Opinion: Let Truckers Run the Intermodal Service

By Dan Lang

taff Reporter

For decades, railroads have been trying to build their intermodal business at the expense of trucking. For decades, it hasn’t worked.

Maybe it is because railroads are the wrong ones to

ake intermodal grow. Maybe it should be trucking.

Railroads seized on intermodal as the single best hope of achieving business growth. Their core businesses, like coal and grain, provide the greater share of rail revenue, but it is clear that growth prospects are limited.

Intermodal is a different story. Throughout the 1990s, railroad intermodal traffic grew by leaps and bounds to become second only to coal as a source of railroad traffic. That growth, however, largely has been what might be expected from an expanding economy.

Because truck traffic grew as well, there was always the expectation that the ultimate measure of the success of intermodal would be a shift of traffic from highways to railways. Indeed, Norfolk Southern Railway and CSX Corp. won approval of their plan to buy and divide Conrail partly because they promised that the transaction would result in the diversion of 1.1 million truckloads a year from the highways of the East, South and Midwest.

Few analysts gave much weight to that promise, and of course, it did not come to pass. But no one foresaw the embarrassing reality — that the Conrail transaction, like the 1997 “meltdown” after the Union Pacific-Southern Pacific merger, would result in intermodal traffic being lost to the highways.

But that’s what happened.

Despite a year of planning, which CSX and NS said was for the express purpose of avoiding the kind of troubles experienced by UP, the beginning of operations over former Conrail lines saw service fall apart on both railroads. Frustrated shippers left the rails for the highways.

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So it is time to ask some questions.

Have these service problems signaled a failure of the intermodal concept?

Is the idea that railroads can win any significant amount of truck traffic with intermodal service just plain wrong?

In trying to “grow” intermodal, railroads are pinning their hopes on their weakest, least profitable line of business. Has any company or industry ever done that successfully? Can a company or industry succeed by using the profits from its strong businesses to support emphasis on the weak ones?

The railroads have made intermodal viable over some routes and distances. But to make it compete successfully with trucks, they have to shorten those distances.

And they can’t do that.

The point of rail service is to make up trains that can economically carry a lot of traffic a long distance — just the opposite of trucking, where a single truckload may be dispatched over a variety of distances.

If a train of, say, 50 flatcars must sit in a terminal until all cars are filled, that train has already handed truck competitors an important advantage.

A truck leaves as soon as it is loaded.

So railroads, unable to find ways to overcome the basic nature of their business, have sought to undermine trucking efficiency by supporting laws that limit sizes and weights or introduce new road-use costs for trucking. They do it under the guise of concern about trucking safety. They have engaged in public relations and advertising campaigns to keep the public worried about trucks and supportive of any plan that promises to reduce the number of trucks on the road.

Even so, few believe that railroads are engaged in a winnable effort.

But the flaw is not in the concept of intermodal; it is in the way it is being applied.

The need, it seems, is for a trucking company to acquire an intermodal railroad.

A railroad operating intermodal service seeks to lure truck traffic to the rails — whether they are the most efficient mode or not. If one of the big trucking companies controlled intermodal facilities, the pressure to feed traffic on to the rails would not exist.

Look at United Parcel Service, which spends hundreds of millions of dollars each year on intermodal and also operates its own trucks, large and small. Intermodal is an important service for UPS, but twice in the past five years, UPS has pulled its traffic off of railroads when the service deteriorated.

How much more efficient might UPS be if it controlled the intermodal part of its movements as firmly as the highway portion?

Viewed from the railroad point of view, intermodal falls short because it has not returned big profits to the railroads. However, if the service were viewed not as an adjunct of railroading, but of trucking, the development of intermodal services would be a natural outgrowth of customer needs — not railroad marketing.

And it might succeed very well indeed.

Mr. Lang reports on intermodal and railroad issues, in addition to trucking equipment, for Transport Topics.