Q&A: APL Logistics Vice President, Land Transport, Dave Howland

As LM has reported, intermodal—especially on the domestic side—is moving along at a fervent clip. There are various reasons for this, including high fuel prices and improving service, too, among others. What’s more, the potential for increased intermodal volumes in the future looks promising as well.

LM Group News Editor Jeff Berman recently spoke with Dave Howland, vice president, Land Transport, for APL Logistics, to get his take on all things intermodal, the mode’s growth prospects, and how a slowly improving economy can pave the way for more intermodal success down the road.

A transcript of their conversation is below.

Logistics Management (LM): How would you describe the current state of the intermodal market? What does intermodal have going for itself at the moment?
Dave Howland: Intermodal service right now is better than it probably has ever been, with the Class I railroads making a lot investments into the rail market, especially into things like intermodal terminal facilities. That is a really good thing as it had made intermodal much more competitive and also given it much more ability to convert business from over-the-road to intermodal.

LM: What are some other things that bode well for intermodal?
Howland: Higher fuel costs, which are going up again, have also made a difference. This leads to fuel discounts when you look at intermodal compared to highway because of the efficiencies of the rail portion of intermodal. This also provides a competitive advantage.

LM: How do the slight signs of economic growth portend for intermodal gains?
Howland: As we see more signs of an uptick in the economy, a little bit of a return in the housing market and infrastructure market, that requires things like take construction workers and drivers driving cement trucks and dump trucks along with creating a need for flatbed machinery hauling and machinery operators. Those jobs allow people to be home every night with their family. So the more recovery we see in that arena, the tighter the truck driver market is going to get; it is a limited market to begin with. There are also more stringent regulations like CSA, which has a major focus on safety requirements and removes a significant number of drivers out of the marketplace that are unable to retain their CDLs, due to a high number of accidents or tickets. This limits the driver pool even further. This leads to a kind of perfect storm, where intermodal has got improved service, reduced costs, and tightening driver capacity on the highway. This is good news for the railroads, of course.

LM: For the railroads, how does intermodal help to offset the decline in coal loadings over the last year or more?
Howland: Intermodal has become a good alternative for them in that regard in that it drives a lot of cash for them. The overall profitability may not be as good as coal but it is not very bad. It is a good business for them now. Rails have been very aggressive on pricing over the last several years and have closed with gap with trucking service and have been very intelligent in the way the way they have gone about that.

LM: If the planned HOS changes take effect as scheduled in July, it will likely have a negative impact on truckload capacity. How will this benefit intermodal? Also, if it does lead to a material modal shift from truckload to intermodal, how well-equipped or prepared is the intermodal sector in regards to capacity?
Howland: I think what we are seeing now in the industry is that there is still surplus capacity in the rail terminals and some surplus capacity in rail intermodal equipment and still some available capacity there. Even with an uptick in 2013 and 2014 various equipment owners will need to do some reinvesting into additional containers. I don’t think we are going to run into a serious capacity crunch until probably 2015 before we would see anything where we would be bumping up against any type of serious investment issues. A lot of capacity was added over the downturn during the last five years, and the rails did not reduce what they were doing, which was a real plus for us.

LM: How is APL’s intermodal business doing so far in 2013?
Howland: I think we are seeing a few things. Business is up over last year by probably a couple of points. Last year, domestic intermodal grew by about 5 percent, with a lot of that conversion by highway and this year we are up probably by about 6 percent, which is up slightly. We are expecting more growth this year so that is a good thing.

LM: There is sentiment that intermodal has become more “truck-like” in terms of service capabilities, especially in recent years and on the domestic side. Where do you think it has made the biggest strides on this front?
Howland: One of the biggest things is that the rails have learned to simplify their train network. When you think about the consistency factor, it is one thing to have rail service that is highway competitive as far as transit. And the rails have now reached a point where they are absolutely competitive with solo drivers but still have not reached team driver capabilities in most markets but are in some markets. They are competitive with solo drivers in almost every service lane, sped up transit, increased horsepower per trailing ton, and reduced the number of stops a train is making and have really modified their overall service. And with the additional terminal capacity they have been adding and the additional double-stack clearances, especially along the east and central corridors moving from the mid-Atlantic towards the Ohio valley and into Chicago, those are lanes they could not previously effectively serve even five years ago and now they can provide double-stack service. In the east, there is now very good service from the New England market and New York-New Jersey market as well as the southeast. And all of them are effectively connected to the major Midwestern points like Chicago, the Twin Cities, Ohio, Memphis, Kansas City and even into Dallas. It has been interesting in the east because they are now serving lanes that intermodal people thought could be served effectively even ten years ago because they were “too short.” That has been a big change.