Executive Briefings

Riding the Rails Out of the Intermodal Muddle

Railroads are managing growth in international and domestic intermodal for now, but broad policy decisions must be made on how to insure capacity meets robust demand in the future.

Large retailers and manufacturers are breathing a sigh of relief as the peak season for imports gets under way without any sign of all-too-familiar transportation disruptions. Between now and October monthly container volume will build to nearly two million boxes moving through major U.S. ports. Truck drivers and trailers and chassis will be at a premium, and the rail intermodal system will be pushed beyond 100 percent capacity. But according to Paul Bingham, an economist with the research firm Global Insight, there is little immediate danger of port congestion or choking of the domestic systems that has plagued the industry in recent years.

"The bottom line is that we expect the industry to get through the 2006 peak season without serious congestion," says Bingham, who tracks transportation issues for the National Retail Federation.

This rosier-than-usual scenario is the result of hard work by ocean carriers, ports and terminals to move freight from ships onto trucks and trains. Railroads in particular are investing time, money and effort into maximizing the capacity on their systems and establishing more seamless hand-offs of intermodal traffic between lines. But behind this facade of well-being, few shippers realize what a delicate balance exists between today's workable transportation system and a future one that could again be choked by too much freight trying to move along too small an intermodal pathway. Which way that balance tilts depends very much on decisions that all parties, including railroads, motor carriers, ports, shippers and government agencies, make in the next few years.

For example, consider the following facts:
• The American Association of State Highway and Transportation Officials projects that U.S domestic and international freight tonnage will grow by at least 67 percent by 2020.

• The number of import containers has grown eightfold in the last 25 years to 400 million twenty-foot equivalents (TEUs) per year.

• The Port of Los Angeles/Long Beach estimates that containerized imports through that port will more than double the traffic through this key facility in just 15 years.

• For the last 25 years, the capacity growth rate of the nation's entire transportation infrastructure has remained static.

Nowhere is this capacity crunch more apparent than on the nation's railroads that have actually been reducing their networks to rationalize costs and improve return on assets.

"We have reached a point where demand has exceeded the railroad industry's capacity to haul all of this traffic," says John Ficker, president of the National Industrial Transportation League, whose members include the largest freight shippers in the country. "This has caused congestion over significant parts of the national rail system, resulting in a substantial deterioration in service levels. Meaningful service provisions in contracts are virtually impossible to obtain."

To their credit, the railroads are rapidly trying to catch up and are investing $8.3bn this year alone in capital expenditures for terminals, track and equipment.

Tom Shurstad, president of Pacer International, a multimodal logistics company that contracts for huge amounts of stacktrain capacity on several U.S. railroads, says that railroads know the political implications of their past service problems.

"A lot of pain etched itself on the minds of the railroads in 2004," says Shurstad. "They will not let the disruptive problems of the past repeat themselves."

Pacer provides both wholesale and retail intermodal services. For other ocean carriers and other transportation companies, it manages large volumes of containers on stacktrains. At the retail level, Pacer manages container and trailer movements for individual shippers and receivers. In either case, Pacer is so dependent on the performance of its underlying rail carriers that it constantly monitors average train speeds to measure how the railroads are performing from origin to destination.

"We even measure how long boxcar traffic is held at terminals," he says. "If the terminal time goes up, that means the system is getting sluggish and it is a warning of impending problems for intermodal traffic."

Pacer also has positioned 100 employees around the country at rail terminals to make sure its shipments are moving as planned. Even though its containers ride the same stacktrains as other Union Pacific traffic, Pacer's terminal-to-door delivery times from Los Angeles to Chicago average a day-and-a-half faster. Pacer tightly manages terminal operations at either end.

"When a load comes into our yard near the port, our people make sure the container gets on the train that night, moves to Chicago on time and gets unloaded as soon as it arrives in Chicago," says Shurstad. "We notify the customer immediately to arrange delivery. This is a huge customer service challenge with costs attached, but it has proved to be a major driver of our business."

