DC Velocity - December 2012

go figure …
Intermodal struggles to crack
short-haul market

4.2%

Wal-Mart’s third-quarter decline in per-case shipping costs, year over year. The drop, which excludes fuel surcharges, came in a period of rising transport rates.

The nation’s intermodal sector is like the 400-pound behemoth who vowed to lose 200 pounds and now tips the scales at 210: Few thought it possible, the progress has been remarkable, but those last 10 pounds will be the hardest.

The “last 10 pounds” for the intermodal world is short-haul service, defined as 500 miles or less. Historically the exclusive province of motor carriers, short hauls are “high-hanging fruit” for railroads and intermodal marketing companies. Yet they could also be the most lucrative fruit of all as most freight in the United States moves under 500 miles.

Capturing that traffic won’t be easy, however. Though intermodal has made great strides to deliver a cost-effective service in the 750- to 1,000-mile range, repeating those achievements at shorter stage lengths will be a struggle, experts say. An intermodal move—which typically involves the line-haul and a dray at both ends—is not as flexible as tendering goods to a regional trucker for a direct point-to-point move, especially for distances between 300 and

500 miles. “At 400 miles, an intermodal move is very difficult,” said an executive of an intermodal marketing company whose loads for shipper customers usually move about

1,000 miles.

Mark Davis, a partner at Cleveland Research Co. and a staunch believer in intermodal, said 550 miles is realistically the shortest distance at which intermodal can be cost- and service-competi-tive with regional truckload services. “Then again, they said intermodal could not hit 800 miles and be competitive, and they are,” Davis said in mid-November at the joint annual meeting of the National Industrial Transportation League and the Intermodal Association of North America, held in Anaheim, Calif.

Even without the short-haul market, intermodal still has room to grow, according to Davis. Of the 525 million truckloads hauled by big rigs, or “Class 8” trucks, about 45 million are still potentially convertible to intermodal service, according to Cleveland Research data. Davis said intermodal’s greatest opportunity lies in the 750-mile distance.

SOURCE: S TIFEL, NICOLAUS & CO.

FEC’S SUCCESS

Not everyone is skeptical of intermodal’s ability to make inroads in the short-haul market. “You can make money in short-haul intermodal,” said James R. Hertwig, president and CEO of Florida East Coast Railway (FEC), a Jacksonville, Fla.-based regional railroad that operates 351 miles of track from Jacksonville to Miami. Hertwig said that intermodal accounts for 78 percent of FEC’s business. Of the total intermodal traffic, 42 percent moves under 350 miles, and it is profitable, Hertwig told a breakfast meeting at the joint conference in Anaheim.

FEC’s operation is a prototype of a successful short-haul intermodal model. It is the dominant railroad in Florida, has a relatively small geographic network, and supports a consumer market of 19 million people ( 12 million of them from Central Florida down to the Keys).

FEC has traffic density, and as with almost everything in transportation, traffic density holds the key to a profitable short-haul intermodal venture. Get the freight, scale the capacity, and the money will roll in. Or so the concept goes. But there are few city-pairs in the United States where traffic flows are sufficiently dense for short-haul intermodal to consistently work.

Also holding back the model, Hertwig said, is the shipping community’s perception that intermodal is too unreliable and involves too many hand-offs of the freight. Indeed, reliable intermodal service at 800 miles or less likely can’t involve interlining. Though truckload services are more expensive than intermodal, shippers have the peace of mind of knowing their freight will remain with one provider until it reaches its destination.