. “This will shift the intermodal land bridge traffic that BNSF and UP have enjoyed for so long. I think you will see more ships traveling to the East Coast ports through the canal. It’s a longer route, but cheaper. So the land bridge that the western railroads enjoyed from Los Angeles to points east probably has its days numbered.” The potential for the shift is even more pronounced when taking into consideration the increased fees at Los Angeles and Long Beach ports and the continuing labor issues each face.

So what will the shift mean for intermodal rail? “CSX and NS each are pushing their intermodal development to bring containers from the East Coast ports to deliver along the coast and into the Midwest,” continues Kolstad. “They are positioning themselves to take part in some of this container shift and they would benefit. The net loser in this would be BNSF primarily and UP to a lesser extent.” This eastern development is also preparing the way for double-stack trains.

Other instances of intermodal expansion and upgrades portend good things to come for the industry. For instance, the National Gateway and the Heartland Corridor are designed to improve intermodal routes from the Port of Virginia into the Midwest, primarily Columbus and Chicago, reports Giblin. “With the existing trend to larger and deeper-draft ships-combined with the larger ships that will fit through the new Panama Canal-a port’s water depth is very important,” he says. “The Port of Virginia has one inherent advantage that no other East Coast port has-the U.S. Navy’s Atlantic fleet. This port keeps its main channels dredged to a minimum of 50 feet to accommodate the Navy’s nuclear-powered aircraft carriers.”

BNSF’s new $200 million Memphis intermodal facility on 185 acres recently opened for business, and the expansion doubles the railroad company’s intermodal capacity there. UP, Canadian National Railroad (CN), and CSX are using newer intermodal hubs in Memphis as well, and Norfolk Southern plans to build a new $129 million facility nearby, to open in early 2012, on 570 acres as part of its Crescent Corridor-a high-speed route between the South and Northeast.

Meanwhile, the main new network in the West is based around the Port of Prince Rupert, British Columbia, reports Giblin. “This is the deepest ice-free harbor in North America and is two days closer to Shanghai, China than the Ports of Los Angeles and Long Beach. It also boasts a $400 per-container cost advantage in lower fees than these California ports.” Imports are shipped from the Port of Prince Rupert to Chicago and Memphis via the Canadian National Railroad, the only railroad offering direct service from the port to these cities. An economic redevelopment program-Logistics Park Calumet-is being developed in the vicinity of CN’s existing intermodal terminal in Harvey, Illinois, to take advantage of the new Prince Rupert Gateway, says Giblin.

Double-stacking for higher efficiencies

One of the biggest changes in intermodal is the double-stack car, Giblin reports. “They came into existence in the 1980s, which means that any terminal built before 1985 was not designed to handle them. I think what you will continue to see is replacement of existing smaller, older, and cramped facilities with larger, modern, and state-of-the-art facilities. These new terminals are mechanized to handle double-stacks with lift machines to lift and stack the boxes.”

Double-stacking was originally designed for the steamship business. Over the last 10 years the domestic intermodal business has migrated to almost 100 percent double-stacking as well.” Giblin adds that a number of truckload carriers have used railroad pricing incentives to purchase their own domestic double-stack containers. “Probably the biggest change in the last five years in the industry is the fact that truckload carriers have embraced double-stacking by investing in intermodal by buying their own equipment. So this shows that trucking companies are definitely in it for the long-term by making these kinds of investments.”

Although during the 1990s the industry faced the challenge of tunnel clearances and bridge heights not accommodating double-stacks, most major lines accommodate double-stack heights today, notes Kolstad. He adds that there is a big push, particularly in the east with CSX and NS, to remove obstacles by raising bridge and tunnel heights. The following are a few examples of corridors working on these projects.