Pacer is somewhat unique in that it not only provides both wholesale and retail intermodal service, but it also provides some of its own equipment as well as cartage and dray services at either end of the move.

For example, a typical move for wholesale customer Hapag Lloyd would be to take a loaded container from a West Coast port via stacktrain to Atlanta, where Pacer's cartage operation would deliver it on a chassis to an importer's distribution center and take the empty to Pacer's local terminal. Pacer's retail intermodal marketing company (IMC) would find a local westbound domestic load, use its cartage company in Atlanta to take the container to the shipper for loading, and from there to a rail terminal to be put on a Pacer stacktrain. Upon arrival on the West Coast, Pacer's cartage company delivers the domestic load to a receiver and then takes the empty container back to Hapag Lloyd at the Port of Los Angeles.

"We capture all the pieces of these moves with our various profit centers," says Shurstad. "That is how our intermodal business model is supposed to work."

Domestic Intermodal
Unfortunately, intermodal does not always work so seamlessly, especially for domestic moves that traditionally have been handled by small to medium IMCs with limited capabilities. Essentially acting as brokers, the IMC must sell freight capacity to beneficial shippers, obtain equipment-usually from the railroad-coordinate pickups and drop-offs with draymen at either end and manage the entire door-to-door service level. This complex arrangement yields thin margins and has not been a model for dynamic growth of domestic intermodal. While a handful of firms with IMC operations such as Pacer, the Hub Group, NYK Logistics and Alliance Shippers have grown into thriving third-party logistics operations with their own equipment, sophisticated systems and local logistics capabilities, the IMC industry as a whole has actually been losing market share to competitors for a number of years. According to the Intermodal Association of North America (IANA), which represents the entire intermodal industry, the annual number of loads brokered by IMCs has dropped from nearly four million in 1998 to about two million in 2005.

"[Railroads] won't let the disruptive problems of the past repeat themselves."
- Tom Shurstad of Pacer International

Steve Branscum, group vice president of consumer products marketing for the Burlington Northern Santa Fe believes that a more successful domestic intermodal model is being driven by motor carriers working in close partnership with the railroads. For the trucker, rail-provided linehaul service can greatly reduce their fuel and labor costs. From the railroad's point of view, truckers can solve a number of problems that have long stifled the growth of domestic intermodal. For example:

• Motor carriers do the pickup and drop-off in their own trailers, and take overall responsibility for services levels to the end customer

• Armed with data from the railroads, motor carriers can provide the in-transit visibility that customers demand

• Truckers own their own equipment, which saves the railroads capital. Because of they own the equipment, the truckers will manage its utilization far better than an intermediary only concerned about selling one-way moves

• Motor carriers have close relationships with their customers, so they know which freight can move intermodally. The motor carrier also can pick and choose freight that will allow them to balance equipment.

Of course, all railroads have long been happy to take truckers' freight-as long as it is in containers. But this restriction adds cost and operational complexity to motor carriers to the point only the largest ones, such as Schneider National and J.B. Hunt, have been major users. BNSF wanted to develop services that would attract freight from all motor carriers.

"Truckers had long been told by railroads that to move trailers intermodally they needed special suspensions and reinforced frames to withstand the lifting process," says Branscum. "We modified our lift equipment throughout our network so any truck trailer could be used."

BNSF also created an expedited truckload service that consistently provided service that matched or exceeded the 500 miles a day that quality motor carriers require. In fact, trailers moving across BNSF's 2,000-mile West-to-East system arrive in just 2.6 days, while containers moving on stacktrains-international or domestic-receive a standard service of just under five days.

"Motor carriers and parcel express companies use these different service levels to provide their customers with the services they demand," says Branscum. "As a result, our domestic intermodal business is growing nicely."

