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.

Transloading

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.

Various published reports appear to signal an end to the recession and to some upswing in freight volumes. The Baird freight index showed year/year growth of 1.4% in January. Truckload, intermodal and carload volumes appear to be firming up. This is not to suggest that we are now in boom times. As reported in an earlier blog, the LTL sector still remains significantly challenged due to the oversupply of capacity and carriers. These reports should be viewed as a signal of a change of direction that will take time to unfold.

In 2009 weak demand and cost reduction pressures from higher management caused many shippers to conduct freight sourcing initiatives. One recent study reported two interesting findings. First, the average rate reduction achieved, across all modes, resulting from freight RFP exercises was 16 percent. Another significant finding was that most shippers intentionally left 40 to 50 percent of their implementable savings on the table. Despite what some have characterized as “frenzied bidding,” many shippers made the conscious decision to not take a significant portion of the potential savings. This strategy was reinforced by some of the shipper representatives who spoke at last year’s Shipper Freight Management Conference, co-sponsored by my company and Canadian Transportation & Logistics magazine.

This begs the obvious question. In a year when the economy was so weak and cost reduction pressures were so strong, why did so many shippers display a reluctance to switch carriers to reduce costs? The answer lies in one important word, relationships. Even in tough times, when the temptation is there to throw valued suppliers “under the bus,” knowledgeable and enlightened shippers took the time to reflect on the value they have received to date, the performance they are currently receiving and took a long look at the road ahead. This is what they saw.

During busier times, the top carriers maintained their performance. They priced their services fairly and did not take advantage of the leverage they had to gouge their clients. They provided their good customers with the extras (e.g. additional trailers, late pickups, visibility, and superior customer service) that helped maintain carrier loyalty. These carriers provided high quality service with the understanding that the pendulum can and did swing. Now shippers have expectations that as the economic fortunes of North America change, their carriers will treat them fairly again. Shippers now expect their core carriers to reciprocate, the essence of healthy, balanced relationships.

Enlightened shippers know that capacity will tighten. It will take time for trucking companies to hire and train drivers to replace those who left the industry. There are signs that this is already happening. As the economy improves and the market for used trucks increases, this may drive some truckers out of the industry.

Harvey S. Firestone, the founder of Firestone Tire & Rubber once stated, “A man with a surplus can control circumstances but a man without surplus is controlled by them, and often has no opportunity to exercise judgement.” Another wise person has said that “knowledge is power.”

As a result shippers should continue to seek out alternative providers that can meet or exceed expectations. They should also take a keen interest in the dynamics of the freight market. There is still great value in performing strategic sourcing exercises, on a scheduled basis. However, shippers should share their plans and data with their key suppliers. They should continue to expect suggestions on how to upgrade or introduce best practices into shipping processes. Based on a combination of performance, trust, and communication, shippers and carriers should seek to build upon the relationships that have been established over time. This will provide both parties with a competitive advantage.

Many of you have heard of MADD (Mothers Against Drunk Drivers) but how many of you have heard of MABD? Well, if you are a shipper that supplies products to Wal-Mart or other retailers, you should learn as much about “Must Arrive By Date” as soon as possible. As of last week, U.S. companies shipping goods to Wal-Mart distribution centers must begin to deliver within a four-day window leading up to a MABD date. The requirement will initially apply to suppliers that ship prepaid and truckload freight to Wal-Mart DC’s.

The monthly benchmark is being set at 90 percent. Those companies that fall short of this target will be assessed a “reimbursement” charge that equates to 3 percent of cost of goods sold. It is worth noting that the penalty applies to shipments arriving prior to or after the 4 day window.

Wal-Mart’s initiative will be widely scrutinized for several reasons. Wal-Mart has been described by Jack Ampuja, president of Supply Chain Optimizers of Buffalo, New York as “a supply chain company masquerading as a retail company.” Historically Wal-Mart has used its procurement and distribution expertise to overtake and overwhelm its smaller and less efficient competitors. As the company grew, Wal-Mart has become the industry leader in supply chain innovations and best practices. The latest program follows a long list of other new processes including vendor-supplier collaboration, inventory planning, RFID, continuous replenishment, packaging cost reductions, worldwide sustainability product indices and others. The sheer size and power of Wal-Mart and their intense follow through have allowed them to continue to be an industry leader in supply chain practices.

Wal-Mart’s suppliers will have to adjust their order processing and shipping schedules to meet Wal-Mart’s deadlines. As a result these shippers will be applying pressure on their carrier partners to expedite freight movements. They will have to re-evaluate their lead times and more closely monitor carrier performance to ensure they do not put their Wal-Mart business in jeopardy. Carriers will have to revisit route plans and transit times to ensure they are realistic and achievable on a consistent basis.

Of course shippers can take themselves “off the hook” by turning over the carrier selection, routing and inbound rate negotiations to Wal-Mart. Wal-Mart would then be able to optimize its large volumes to build better loads. It could give these volumes to for hire carriers or its own fleet of 7200 tractors.