National Gateway-This is a CSX initiative to build or expand several intermodal terminals to link mid-Atlantic ports and the Midwest. The network will accommodate the movement of double-stack railcars, doubling trains’ load capacity. Two new intermodal terminals will be built-one in North Baltimore, Ohio, about 30 miles south of Toledo; the other will be built in Columbus. CSX will invest $300 million to the project’s estimated $840 million cost. The network of intermodal terminals is scheduled for completion in 2015.

Heartland Corridor-When completed in early 2010, the project will offer double-stack trains a more direct route on the Norfolk Southern line between the Port of Hampton Roads in Virginia to Chicago. The project involves raising clearances in 28 tunnels on the NS line. Currently, double-stacks must travel a longer route around the obstacles, adding about 200 miles and a day’s transit time. This project will eliminate those obstacles.

Joliet Intermodal Terminal-According to a Union Pacific news release, the railroad is investing about $370 million for the 785-acre terminal to be completed mid-2010. Some of the numerous features include four 8,000-foot tracks with the capacity to handle the loading and unloading of 107 double-stack rail cars and six 8,000-foot tracks to allow crews to sort rail cars by destination.

On the horizon

So what does the future portend for intermodal rail? Kolstad expects the next five years to be difficult for the industry as the necessary economic adjustments are being made and as consumers begin making purchases again. “Long-haul, I think intermodal is rail’s biggest growth area.” He sees a mass move to intermodal once critical mass is reached as a result of the expected growth. “Intermodal has a bright future. The traffic segment was formally identified in the 1950s and it might be 2050 before the conversion is complete, but I believe this is where the industry is heading.”

Hatch has high hopes for domestic intermodal, even in the short-term. “Globalization over the last 10 years has proven intermodal’s case. So whether that business continues to come from Asian imports or from near-sourcing-or a return to business in the Midwest-all of this business will have the opportunity to be in a container at some point because it is a very efficient way to go.”

Giblin says that some might question what should come first-should you have the business first or make the investment first? “I think the railroads are leaning more and more toward making the investment, anticipating the higher levels of quality of service will attract new business. wt



Contributing writer April Terreri writes frequently on a variety of transportation and logistics issues.

Sidebar: One Man's Vision for Interstate 2.0

While market forces continue to push intermodal’s transformation down the track, industry advocates like Gil Carmichael, Founding Chairman of the Board of Directors of the Intermodal Transportation Institute (ITI) at the University of Denver, feel the solution to solving the nation’s 21st century transportation challenges lies in establishing a holistic approach funded by two, new intermodal trust funds-one for freight movement, the other for passenger transit, and both based on miles traveled.

During a recent industry event, Carmichael said the country needs a new transportation structure that meets the requirements of the new century and the system should be a joint public- and private-sector initiative that builds and expands upon the success of the Interstate Highway System of the last century.

“The solution to meeting this century’s challenges lies in building ‘Interstate 2.0.’ an ethical, fuel efficient, intercity, rail freight and passenger transportation system that reconnects our center cities, bus and transit lines, energizes our economy, and sustains our environment. It is a logical and necessary next step forward,” Carmichael said.

His ideas on how to build Interstate 2.0 include:

•    Develop a Holistic Transportation Policy. “Historically, this nation has had a ‘single mode’ mindset.” he said. “Our federal government and state DOTs have not addressed transportation as an interconnected, intermodal system, choosing instead to address each mode independently. That myopic approach will no longer work in our global business environment. Today, the public and private sectors need to partner and address our transportation requirements as they relate to two intermodal modes-freight and passenger rail. This involves utilizing our 240,000 miles of existing (and paid for) rail Rights of Way (ROW) and upgrading about 30,000 miles of it to high-speed, grade-separated track. We should provide the private railroads with a 25 percent investment tax credit to encourage them to upgrade and double- and triple-track their main lines to increase speeds and double capacity. A high-speed rail network that reconnects our center cities, major airports, and ports is vital to 21st century transportation and economic development.”

