Intermodal stands strong

Service failures, labor issues, equipment shortages, and bad weather plagued the intermodal industry in 1997. Who would have guessed it was a record-breaking year?

By Jim Thomas -- Logistics Management, 4/1/1998

No one can accuse the intermodal transportation market of having a glass jaw. Intermodal service took a flurry of punches recently, including rail service failures, labor unrest at ports on both coasts, and a host of weather-related problems. Last year's

unexpectedly strong demand added another damaging blow by putting strains on capacity. "Intermodal experienced two to three times more growth than anticipated," says Joanne F. "Joni" Casey, president of the Intermodal Association of North America. "The intermodal infrastructure was never intended or designed to accommodate such increases."

As bad as it was, none of these external forces delivered a knockout punch to intermodalism, the Jake LaMotta of the transportation industry. During the first seven weeks of 1998, intermodal traffic on the rails grew to 1.13 million trailers and containers, a 1.1-percent increase over the same period last year, according to the Association of American Railroads. (See Figure 1.)

Lew Rubin, president of Boston-based equipment-lessor XTRA Corp., notes that 1997 domestic intermodal volumes broke the record set in 1996. With a healthy economy, he predicts that the "intermodal market will remain steady" in 1998.

Yet many observers approach last year's totals with skepticism. Jay Hirst, executive vice president and general manager of the Clipper Group, an intermodal marketing company, says that intermodal did not fare as well as the numbers indicate.

"Dissect the information and you'll find that trailer volumes posted a slight decline," says Hirst. "And much of the container traffic was from imports and exports--these don't have the same impact for IMCs [intermodal marketing companies] as domestic intermodal moves. The numbers also masked the IMCs' increased use of truckload carriage."(See Figures 2 and 3.)

Railroad Blues

Regardless of how the numbers are viewed, observers agree that intermodal transportation would be in a much healthier position were it not for the Union Pacific Railroad's service failures. "Though our intermodal business grew 10 percent in the first eight months of 1997," says Phillip C. Yeager, chairman of the Hub Group Inc., "we were flat in the last quarter. In terms of rail service, I have never seen anything like this in my 39 years in the business."

The service failures forced IMCs to become creative in their freight operations, says Michael Jarrett, vice president-carrier operations, Caliber Intermodal, the domestic intermodal subsidiary of Caliber Logistics. "We found ways to divert freight so we could maintain our service levels," he says. "We also looked to see where there were additional days in delivery schedules. For example, we took advantage of weekends to make up time."

Woody Richardson, vice president of Schneider National Inc.'s TruckRail and OptiModal divisions, says that his company continuously sought the fastest routes. "We shifted a lot of freight to the Burlington Northern Santa Fe," says Richardson. "Even so, the service was less than acceptable last fall."

The service delays were compounded in global lanes. "Our shipments move by rail across country to the West Coast and then by ship to Asia," says David S. Movsky, worldwide business manager, maritime, for Eastman Kodak Co. "If we miss a rail connection, we might be a day late at the port. But if that day means that we miss a ship, then we lose a week waiting for the next sailing."

Oddly enough, the majority of customers seem unperturbed by the delays. A survey of Hub customers showed that 81 percent were satisfied with their service.

"We are fortunate," says Fred Kestler, vice president-sales and marketing of TIP Intermodal Services. "If a failure of this magnitude occurred in 1994, customers would have walked away."

Information Replaces Inventory

Observers attribute intermodal's ability to stay on its feet during the crisis to attractive pricing (through truckload conversions) and recent improvements in transportation and logistics systems. IANA's Casey notes that the IMCs provide a number of value-added services that could offset delays in transit times. And the rail system's breakdown may have been the most obvious example to date of information's replacing inventory. Adroit shippers, carriers, and intermediaries kept customers informed of freight delays and arrival times. With this information, consignees could more effectively schedule production, plan operations, and deploy other inventory.

"Over the past year, the railroads have made great strides in enhancing their communications," says Larry Henry, vice president-logistics of Alliance Shippers, an IMC. "One Eastern railroad now provides us with daily service reports. The Western railroads are working to provide us with these as well. This information helps us make better decisions."

The problems faced by the domestic intermodal industry have had little impact on the international sector, and many observers forecast brisk growth again in 1998. "The international market has evolved over the past decade," says Bob Connor, vice president of logistics for BDP International, a global third-party logistics services provider. "Ten years ago, the majority of the freight we handled moved by ship only. Today, 80 percent of the freight we manage is intermodal. Shippers no longer look for providers to handle plant-to-port or port-to-port moves, which involve only one mode of transportation. They want us to manage the entire process, from plant to customer."

Bridging the Info Gap

Sources agree that intermodal transportation's flexibility does create synergies with supply-chain management. Unfortunately, the industry is handicapped by a lack of intermodal-specific metrics. "There is a challenge in getting good information about intermodal traffic," says IANA's Casey. "Everyone you ask gives you different projection levels based on different information."

IANA hopes to bridge the information gap with four databases that measure rail/intermodal traffic, water carrier and stacktrain traffic, service demand, and IMC marketing activity. The rail/intermodal traffic database captures the number of containers and trailers moving through the system. It will record traffic by lane, equipment ownership, and equipment size, a measurement that allows IANA to separate domestic from international traffic.

Together, the databases will provide a complete picture of industry activity, says Casey. She expects all the databases to be up and running by the end of the year.

By that time, intermodal transportation should be enjoying a smoother ride. The toughest critics predict that rail service will be operating at satisfactory levels by the middle of 1998's second quarter. The two largest variables are the domestic economy and the troubled Asian economies. The potential imbalance in international trade could create equipment shortages.

In the domestic marketplace, IMCs continue to increase revenues by expanding their services. For example, Alliance Shippers offers temperature-controlled equipment, on-site dispatching, and truckload services in addition to traditional intermodal services.

"We are not losing interest in intermodal by any means," says Alliance's Henry. "But our customers are leading us into new markets that have shifted well beyond an IMC environment. We want our customers to think of us as a worldwide transportation service provider."

The larger IMCs have no illusions of becoming full-service third-party logistics providers, however. "A few years ago I would have said, 'Yes, that is our goal,'" says Hub's Yeager. "But the customers' demands are so great that I don't think any one company can satisfy them. We will continue to develop our areas of expertise and we will continue to compete for mid-sized logistics contracts. But I don't see us competing against the large third parties."

Hirst sees niche truckload opportunities for IMCs as well. "There is a lot of truckload freight that moves in lanes frequently enough for IMCs to make a good living," he says.

Before these opportunities can be mined, many carriers and intermediaries will exercise some damage control with customers. "The last six months was not the right time to try out intermodal," says Schneider's Richardson. "It is up to us to prove that intermodal service is better now. We're optimistic, but we'll let the results do the talking."