Drafting a new blueprint for intermodal

Intermodal shipment volumes continue to grow as changing economic conditions make the multimodal approach more attractive than ever.

By Jeff Berman, Senior Editor -- Logistics Management, 5/1/2006

It may not be considered "hot" news, but the steady, consistent growth of intermodal transportation deserves a fresh look from shippers who are looking for more options for moving their freight.

According to the Intermodal Association of North America (IANA), intermodal container and trailer volumes have been on the rise for 16 consecutive quarters—four years all told. In 2005, total intermodal volume came in at 3,558,371 units, topping 2004's tally by 5.5 percent. The sector's momentum has been fairly consistent over the last few years, with annual increases of 6 percent, 6.4 percent, and 8.6 percent from 2002 to 2004, respectively.

Based on the numbers, intermodal transportation appears to be alive and well. There are several reasons behind the continued surge, say industry insiders.

Thomas C. White, director of editorial services at the Association of American Railroads, says the main growth drivers are international trade and the run-up in fuel prices over the past few years.

"A few years ago, we estimated that half of our intermodal business [for United States Class I railroads] was related to international trade," says White. "What international trade requires is moving large volumes over long distances, because you are having to move U.S. exports from plants that are often hundreds or thousands of miles from a port, and you have got to get it [to a port]. At the same time, you have got to move the imports to the domestic markets, which are not necessarily located near the ports. So you have to move large volumes over long distances, and this is something that [intermodal] does quite efficiently."

As far as fuel prices are concerned, White notes that the amount of fuel it takes the railroads to move one ton of cargo for one mile is one-third of that required by trucks, a fact that makes intermodal an especially attractive option at a time when fuel prices are reaching near-record levels. The trucking industry's continuing driver shortage also makes intermodal a viable option, he says.

"These things encourage the use of rail intermodal by trucking companies, steamship lines, and 3PLs (third-party logistics companies)," says White. "It allows the trucking companies to make better use of drivers so they are not spending more than two or three days on the road."

Another factor behind continued intermodal growth is the overall strength of the U.S. economy, which can largely be attributed to consumer spending and a desire for imported merchandise, says Thomas Malloy, IANA's vice president of member services and business development. After several years of congestion and delays moving cargo from West Coast ports to inland destinations, shippers were a little wary of intermodal service. But infrastructure and productivity improvements by ports and railroads, along with shippers' initiatives to spread out the ports they use, have helped to combat congestion. That in turn has alleviated service failures and capacity problems, such as the backup at the ports of Los Angeles and Long Beach in 2004.

Making headway against such problems has been critical to increasing shippers' acceptance of intermodal. That's because time is money, and shippers will shy away from any mode of transportation that costs more and takes longer.

"The basic model [for intermodal transportation] is the same as it has always been," observes Curtis E. Whalen, executive director of the Intermodal Carriers Conference of the American Trucking Associations. "It is a cost-benefit, bottom-line approach."

Because time and cost are their top two concerns, factors such as distance, transit time, capacity constraints, and fuel pricing typically influence shippers that are considering turning to intermodal transportation. "Shippers need to determine what [method of transportation] offers the best bottom line for them," says Whalen. "Intermodal's pricing model is fairly traditional. It is just a question of processes, in terms of getting a good combination of time, value, delivery, and service costs."

P&G Takes to the Rails

Using intermodal transportation to help it stick to the bottom line is a strategy that consumer-goods manufacturer Procter & Gamble Company (P&G) has relied on for many years. The Cincinnati, Ohio-based manufacturer of such well-known products as Pampers diapers, Tide detergent, and Head & Shoulders shampoo typically uses intermodal in two different situations. The first is long-haul distances of 750 miles or more, and the other is for short hauls of less than 600 miles.

"We use long-haul intermodal when we move a product like Tide from our manufacturing facility in Lima, Ohio, to somewhere in California," says Jody Lowe, P&G purchasing group manager. Short-haul intermodal is especially helpful when P&G is shipping to a large city like New York, because the local drayage drivers who pick up the trailers at the destination rail ramps tend to know those cities better than the long-haul truck drivers do, she explains.

For the more than 15 years that Procter & Gamble has been using intermodal to deliver its products—whether to Boise or to the Bronx—the company has focused mostly on long-haul lanes. That's because it adds the most value for customers and consumers alike, Lowe says.

To make sure it is getting the best value for its transportation dollar, P&G has become savvier about how intermodal works. So even when distance and cost suggest that intermodal would be a good choice, Lowe and her colleagues recognize that other factors may make it less attractive.