BNSF's domestic business now accounts for nearly 40 percent of its annual intermodal traffic of 5.5 million units. Of this domestic intermodal traffic, two-thirds is expedited trailer freight and the rest are carrier-owned containers. Perhaps more important, BNSF now is working with 65 different trucking companies, some of which are very small.

"Many railroads think that trailer-on-flatcar is a thing of the past, but we don't," says Branscum. "The TL industry is fragmented. No one carrier has more than five percent of the market, so thousands of small carriers control most of the freight. We created a product that makes it easy for them to use our railroad to support their customers."

Building Capacity
Generating more domestic intermodal traffic is just part of the challenge. Railroads must build capacity and improve service levels to handle this increased traffic. The BNSF alone is investing $2bn in capital projects such as double-tracking between the West Coast and Chicago and adding higher capacity terminals at either end of its system. According to Branscum, the BNSF has three initiatives that will specifically help it to meet its intermodal service requirements:

• Building logistics parks at the eastern ends of its network in Minneapolis/St. Paul, Chicago, Kansas City and Memphis and Dallas. Much of the international volume from West Coast ports needs to move rapidly to the center of the U.S., so the BNSF is developing logistics parks that include intermodal yards to receive stacktrain quantities of containers as well as space for large retail distribution centers and cross-dock facilities. The freight moves directly through these logistics parks by truck to retail stores.

• Increasing use of on-dock rail transfers directly from ships at West Coast ports. In the past, containers have been trucked from the piers to nearby rail yards, but these transfers are highly inefficient and time consuming. Now, 65 percent of the BNSF's international movements are being offloaded, or loaded at on-dock facilities. It was just 20 percent a few years ago.

• Running larger trains to fully utilize network capacity. A 130-car train takes the same slot on the network as a 250-car unit, so the BNSF maximizes the length of the train with the right kind of cars to carry the most shipments. That effort has been so productive that it ran an additional 1.5 million shipments over the last three years with no increase in the number of trains.

But the railroads cannot solve the intermodal transportation problems on their own. Branscum enumerates what ports can do to improve handling of international containers:

• Expand the PierPass program to include containers that will move via rail as well as truck. The PierPass program, started at the ports of Los Angeles and Long Beach, have greatly helped ease congestion and truck more containers out of the terminals by expanding the hours of operation of their gates. The railroads would like to see the ports expand the program to include on-dock rail operation. Most ports now only work two shifts a day, five days a week. "They need to work round the clock, 365 days a year, just like we do," says Branscum.

• Better manage dwell time of containers. Ports and steamship lines have been fairly lenient in how long they will let containers sit at the port. If this free time were reduced to a day or two, receivers, forwarders, transportation companies and other parties would move their containers out quickly and greatly reduce terminal congestion.

Shippers and receivers need to take more responsibility for the congestion problems that they so frequently complain about. Branscum provides three suggestions:

• Shippers can make better use of all the ports on the West Coast. Ocean carriers gravitate to L.A./Long Beach because so much of the cargo terminates in California. And by using just one U.S. port of call, the carriers can turn the ship around back to Asia more quickly. But shippers and receivers beyond California can lessen the congestion at these ports, and speed up their own cargo, by using ocean carriers that will call at other West Coast ports.

• When shippers make better use of other ports, they need to manage the freight flows better. Receivers create unnecessary delay and inefficiency by routing all freight to all inland destinations through all ports. Receivers need to be more cognizant of which inland destinations are best served from which port, and route freight accordingly. Railroads can then create greater density on certain lanes, which is good for rail efficiency and transit times.

• Once containers move to the inland point, the receivers need to make their operations more accessible 24/7. Company DCs often operate only five days a week with one shift, which makes timely delivery of containers and trailers impossible. These delays frustrate carrier service performance. In extreme cases undeliverable containers can clog intermodal terminal operations to the point trains have to be stopped en route because there is no place to discharge the containers. "There needs to be more syncing of hours of operations between the ports, the railroads and receivers," says Branscum. "We can provide much better service if these entities would work the same extended schedules that the railroads do."

