Logistics Management

Dave Schneider

That strange sucking sound is…
May 1, 2008

In the wee hours of the morning I got to sit for a few hours at the Amtrak station in downtown Cleveland, Ohio last Thursday. It was quiet, a steady noise of the big wind turbine that is up by the Science center, punctuated by the passing of many freight trains on the Norfolk Southern main line (the old New York Central “Water Level Route”).

As the freight trains passed in both directions, I noticed three consistent characteristics of the trains. They were short. They had only one or two locomotives (3:1 one locomotive). Finally, the trains were mostly empty. 

It kind of struck me odd as I sat there and noticed these three “trends” in the 2 hours that I watched by my count almost 20 trains pass by. The NS route is not the major Chicago to New York route, CSX has the better shot to connect Chicago to the New York ports, but other freight moving to Upstate New York, Pittsburgh, or to Baltimore and points East would feed through the Cleveland corridor.   Considering the way trains would be routed to specific destinations out of Chicago, Detroit or other western points the train count was not surprising.

Considering that most modern locomotives are 4,000 hp it also made sense, for the length of the trains to see that a single power units was pulling the trains.

But the length of the trains, and that they appeared to be empty was strange. Most of the trains that I observed were intermodal consists. All of the trains were “unit” trains where modern deep well double stack “sets” of multiple articulated cars or “sets” of trailer/container on chassis cars. In each train more than half of the cars were empty, no containers or trailers on board. Beyond that, the trains sounded “hollow” as they went by, the empty containers amplifying the sound of the wheels on the rails.

As I boarded my Amtrak to head home, I was thinking of an article that I had seen early in the week about the BNSF “parking” over 1,000 double stack container cars in Montana, and as many more in other areas due to the lack of container freight. The 1,000+ cars in Montana account to about 5% of the total fleet according to the railroad.

I then thought about the freight cars that I did see in Cleveland, the traditional freight cars, like hoppers, gondolas and tank cars. There were a lot of them. I did see many hopper car trains, unit trains with loads of coal and mixed covered hoppers with other dry bulk freight. There were a number of new tank cars, shiny black with Ethanol markings. With the big steel mills in the Cleveland area the loaded and unloaded gondola “coil cars” were not a surprise either.

We all know that imports are down, and exports are up. The reduced import volume is noticeable by the drop in the container unloads in the ports, the parking of thousands of container unit train cars by the roads, and the “empty” intermodal trains that I observed along the mainline. Yet the railroads are doing OK, the coal, steel and chemical loads making up for the missing intermodal traffic.

Another nugget of information came to me this week concerning exports. Companies that are located in the Midwest, like in Cleveland, Cincinnati, St. Louis and Kansas City have orders to export, but are having a difficult time getting empty containers to load, and are paying for equipment relocation of empty containers to their markets. With fewer import containers into these markets there are fewer empty containers available to load. I think that these specific markets are more challenged with “outbound” capacity since they were “dropped” from the Inland Intermodal Port schedules by the steamship lines. Comments that I have gotten from some of my freight forwarder contacts lead me to believe that there are plenty of empty containers in the major gateways, like Chicago, Savannah, New York and Memphis, but the farther the origin is from those points the more pronounced the capacity shortage, and the higher the inland transport costs.  Maybe the empty containers that I heard on the trains that night were containers getting "repositioned" for loading.

On the truckload front the trade press news still underscores the reduction of over capacity in the networks. JB Hunt and Werner both are reporting that they have reduced their fleets nearly 10% in a year to year measure. Both carriers have been “transferring” capacity from the traditional point to point truckload services to intermodal and dedicated fleets, which soften the capacity reductions. I suspect that without the offsetting growth in dedicated and intermodal volumes these carriers would be reporting a bigger tractor reduction.

On the independent truckload front it is estimated that close to 45,000 tractors got parked in Q1 of this year. These are tractors associated with companies that have closed their doors, so it is capacity that will not return to the market. The rest of the independent market is fighting to find sourced of steady and assured loads that have solid fuel surcharge programs. Some of the major carriers will pick up some capacity in the spot market, but there is more supply than demand. With the combination of high fuel, medical and liability insurance, Q2 looks like it will continue to punish the independent small carriers. 

I suspect that there will be some shippers that will, in a continued moment of greed or need to survive on their own part, put a stake in the heart of some of the independent carriers through slow bill payment or tough rate negotiations.  The smart independents will find brokers or major truckload carriers that are reliable with payments and loads, and those carriers will look for cash flow as a key to survival.

One final nugget to add to mix is that there remains a strong demand for used Class 8 trucks. Atypical of other “freight recessions” is the value and demand for used tractor units have remained up, while orders for new units drop 30%. As I had reported a few months back, the growing demand for American Class 8 tractors in Russia and other Eastern European markets have been providing a floor under the used truck market. This helps both the major truckload players and some of the independents as they offload the excess assets.

So, that strange sucking sound is the reduction of freight capacity in the North American market. Shippers have continued to use these conditions to either hold the line on rate increases, or to drive pressure into their rates. There are points of higher demand than capacity, the example being the lack of containers in the Midwest for export, and there is a firming up (heck, I would call it hardening) of costs to get the capacity moved to the origins. As the economy picks up steam and grows again, the carriers will be in the position to hold the line, as long as there is no panic grabs for market share

What do you think?

Posted by Dave Schneider on May 1, 2008 | Comments (1)