Rails Need to Tie New Intermodal Initiatives to Improved Customer Service
The Intermodal sector faced many of the same challenges as other segments of the transportation industry during the recession and suffered some decreases in business in 2009. Toby Kolstad, President of Rail Theory Forecasts in Portland, Oregon attributed the volume declines to two factors. “About 70 percent of the downturn in business is attributed to the drop in imports and the other 30 percent is due to the drop in domestic sales. I don’t see the traffic picking up substantially in the future because I think retail sales of goods will continue to lag. There is just too much unemployment, debt and an overall feeling of loss of wealth.” He forecasts that intermodal volumes will return to pre-recession levels by 2014.
Against this backdrop of discouraging news, the rails are not standing still. In fact, there has been a flurry of developments over the past several months that demonstrate that the industry is still vibrant and poised for growth.
Major Truckers and IMC’s restructure their Partnerships with the Rails
J.B. Hunt, once America’s largest truckload carriers now generates significantly more business from its intermodal business. For the past 20 years, Hunt has had an alliance with BNSF Railway, the largest intermodal railway. With the largest fleet of domestic 53-foot intermodal containers, estimated at 41,000 boxes, Hunt has been achieving consistent growth in its western USA intermodal business. Late last year it signed an agreement with Norfolk Southern Railway to grow its eastern USA business.
Schneider National, one of its major competitors, has partnered with CSX, NS’s leading competitor in the east. Schneider is focusing on the Chicago-Florida, Chicago-Northeast and St. Louis-Northeast routes.
UP last year renegotiated a long-term space and pricing contract with Pacer International, a large freight management company that allowed the railroad to directly take over more domestic business. Before that it lured Hub Group, another large IMC, to shift much of its western-U.S. traffic onto UP from rival BNSF Railway.
Expanded Rail Corridors to Take Advantage of the Widening of the Panama Canal
The western rails have served as the land bridge for Panama Canal traffic. CSX and Norfolk Southern are positioning themselves to capitalize on what they hope will be a shift of customers to east coast ports as the Panama Canal is widened by 2015. This is resulting in a set of upgrades and intermodal expansion to facilitate the movement of containers through east coast ports. This eastern development is expected to pave the way for double-stack trains along these corridors.
The Heartland Corridor is being implemented to increase double-stack intermodal traffic from the port of Virginia, the deepest east coast port, into the Midwest, primarily Columbus and Chicago. Several railroads have plans to invest in intermodal facilities in Memphis to facilitate traffic along the Norfolk Southern Crescent Corridor, a high-speed route between the South and Northeast which boasts the ability to take 880,000 long-haul trucks off the busy commercial corridor annually.
CSX Corp. recently received $98 million in federal stimulus funds toward its goal of increasing the use of double-stack trains to move freight from mid-Atlantic ports to Midwestern markets. The $842 million public-private partnership, known as National Gateway, involves upgrading existing track, modifying bridges and raising tunnel clearances along three major CSX routes -- the I-95 corridor between North Carolina and Baltimore, I-70/I-76 between Washington and northwest Ohio via Pittsburgh, and the company's Carolina Corridor between Wilmington, N.C., and Charlotte, N.C. -- to accommodate the taller freight cars. One such train can carry the load of more than 280 trucks. In Virginia, the project would take an estimated 1 million trucks off I-81 in its first 10 years -- far less than Norfolk Sothern’s Crescent Corridor plan.
Prince Rupert offers Shortest Transit Times from the Far East
Much has been written about the Port of Prince Rupert on the west coast of British Columbia. The port that in conjunction with CN Rail links the Far East to the heartland of the United States remains a key component of NASCO (North American Super Corridor). Container volumes are projected to grow from 500,000 TEU’s to 2 million per annum.
The Move to Jumbo Containers
CSX Transportation in the eastern United States and Union Pacific Railroad in the West will soon be jointly marketing a domestic intermodal service in jumbo-sized containers. Dubbed UMAX, the service will give customers single-bill interline routing on more than 600 traffic lanes, and the railroads are backing it up with 20,000 of the big 53-foot boxes. The carriers said UMAX begins operating March 29, with door-to-door service that will be competitive with trucks by combining short-haul trucking with long-distance rail.
The Warren Buffet Factor
Warren Buffet has a reputation as a benevolent investor who allows the leadership teams in his companies to run their businesses, unless they falter. Some experts believe that he will maintain this “hands off” approach while others foresee him trying to move BNSF, his largest investment ever, in some new directions. Specifically, there are those who believe that by removing the focus on quarterly returns, this may allow the company to change its large network in ways that produce faster growth (e.g. take more freight off the road, sign contracts with ocean carriers). He may also look at a merger with Norfolk Southern in which he already has a stake and invest in dual power locomotive cars that are not currently used in the United States. Certainly if fuel costs begin to rise significantly over time, the BNSF would be uniquely positioned to divert business from road to rail.
Don’t Forget About Mexico
The Kansas City Southern Railway is focusing on the Kansas City to Mexico corridor and the Rosenberg (Houston) to Mexico City corridor. New intermodal terminals are planned for Toluca, Mexico and Rosenberg, Texas. Mexico is also looking for significant container growth at the ports of Lazaro Cardenas and Manzanillo.
This continues to be an option in certain situations where it becomes economically viable to utilize the domestic intermodal rail network and take advantage of opportunities to pool freight to specific destinations.
If they build It, will they come?
Taken collectively, these activities paint a picture of a mature industry that is in the process of revitalization. One would think that these new offerings would be warmly received by shippers. However, customers of Canada largest railways have issued a damning review of the quality of service they have received in recent years. The findings are part of the federal government's ongoing Rail Freight Service Review process which could potentially lead to greater regulation of the rail industry in Canada after the recommendations of the commission are given to Parliament in the fall.
Some of the initial findings contained in a survey of 269 shippers across the country chastise Canadian National Railway Co. and Canadian Pacific Railway Ltd. for unsatisfactory service. Only about 17% of those surveyed said they have a high level of satisfaction in the service they have received from either CN or CP. Typically, such customer satisfaction surveys elicit a response in the 50% to 70% range, said Andrew Ennis, who conducted the survey by NRG Research Group on behalf of the federal government. Moreover, 62% of those surveyed said they had suffered significant financial losses sometimes in the millions, as a result, Mr. Ennis added. Terminal operators, port authorities and shipping lines have also reported concerns about the level of service they have received from the rails.
Most shippers in North America are captive to one or two railways in their market areas so there are not a lot of options. While shippers do not want to see the government take over the railways again or heavily regulate them, they would like some measures implemented to balance the playing field, said Bob Ballantyne, President of the Canadian Industrial Transportation Association, the main shipper lobby group. Shippers would like to see some sort of financial penalties made available if rail cars show up late, like the demurrage fees the railways charge shippers. With all the exciting changes taking place in the intermodal transportation arena, the railways would be advised to upgrade their customer service to reap the full rewards from their new intermodal products and services.