The Intermodal Association of North America (IANA) reported an increase of 4.7 percent in total intermodal traffic in the third quarter of 2013 compared to the same time period in 2012. Continuing to lead intermodal growth, domestic container volume increased for the 2013 third quarter by 9.4 percent when compared to third quarter 2012 volume. All domestic equipment experienced a 7.6-percent gain in the 2013 third quarter, including a 1.2-percent boost in intermodal trailer volume for the same period.
The increase in total intermodal traffic for the 2013 third quarter was also caused by a slight rise in international volume by 2 percent over 2012 third quarter volume. A slow but steady growth trend may be expected for the international market if jobs, consumer spending and/or the broader economy accelerate, according to IANA.
The third quarter of 2013 marked the first time that international shipments were outpaced by seasonally adjusted domestic shipments. Joni Casey, president and CEO of IANA, said, “For the tenth quarter in a row, domestic container volume flexed its muscles and has outpaced international shipments driving the gains in total intermodal traffic. It is also worth noting that the trailer segment grew in all three months of the third quarter, reversing three years of decline and contributed to domestic growth.”
What are the factors contributing to the sustained growth in intermodal business?
The U.S. is still a major manufacturing centre
Companies responding to a survey by the Massachusetts Institute of Technology (MIT) reported that 52.6 percent of their manufacturing and sales are U.S. based. China ranks second with 21.1 percent. The 2012 study (U.S. Re-Shoring, A Turning Point) showed that when North American locations were combined, the total was 61.8 percent.
One third of respondents said they were considering re-shoring and 15.3 percent said they definitely planned to re-shore some manufacturing. Top reasons for re-shoring were time-to-market, cost reductions, product quality, more control, and hidden supply chain management costs. Manufacturing is going through a “genuine transformational period,” according to the study’s authors. The drivers are well known: volatile fuel costs, labor costs rising in developing nations, automation, and risk.
Intermodal traffic is largely manufactured goods and consumer goods, including both domestic and import/ export moves. U.S. manufacturing has been showing some strength, according to the Institute for Supply Management (ISM). In the most recent report on the manufacturing sector (through September 2013), the Institute of Supply Management notes that its PMI registered 56.2 (a figure above 50 indicates growth). This is the highest figure for the manufacturing PMI in 2013 and the highest since April 2011.
Investment in Last Mile Operators
The challenge for intermodal is not managing the long-haul that had been handled by truckload; it is reaching the final destination — completing the door-to-door move. Tom Sanderson, CEO of Transplace acknowledged that his 3PL was not adding sufficient value after the non-asset based company acquired Celtic International, which manages over 100,000 pieces of rail-owned equipment and ISO containers.
The key, he said, is in providing the door-to-door services, which means mastering the dray and dealing with the complexities of true door-to-door. In doing so, it followed the lead of Hub Group, which acquired drayage and truckload services company Comtrak in 2006. The non-asset or asset-light third parties have increasingly invested in acquiring access to the assets that will permit them to ensure high levels of service in the last mile.
Truckload carriers that identified opportunities in intermodal had that advantage and more in the fact they had power units and drivers across the country that could handle the first and last mile of an intermodal move. This has actually extended the reach of the dray in some cases, allowing shippers and consignees access to intermodal ramps that are not just within the commercial zone limits of most drayage carriers. The combination of a longer haul to or from the ramp has helped make shorter haul rail moves feasible in some intermodal lanes.
Better Service Drives Organic Growth and Changes to Supply Chain Design
Some shippers may recall the times when they never knew the precise transit time of an intermodal movement. “Twenty years ago, shippers perceived intermodalism as unreliable,” says John Lanigan, executive vice president and chief marketing officer for Fort Worth, Texas-based BNSF Railway
“That’s no longer the case,” says Dave Howland, vice president of land transport services at supply chain management provider APL Logistics. “Today, all the railroads measure on-time service to the minute.” As one example of the excellent service found on the rails these days, Tommy Barnes president of Con-way Multimodal, the truckload brokerage company of Con-way Inc. cites BNSF Railway‘s Los Angeles-to-Chicago corridor. “That offering competes heavily with truck, and provides service at the same—if not a better—level,” he says. Although regular intermodal service often takes one day longer than OTR in the same corridor, railroads can close that gap with expedited services. “Expedited rail is equal to, or faster than, over-the-road transit in every instance,” Howland says.
“Intermodal services are becoming more dependable, with most service lanes in the high-90 percentile for on-time delivery,” says Howland. “Industries across the board are coming to us. If fuel costs stay high and the driver pool remains tight, intermodal will be more competitive in the 700-mile length of haul. In the eastern United States, it is used for even shorter distances.”
Some companies are looking to locate even closer to intermodal ramps so they can radically reduce trucking costs. John Lanigan, executive vice president and chief marketing officer for BNSF Railway, cites retailers that move a high volume of low-value product and can pad the bottom line by using rail. Craft supply retailer Michaels Stores, for example, has a major distribution center near BNSF Railway’s intermodal facility in Fort Worth. Companies that locate DCs in these areas can greatly reduce drayage time and expense.
Innovation
Intermodal is now being used to replace more costly less-than-truckload (LTL) services. “Because service times have improved so much, shippers can now use intermodal for pool distribution,” notes Barnes. That means combining multiple LTL shipments to make a full containerload, putting that container on the rail to a service center in a distant destination, then using trucks to deliver individual shipments to their final destinations.
APL uses this strategy as well, relying on software called ShipMax to build LTL shipments from different customers into optimized truckloads. In one case, the carrier used the software to match two customers that made a lot of LTL shipments as well as full truckloads that, in one case, hit the legal weight limit before the truck was full and, in the other, filled the truck before the load met the legal weight limit.
By combining their loads, the shippers make better use of capacity. “For every four loads the two of them were shipping, they’re now shipping three loads, reducing their costs by 25 percent,” Howland says. And because those combined loads move via intermodal rather than OTR, the shippers save an additional 25 percent.
Several other factors have made intermodal more popular. One is the introduction of refrigerated 53-foot domestic containers, which NFI Intermodal was the first to use in the United States. Railroads have carried dry domestic containers since the early 1990s. “But until NFI introduced the 53-foot refrigerated container, all temperature-controlled intermodal in the United States moved on trailer or flatcar,” says Webb. That made the economies of double-stacking unavailable to refrigerated loads. Today, companies shipping temperature-sensitive loads can reap the same advantages as companies that ship in double-stacked dry domestic containers.
Some of those companies can skip refrigeration altogether by using another innovation: a new generation of insulating blankets that can protect some temperature-sensitive loads for days at a time in dry containers. Because it takes fuel to run a refrigeration unit, it’s cheaper to ship in a dry container. “The blankets also make more capacity available, because shippers are not limited to just refrigerated units anymore,” Howland says.
With rule changes and other factors affecting productivity of the long-haul trucking sector, this places rail intermodal in a position to continue to increase its role through new volume and mode shifting. In fact, Morgan Stanley Research describes the truckload sector as having “tepid industry demand.” It adds that hours-of-service-driven productivity headwinds” are hampering carrier earnings and it sees little change longer term, even if carriers are able to increase prices. The story the Morgan Stanley analysts repeat relative to the truckload sector is that despite efforts to improve their strategic positioning, truckload carriers will continue to face serious challenges from regulations and cost increases — some of which is related to driver pay and efforts to gain and keep qualified drivers in the developing driver shortage. This could further fuel the growth of intermodal transportation.
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