Time for Federal Investment?
The question is, are the railroads' system-wide investments, coupled with productivity improvements, enough to meet the shipping public's intermodal transportation needs in the decades ahead? Or, has the time has come for some degree of federal support to improve rail infrastructure, especially for intermodal improvements? After all, federal and local governments spend billions on highways, port facilities and airports, but the rail industry depends entirely on private capital.

Gil Carmichael, former Federal Railroad Administrator at the DOT and now chairman of the Intermodal Transportation Institute at the University of Denver, is a strong proponent of more federal involvement in intermodal transportation with what he calls Interstate II. He favors federal backing for tax-exempt bonds that would allow railroads to upgrade their track rights of way to levels needed for decades to come.

"Interstate II would connect all of our major cities and transportation," says Carmichael. "The operational and economic efficiency of an interconnected intermodal freight system would conserve fuel, increase capacity, benefit our economy and reduce environmental impacts."

Last spring before the House Transportation and Infrastructure Committee, BNSF Chairman and CEO Matt Rose supported legislative proposals for a 25 percent investment tax credit for the railroads. He pointed out that such a credit would allow the BNSF's $2bn investment to be effectively leveraged to $4bn.

"It is an example of public policy that will incent continued investments for capital expansion by our industry," Rose said.

The NITL's John Ficker is skeptical. With the railroads earning record profits and private capital in abundance, he doesn't see the need for the federal government to step in.

"Railroads own the longhaul market for containers, and there aren't too many trucks routinely moving between L.A. and Chicago that are not on a train unless there is a special reason," says Ficker.

On the other hand, he says shippers would welcome broad public discussion on what all parties can do to shift more short-haul freight to rail. He even allows that there may be a need for local government investment in ramps or equipment to stimulate short-haul intermodal.

"But we are not willing to go down the path of direct federal investment in railroads," says Ficker, citing financial reports that show railroads are earning more than enough to make any needed investments.

Achieving a return on investment is the crux of the issue for those on the front lines of the intermodal industry. Unlike coal or agricultural products, intermodal transportation is still being sold at a steep discount to all-highway transportation, which means the margins are so thin that it is hard for railroads to earn an acceptable return on investments that can improve overall service. It becomes a vicious circle. The rate for moving a container by truck is now about $1.70 per mile, while moving that same container by rail earns only about $1 a mile. To a large degree, that discount is based on the incorrect perception that the service is inferior.

Phil Yeager, chairman of the Hub Group and a long-time leader in the intermodal industry, believes that some sort of federal support for infrastructure improvements are appropriate to deal with the capacity issues that threaten to stifle intermodal transportation.

"Customers are excited about intermodal and its ability to deal with long-term capacity problems, but they are looking for higher service levels with more consistency," says Yeager. The capacity situation is limiting the railroad's ability to provide higher levels of intermodal service, so Yeager believes that Federal support along the lines of what Rose calls for could speed up the time to deal with these challenges.

"All you have to do is to look at where China is putting its transportation investments," says Yeager. "A large portion of their investments are going to rail infrastructure, not just highways. China is building for its long-term freight capacity needs, and so should we. We are operating in a global economy, so let's make sure we are at least as smart as our competitors."

Large retailers and manufacturers are breathing a sigh of relief as the peak season for imports gets under way without any sign of all-too-familiar transportation disruptions. Between now and October monthly container volume will build to nearly two million boxes moving through major U.S. ports. Truck drivers and trailers and chassis will be at a premium, and the rail intermodal system will be pushed beyond 100 percent capacity. But according to Paul Bingham, an economist with the research firm Global Insight, there is little immediate danger of port congestion or choking of the domestic systems that has plagued the industry in recent years.

"The bottom line is that we expect the industry to get through the 2006 peak season without serious congestion," says Bingham, who tracks transportation issues for the National Retail Federation.

