Subscribe to our free, weekly email newsletter!


Transportation Best Practices: Intermodal looks marvelous!

The red-hot intermodal sector is “in fashion” these days as shippers opt for lower rates at near-truck service levels. Our intrepid trucking correspondent examines the factors driving this impressive growth as well as how logistics professionals are using the option as part of their 2011 transportation tool kit.
By John D. Schulz, Contributing Editor
May 01, 2011

The crowd is loving it
Intermodal has other things going for it as well. The mode’s ability to reduce carbon footprint, coupled with the current, global sustainability drive, is certainly a large part of its appeal.

Recently, Whirlpool made a significant investment to increase its intermodal moves. The appliance giant reached a major milestone last year when it loaded its 3,000th boxcar as part of a revamped supply chain—that’s the equivalent of taking 9,000 trucks off the road.

“Plus shippers get to check the sustainability box in their strategic plans,” adds Larkin. “So, it will keep on grabbing market share in the long-haul, high-density lanes anchored by big cities and mechanized intermodal ramps.”

Sustainability and the green movement is also a factor in manufacturers’ preference for intermodal, which can reduce their carbon footprint by cutting fuel consumption and saving money. About two years ago,  Whirlpool did this by conquering one of the centuries-old disadvantages of intermodal—lack of accessibility. It did this by building 10 new distribution centers, all with rail docks in key locations near mainline or short haul tracks and close to highway access. Whirlpool now reports that it’s using fewer trucks, products are moving uninterrupted, and there’s less damage when shipped by rail.

Whirlpool is not alone. Other manufacturers are making similar, if less dramatic, steps in increasing intermodal usage.

In the meantime, truckers are increasingly relying on intermodal service as well. UPS, the world’s largest transportation company, is also the single largest rail shipper. UPS will spend more than $3 billion this year on rail transport, much of it on regularly scheduled, 50-hour nightly trains out of Chicago to just outside Los Angeles that run as smooth as most truck moves.

“UPS is in a class of their own,” says consultant Gross.

“They’ve used rail forever. For many, many years they were the backbone of intermodal service demand, and they really drive the high service side of the intermodal equation.” In fact, adds Gross, their trailer trains tend to be the faster trains in the intermodal world.

But UPS is hardly alone among truckers utilizing rail. FedEx Freight, the nation’s largest LTL carrier, recently began using intermodal when it started its “two-tiered” system of service—economy and priority. The unionized LTL carriers such as YRC Worldwide and ABF Freight System long have moved as much as one-fourth of their trailers on the rails, mostly for long-haul line haul efficiency.

Truckload carriers are increasing their intermodal usage as well. Steve Van Kirk, senior vice president of intermodal commercial management for Schneider National, says that intermodal’s attractiveness will continue to grow as over-the-road capacity gets tighter.

“What you’re seeing right now is really strong freight demand relative to capacity,” Van Kirk says. “That applies to all modes—dry van, truckload, intermodal. Capacity is getting tighter, and intermodal is seen as a viable option for many shippers.”

But there are other factors driving intermodal growth, including a shift in how it’s perceived by shippers.

“The biggest thing intermodal has going for it is that it has moved from the mode of last resort to a core transportation function,” says Gross. “That’s a function of reliability and quality of intermodal product. It’s never going to be as fast as a truck, but intermodal offers a combination of speed and reliability at a price that makes sense.”

Gross adds that the proof of that was in the most recent recession. In the past, intermodal usage fell off during economic downturns as truck capacity increased and rates fell down. “That didn’t happen this time,” says Gross. “Intermodal share has been slowly, but steadily increasing, and I would certainly expect that to continue.”

Future projects
As long as fuel stays in the $4-a-gallon range and qualified truck drivers increasingly are difficult to hire and retain, intermodal should continue to gain market share, say our analysts, with a few caveats.

In general, analysts and intermodal experts say, the only thing that would threaten intermodal would be if the rail system starts to bog down and service begins to suffer. That is not likely, but rail service meltdowns have occurred in the past in the wake of industry mergers, and other factors.

One trend to watch for in the future is increased intermodal use in shorter lengths of haul. Right now the average length of an intermodal move is 1,575 miles. But increasingly intermodal is being used in “mid-lengths” of haul, or around 1,000 miles.

“It’s a great challenge to bring down that average length of haul,” says Gross. “You need a denser network of terminals. That gets more complicated and more expensive to operate. It’s a change to move into these shorter lengths of haul. But I would expect these intermodal players to enter that market in the future.”

Even a drop in the cost of diesel fuel may not hinder intermodal’s growth, experts say. In the past, the “tipping point” for rail vs. truck moves seems to have been about the $3 per gallon price of diesel. That may not apply any longer.

“That day is done,” concludes Gross. “Everybody understands that if fuel were to go down to $3, that situation is not going to endure. Intermodal’s attractiveness is not totally dependent on the price of fuel any longer.”

About the Author

image
John D. Schulz
Contributing Editor

John D. Schulz has been a transportation journalist for more than 20 years, specializing in the trucking industry. He is known to own the fattest Rolodex in the business, and is on a first-name basis with scores of top-level trucking executives who are able to give shippers their latest insights on the industry on a regular basis. This wise Washington owl has performed and produced at some of the highest levels of journalism in his 40-year career, mostly as a Washington newsman.


Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

Over $2 billion dollars in carrier overcharges go uncollected each year as shippers do not have the time or resources to collect refunds.

Last year at this time, retailers were relieved to learn that a tentative agreement on a new labor contract had been reached by dockside labor and management on the U.S. East and Gulf coasts. But not without considerable blood on the floor.

The National Retail Federation is encouraging maritime management and the union representing dockworkers along the U.S. West Coast ports to expedite pending contract negotiations and reach agreement on a new deal well in advance of the expiration of the current contract this summer.

SAP AG announced the availability of a new application to help centralize processing trade activities, SAP Global Trade Services, processing trade in China. 



Did you know that Supplier Portals can help companies reduce risk, improve compliance and enhance product availability? Download Amber Road's latest research report featuring research from Gartner.

Comments

Post a comment
Commenting is not available in this channel entry.