The Wal-Mart initiative may serve as a stimulus to many companies across North America to re-evaluate the possibility of disaggregating product purchasing from inbound freight management. It may provide these shippers with the opportunity to better leverage their total freight volumes and drive more round trip and continuous move planning.

To meet Wal-Mart’s requirements, some carriers (e.g. Averitt Express, ABF Freight) have pages on their web sites designed to facilitate MABD compliance. ABF created an online MABD compliance planner that helps shippers plan production and shipping schedules for each order based on its MABD. The system can automatically flag Wal-Mart shipments for expedited service.

Clearly Wal-Mart’s latest supply chain undertaking could have profound implications for shippers and carriers. It will cause many companies to reassess their carrier capabilities and performance. It will encourage retailers and companies in other industries to carefully monitor the success of Wal-Mart’s program and consider adopting similar initiatives that can drive more cost savings out of their inbound freight expenditures.

According to the National Private Truck Council, roughly 28 percent of the trailers on U.S. highways are running empty, at huge costs to companies, the economy, and the environment. This is the case despite the many years of effort spent on supply chain optimization, the multiple releases of sophisticated transportation management software and the consistent efforts to take costs out of truck transportation.

Both private trucking fleets and carriers face this challenge. But a new Internet portal, charging fees as low as $1,600 a year, is enabling Macy's, the large American retailer and Schneider National, one of North America’s largest truckload carriers, to fill more of those empty miles—and reap big savings as a result. The service is essentially an electronic bulletin board that allows a carrier with an empty lane to pair up with a shipper that has a load ready for that lane. The excitement and buzz around this portal is that it is creating new interactions between carriers and shippers across a range of vertical industries—potential partners that may never have had reason to work together before.

So what's the basic idea behind Empty Miles and where did it come from? Under the program, a shipper can connect with another company that pays a discounted rate to ship freight on the return trip. The carrier then takes most of the money paid by the second company, keeps a small amount, and passes the remainder along as a refund to the first company. The first shipper gets money that would have been wasted on an empty trip; the second is able to ship at lower rates; and the carrier makes money too.

The subscription-based service was developed by the Voluntary Interindustry Commerce Solutions Association (VICS), a non-profit group that works with member corporations—chiefly in retail and consumer-focused industries—to improve supply chain efficiency and effectiveness. VICS holds regular conferences for members on key themes such as transportation.

Shippers and carriers are very familiar with this longstanding problem. The challenge is how does a shipper find and create round trip movements with companies with whom it has no existing relationship. That is what is different about the Empty Miles program. It allows business alliances to form rather than just creating round trips. It is far more than finding loads on a load board; it is about forming business partnerships that can produce ongoing freight transportation cost savings.

Those themes had been in discussion between VICS and its Canadian e-commerce standards partner GS1 since the third quarter of 2007. The GS1 group built a pre-prototype for Empty Miles. By early 2008, the topic—and the potential tool—were under review by VICS industry focus groups. Macy's and Schneider—both longstanding VICS members—saw big benefits in an empty-miles solution and became heavily involved in the discussion. The challenge was not a technical one. It was more about business rules and practices.

The project work evolved in the form of a Web-based password protected portal that is accessed by subscribers. Any supply chain organization can subscribe—VICS member or not. The program's success relies on a critical mass of participants to provide more opportunities for good matches. The objective: Bring together retailers, manufacturers, and carriers as trading partners to collaborate and mutually benefit from reducing empty miles.

By January 2009, VICS and GS1 had launched the Empty Miles Service. As VICS members, Macy's and Schneider pay $1,600 a year in fees (non-VICS members pay $1,850.) As charter members, the retailer and carrier were quick to load their lane data into the system.

Macy's and Schneider saw results very quickly. Filling those first two lanes yielded the $25,000-a-year savings. Here is a quick summary of the results.

• Increased Sustainability – reduced carbon emissions.
• Increased Revenue - Schneider National has increased dedicated backhaul revenue by 25 percent on specific accounts.
• Decreased Costs - Schneider has decreased its operating costs by eliminating 11 percent of its empty miles and filling 22 percent more backhaul lanes.
• New Business - Schneider has been able to increase business with existing customers and develop new customers through the services it offers.
• Greater Customer Satisfaction - Based on improved capacity optimization, Schneider is able to offer more competitive rates and still offer the service that shippers expect.

To date, Empty Miles has 40 corporations on board—roughly half carriers, half shippers—with household name participants such as Best Buy, Nestlé, Johnson & Johnson, J.B. Hunt and Schneider National. The program has the potential to pull in hundreds, if not thousands more across the United States and Canada. For all its obvious advantages, Empty Miles is a work in progress. Critical to its long-term success is wider acceptance—particularly among transportation managers—and a deeper commitment to commit to make Empty Miles work. Nevertheless, this new service has the potential to be an attractive option for shippers and carriers seeking to address their empty mile conundrum.