DC Velocity - June 2009

enroute INTERMODAL

Gross cautions, however, that intermodal’s environmental advantage will go largely for naught unless the railroads build more secondary ramps and terminals to make intermodal service more accessible to shippers that are located away from the nation’s major freight corridors. Currently, intermodal operations in these tertiary markets must depend on an often lengthy and expensive dray to get freight from factories to a main rail line for the intermodal haul.

Legislation introduced in the House by Reps. Eric Cantor (R-Va.) and Kendrick Meek (D-Fla.) might, if enacted in its current form, help remedy the situation. The bill (H.R. 272) would provide federal tax incentives for investments in new track, bridges, and tunnels that would enable more freight to move by rail. A similar bill was introduced in the last Congress but was never

given serious consideration.

As of mid-May, the legislation had not been scheduled for hearings in the

House, and no companion bill had been introduced in the Senate.

The nation’s big truckers, as represented by ATA, say they will take a wait-and-see posture toward the legislation. UPS Inc., the nation’s largest single intermodal user, would oppose the bill if there are no guarantees the funds would be dedicated to rail improvements. UPS spokesman Malcolm Berkley says the company favors the creation of a railroad trust fund largely financed by user fees.

Dollars and sense The key determinant in choosing intermodal may not be green but the black gold of oil. With diesel fuel prices at $2.22 per gallon, the cost of

shipping a double-stack container moving 2,000 miles door to door from Chicago to Los Angeles

would be $1,613, according to

data from intermodal and drayage provider Pacer International Inc. and IHS Global Insight. The same shipment moving over the road on a 53-foot trailer would cost $3,315, according to data from the companies. (Both examples include fuel surcharges of between 12 and 14 percent.) When diesel prices were more than double the prevailing rate last July, the industry saw similar price differentials but on shorter hauls.

In ironic timing, the railroads raised their intermodal rates at around the time diesel prices began falling from their July 2008 peak of $4.76 per gallon. The converging events made it more economically compelling for shippers that had been using intermodal to switch back to the highway. Today, the fast pace of growth enjoyed by intermodal for most of 2008 has dramatically slowed in response to the economic downturn.

According to FTR Associates data, in the fourth quarter, intermodal’s share of international and domestic containerized freight moving more than 550 miles fell by 0.2 percent to 12. 1 percent. Though first-quarter 2009 data were not yet available at press time, Gross of FTR says he expects the trends for intermodal to remain soft for some time to come.

Despite the talk about promoting sustainability and making the planet greener, shippers are likely to use intermodal for freight movements where it makes sense to save shipping dollars. The issue for shippers has been and continues to be whether they are willing to accept longer transit times in intermodal in return for cost savings. Whether green is or will be a factor in that calculation remains to be seen.

Sanderson says that, for shippers, the choice of mode will not rest with fuel, the environment, or the structure of the intermodal network, but with the ability of rail or motor carriers to provide reliable service. “Getting the right product to the right place at the right time, and in the right condition and quantity will drive buying decisions,” he says.