Opinion: Growth in Intermodal Unites One-Time Rivals
B>By Howard S. Abramson
I>Editorial Director
ransport Topics Publishing Group
The logic was simple: use a truck tractor for the pickup and delivery segments of a freight shipment that would travel most of its miles in a trailer or cargo container on a railcar. That way, you could charge shippers less than for a pure truck movement and be only a few days slower on a coast-to-coast run.
When I started covering the railroad industry as a newspaper reporter back in the day, rail wags used to joke about how they lost money on every intermodal shipment, but made it up on volume. Back then, the railroads were riding a horse that couldn’t win.
First of all, railroads are, in general, not designed to be as customer-responsive or flexible as trucking companies. Some of the problems stem from having steel-wheeled vehicles moving on expensive, dedicated rights-of-way. Not to be cruel, but other railroad problems have been caused by the inflexibility of that industry’s managers at least as much as the nature of its track.
In the 1980s, railroad managers thought “on time” meant getting freight to its destination city within a day or two of the scheduled time, and “load tracking” meant sending employees into rail yards with a pad of paper and a flashlight to read car numbers.
Intermodal became a minor story after a while, as the railroads pursued profits in low-sulfur coal and leasing rights-of-way for fiber-optic cable lines — or so it seemed.
Many of us received a wake-up call in May, when Edward Hamberger, president of the Association of American Railroads, told a group of journalists that intermodal had become the largest revenue producer for his industry, paying $7.7 billion a year. Coal, he told us, had become No. 2 for the railroads, at $7.6 billion.
In the old days, the only truly successful truck/rail intermodal was managed by UPS Inc., which mastered the technique of using the most efficient mode well before most of the industry caught on. UPS has become the largest retail railroad customer in the nation, at the same time it is No. 1 on the Transport Topics 100 list of the largest for-hire U.S. and Canadian truck fleets.
Today, UPS spends some $1.5 billion a year with the railroads, according to Hamberger; the company’s revenues in 2003 were just a tad below $33.5 billion.
In the service’s early days, a few of the railroads (there were more then than the four big U.S. carriers that remain today) understood that there was a larger market in intermodal, buried under the hyperbole of the sales talk. These carriers struck deals with some of the largest truckload fleets — led by J.B. Hunt Transport Services and followed shortly by Schneider National — whereby the railroads in effect became subcontractors to the trucking company.
And that is the version of intermodal that has not only survived, but is becoming a big story in today’s times of burgeoning business and tight freight-hauling capacity.
The railroads — especially Burlington Northern Santa Fe — have figured out there’s lots of money to be made in intermodal, as long as they let the motor carriers control the relationships with shippers. BNSF has created an intermodal marketing team that primarily sells its services to trucking fleets, not directly to shippers.
The railroads have clearly sensed an opportunity here to increase their business in a relatively high-dollar market, rather than the bulk products that have become the industry standard.
The railroads’ renewed interest in intermodal comes as international trade reaches new heights; as modified hours-of-service rules for truckers slow road shipments; as the trucking industry faces a shortage of drivers to carry the increased traffic spawned by the national economic recovery; as road congestion slows traffic; and as fuel prices have skyrocketed.
These factors have all served to make intermodal more attractive to trucking. On long-haul runs, more fleets are putting their freight on railroads, and picking it up close to the final destination.
And most shippers don’t care how their goods move, as long as they move on time and within budget.
The growth in the market was evident in San Antonio last month at the Intermodal Expo.
Patrick Quinn, co-chairman and president of U.S. Xpress Enterprises, the large truckload carrier, told me during the show that intermodal has become a major revenue source for his fleet.
“Two years ago,” he said, “we didn’t do any intermodal business.” In this year’s third quarter, the company said it did $24 million in its “rail-expedited program.”
One fleet executive told me that his company had increased its business out of the ports of Los Angeles and Long Beach — where most Asian imports enter the United States — by more than 20% this year.
“And none of it’s by truck,” he said.
James Welch, president of less-than-truckload giant Yellow Transportation, said his company uses intermodal for 23% to 25% of its loads, just below the maximum level set in its contract with the Teamsters union.
AAR’s statistics show that truck/rail intermodal is growing rapidly — running about 12% higher this year than it was in 2003. As 2005 dawns, we can expect continued expansion of intermodal, to the gain of both trucking and the railroads.
This story appeared in the Dec. 20 edition of Transport Topics. Subscribe today.