For example, there may be a lane that looks ideal for intermodal transportation, until it is discovered that service only runs four days a week. "That does not work for us, because we are a 24x7 shipper moving 3,500 truckloads per day from manufacturing plants and DCs, and we cannot afford to have any delays," Lowe says. "We need to be sure we are using modes that are running when we need them to be."

As a result, intermodal is just one piece of the company's overall transportation strategy. "Our business is growing and we have an increased demand for transportation," says Lowe. "But at the same time, there are some issues, such as the growing rate of truck driver turnover and the hours-of-service regulations (which restrict the number of hours drivers can work)," she continues. "It is important for us to find the most efficient and effective way to ship our products to our customers and to consumers. We think intermodal transportation is a good solution because it is more cost-effective than other options and makes the best use of trucks and drivers [and to free up truck capacity]."

Advice From P&G

For shippers who are considering using intermodal transportation to move their products, Lowe recommends conducting a thorough assessment of their transportation needs to determine where—and whether—intermodal fits in.

Intermodal freight rates often are less expensive than those for other modes covering the same lanes. But aside from costs, Lowe says, shippers need to think about the potential effect on their supply chains of intermodal's transit times, which typically are longer than those for truck transportation.

One of the challenges Procter & Gamble has confronted when using intermodal transportation relates to the railroads' reliability. The increasing demand for intermodal service over the last seven years has made it difficult for railroad operators to consistently meet shippers' transit time requirements, Lowe says.

That issue has prevented P&G from increasing its usage of intermodal to the extent that it would like. But the shipper still sees plenty of potential cost and service benefits in intermodal and plans to rely on careful analysis to make the most cost-effective and appropriate use of this transportation mode. As Lowe explains: "From our perspective, intermodal is a piece of our strategy that we want to grow, and we are working toward making it more successful within our business in the coming years."

LM Readers Like Intermodal

The Intermodal Association Of North America may have Logistics Management readers to thank for the fact that intermodal shipment volumes continue to grow. More than one-third of the respondents to a recent online reader survey said that their companies' intermodal usage has increased over the past year.

When asked why they are using more intermodal, 59 percent said they are trying to reduce freight costs. Thirty-four percent said it is because they are moving more import cargo away from ports, and a few are attempting to avoid highway congestion. Other reasons cited included less-than-truckload and truckload capacity issues, increased rates for various modes of transportation, and higher order volumes, among others.

While it is apparent that intermodal increasingly is appearing on shippers' radar screens, the most telling statistic is that 61 percent of survey respondents said that intermodal would be a more integral part of their transportation planning in the future. Chief among their reasons were lower freight costs, dealing with port congestion, and truckload capacity constraints.

Cost is a big factor for luggage manufacturer Weekenders USA in Vernon Hills, Ill. Distribution Manager Richard Goone is a big believer in intermodal and says that it is hard to overlook the cost benefits it offers. "Shippers are looking for alternatives to paying high truckload rates, along with fuel surcharges, as well as looking for ways to alleviate the capacity strain that many of them are feeling," he says.

Another reason why Goone likes intermodal is that he can negotiate and lock in pricing for lengthy periods. That makes it easier to know what his costs are going to be up front, he observes. "Right now it is difficult to get those numbers on truckload moves," he says.

For Seaman Paper Company in Orange, Mass., intermodal is a sort of lifeline that supports the manufacturer's international business. "The key to my company staying in business is importing and exporting more," says Frank H. Hogan, corporate traffic/logistics/warehouse manager.

Seaman also relies on intermodal for some of its domestic business because of the attractive rates it offers—as much as a 45 percent savings compared to other modes, according to Hogan. "The savings are tremendous, especially on truck routes," he says. If a customer does not need its order for 10 or more days, the cost factor makes it hard to not use intermodal, he says. But if customers need shipments sooner, they go by truck.

While intermodal is rich in benefits for both companies, the two managers say there are some issues shippers need to take into consideration when deciding whether or not to use intermodal.

For Hogan, dealing with ramp congestion during the peak import season, from September through early December, can be a major headache.

Goone, meanwhile, suggests that shippers be realistic about the total time required for intermodal moves. "You need to prepare for the time it takes to drop and retrieve your trailers from rail yards and ports," he says. "And when you work with specialized carriers that move freight to and from rail yards and ports, they tend to get spread a little thin as container volume increases."