•    Create Two Intermodal Trust Funds. “One of the dilemmas we are faced with is: how do we pay for this intermodal system?” he asked. “We paid for the Interstate Highway System with a highway trust fund from gas tax usage. The gas tax worked well for the highway and it is about to expire. To replace it, I strongly recommend the U.S. put into place two, new intermodal trust funds to pay for this new multimodal transportation system. There would be one tax for intermodal freight movement and another for passenger transit. And it would be simple to implement cost per mile traveled rather than cents per gallon.”

•    Reorganize State DOTs to Oversee Intermodal Transportation. “With a new intermodal transportation system in place, we should reorganize our state DOTs so that we have two separate departments that are responsible for intermodal freight transport and passenger transit, respectively,” he explained. “We can no longer afford to administer effective transportation policy on a single mode basis. States would also build or lease high-speed track on the private railroads’ ROWs to allow new, modern, intermodal freight and passenger trains.”

•    Utilize Our New Technologies. “We have the technology, such as GPS and PTC (Positive Train Control), to make this intermodal transportation system work, and technology continues to advance,” said Carmichael. “High-speed tracks could be grade separated just like the interstate highways so we can safely run passenger trains at 110-125 mph and freight trains at up to 90 mph, vastly increasing freight capacity. This could cut highway fatalities by at least 50 percent and drastically reduce the stress, wear and tear, and cost of maintaining the highways, thus extending its life.”

•    Increase Freight Capacity and Stimulate the Economy. “A major public-works project of this magnitude will add millions of new and permanent jobs, will produce a prosperous economy, just as Interstate I did, and will build a long-lasting, truly sustainable transportation system,” said Carmichael. “We can electrify the rails by mid-century, producing a new source of energy and weaning ourselves off of our dependence on foreign fossil fuels. It will then be an ethical and sustainable system that increases freight capacity and protects our environment.”



In closing, Carmichael told the gathering: “A new holistic, ethical transportation policy will build upon the strengths of each mode, will reduce injuries and deaths, will be environmentally benign, will not waste fuel, will not cost too much to use, and will provide ongoing economic stability. This 21st century intermodal transportation infrastructure will use the ‘steel wheel and steel rail’-the same as it did in the 19th century-as its fundamental element of transport.” -Lara L. Sowinski

Sidebar: A New Era for Intermodal

A number of key developments on various fronts-political, economic, infrastructure- and trade-related-are driving dramatic changes in the intermodal sector that are permanently reshaping and redefining the industry.

The transformation in intermodal got its start with the Asian import boom over the last decade, believes Bill Matheson, President, Intermodal Services, at Schneider National. “That really fueled investment in intermodal rail,” he says, adding locomotive capacity, additional tracking, and improving networks.

At the same time, service and reliability have also improved significantly, says Matheson. “There wasn’t a ‘truck-like’ experience out there before,” he explains. But, that’s also begun to change; increasingly, intermodal rail is playing a more prominent role in just-in-time supply chains.

According to Adriene Bailey, chief commercial officer for Pacer International, the market is ripe for premier intermodal products that offer shippers a viable door-to-door service. In November, Pacer signed a new agreement with Union Pacific Railroad that solidifies the relationship between the two companies. For Pacer, the benefits include exclusive positioning on UP’s network and access to preferential pricing.

The Hub Group is also using UP for the majority of its western intermodal freight, and the cost savings are considerable, report analysts.

And when it comes to costs, one of the most volatile components is fuel, which because of the recession has not been at the forefront of shippers’ minds lately. However, hardly anyone believes that fuel prices won’t be heading higher once the global economic crisis subsides, and that’s where intermodal rail has another edge over truck transportation.

Brian Avery, senior vice president of the Hub Group, told members of the Los Angeles Transportation Club last year that when growth returns, intermodal rail industry will lead the way because it’s more efficient in terms of fuel consumption, price, and environmental friendliness, especially for hauls of more than 1,000 miles. - Lara L. Sowinski