DC Velocity - August 2014

34 DC VELOCITY AUGUST 2014 www.dcvelocity.com
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companies (IMCs)—firms that retail intermodal service to shippers—with door-to-door services that didn’t exist for them a decade ago. On the distant horizon is the $292 bil-lion-a-year private truck fleet market, a category that may not be overly suitable for intermodal conversion because most moves are truck-friendly short-hauls from DC to store, but that could offer opportunities under certain scenarios.

During the 12-month period that ran through the end of 2014’s first quarter, the domestic intermodal system moved 19,070 containers and trailers of dry van freight per calendar day, according to the consultancy FTR Associates. In the prior 12-month period,

18,573 units moved through the system daily. Larry Gross, a principal at FTR who specializes in intermodal, said the year-over-year increase—497 units per day—is significant. Conversion from over-the-road accounted for 15 percent of intermodal’s year-on-year growth, Gross estimates.

TOUGH SELL

Intermodal executives aware their industry has a spotty
track record of operational consistency focus more time
these days on education than anything else. To newcomers,
they tout intermodal’s benefits (economies of scale, fuel
efficiency, environmental friendliness, etc.). To former
users that may have been burned years ago, they offer
assurances that multibillion-dollar investments in ramps
and terminals have brought intermodal close to being cost
and service competitive with single-driver truck operators,
mostly in the East.

“Intermodal is very much a truck-like business today. It’s just done a little differently,” said Matt Meeks, head of ABF Multimodal, a unit of Fort Smith, Ark.-based ArcBest Corp. (formerly Arkansas Best Corp.) that manages the company’s intermodal business. To reinforce the tutorial, Schneider National Inc., the trucking and logistics giant and a big intermodal user, Filter, the Green Bay, Wis.-based company’s vice president, intermodal commercial sales. It can be a tough sell, Filter admitted: Some shippers still have a hard time grasping intermodal; others worry about erratic rail service levels. Some potential users “think they need a rail siding to ship

If the prospect of converting thousands if not millions of domestic truckloads to the rails isn’t enough to put a smile on an intermodal executive’s face, just ask him or her about the outlook south of the border.

The conversion trend in the U.S., while far from running its course, is nevertheless well under way. But in the U.S.-Mexican market, the conversion game is still in the top of the first inning.

Kansas City Southern Railway (KCS), whose primary business is moving goods in and out of Mexico, estimates that 3 million truckloads per year have at least the potential for conversion to its intermodal services. Union Pacific Railroad Co., which operates across the border through a relationship with Mexican railroad Ferromex, estimates that 2 million daily truckloads are ripe for the taking. Dan Beers, intermodal project leader for the Mexican unit of Dallas-based third-party logistics firm Transplace, said the annual conversion rate could be as high as 6 to 8 percent.

Patrick Ottensmeyer, KCS’s chief marketing officer, esti-
mates that the railroad has a less than 3-percent share of
the market that either could be converted today or would
have the potential for conversion once planned new services
become available. Transplace, which in mid-May announced
a plan to expand its cross-border intermodal offerings, uses
rail for only 1 percent of its shipments in the market.

Some of the growth spurs for intermodal are familiar to U.S. users: road congestion, volatile diesel fuel costs, and environmental concerns. Other factors, though, are unique to the border. Those include security concerns and a severe equipment imbalance favoring the northbound legs. Normally, two tractor-trailers move northbound for every one that heads south. However, this year, the demand imbalance has ranged from 3-to- 1 to as high as 5-to- 1. This has resulted in loaded trailers’ sitting at the border for days or weeks waiting for tractors.

Intermodal can resolve a number of those problems, industry executives said. Containers moving by rail are often shipped “in-bond” to interior locations. This means intermodal users avoid the delays caused by detailed customs inspections, where truck operators must unload their cargo and have it examined before the goods are reloaded and the vehicles allowed to proceed.