This rosier-than-usual scenario is the result of hard work by ocean carriers, ports and terminals to move freight from ships onto trucks and trains. Railroads in particular are investing time, money and effort into maximizing the capacity on their systems and establishing more seamless hand-offs of intermodal traffic between lines. But behind this facade of well-being, few shippers realize what a delicate balance exists between today's workable transportation system and a future one that could again be choked by too much freight trying to move along too small an intermodal pathway. Which way that balance tilts depends very much on decisions that all parties, including railroads, motor carriers, ports, shippers and government agencies, make in the next few years.

For example, consider the following facts:
• The American Association of State Highway and Transportation Officials projects that U.S domestic and international freight tonnage will grow by at least 67 percent by 2020.

• The number of import containers has grown eightfold in the last 25 years to 400 million twenty-foot equivalents (TEUs) per year.

• The Port of Los Angeles/Long Beach estimates that containerized imports through that port will more than double the traffic through this key facility in just 15 years.

• For the last 25 years, the capacity growth rate of the nation's entire transportation infrastructure has remained static.

Nowhere is this capacity crunch more apparent than on the nation's railroads that have actually been reducing their networks to rationalize costs and improve return on assets.

"We have reached a point where demand has exceeded the railroad industry's capacity to haul all of this traffic," says John Ficker, president of the National Industrial Transportation League, whose members include the largest freight shippers in the country. "This has caused congestion over significant parts of the national rail system, resulting in a substantial deterioration in service levels. Meaningful service provisions in contracts are virtually impossible to obtain."

To their credit, the railroads are rapidly trying to catch up and are investing $8.3bn this year alone in capital expenditures for terminals, track and equipment.

Tom Shurstad, president of Pacer International, a multimodal logistics company that contracts for huge amounts of stacktrain capacity on several U.S. railroads, says that railroads know the political implications of their past service problems.

"A lot of pain etched itself on the minds of the railroads in 2004," says Shurstad. "They will not let the disruptive problems of the past repeat themselves."

Pacer provides both wholesale and retail intermodal services. For other ocean carriers and other transportation companies, it manages large volumes of containers on stacktrains. At the retail level, Pacer manages container and trailer movements for individual shippers and receivers. In either case, Pacer is so dependent on the performance of its underlying rail carriers that it constantly monitors average train speeds to measure how the railroads are performing from origin to destination.

"We even measure how long boxcar traffic is held at terminals," he says. "If the terminal time goes up, that means the system is getting sluggish and it is a warning of impending problems for intermodal traffic."

Pacer also has positioned 100 employees around the country at rail terminals to make sure its shipments are moving as planned. Even though its containers ride the same stacktrains as other Union Pacific traffic, Pacer's terminal-to-door delivery times from Los Angeles to Chicago average a day-and-a-half faster. Pacer tightly manages terminal operations at either end.

"When a load comes into our yard near the port, our people make sure the container gets on the train that night, moves to Chicago on time and gets unloaded as soon as it arrives in Chicago," says Shurstad. "We notify the customer immediately to arrange delivery. This is a huge customer service challenge with costs attached, but it has proved to be a major driver of our business."

Pacer is somewhat unique in that it not only provides both wholesale and retail intermodal service, but it also provides some of its own equipment as well as cartage and dray services at either end of the move.

For example, a typical move for wholesale customer Hapag Lloyd would be to take a loaded container from a West Coast port via stacktrain to Atlanta, where Pacer's cartage operation would deliver it on a chassis to an importer's distribution center and take the empty to Pacer's local terminal. Pacer's retail intermodal marketing company (IMC) would find a local westbound domestic load, use its cartage company in Atlanta to take the container to the shipper for loading, and from there to a rail terminal to be put on a Pacer stacktrain. Upon arrival on the West Coast, Pacer's cartage company delivers the domestic load to a receiver and then takes the empty container back to Hapag Lloyd at the Port of Los Angeles.

"We capture all the pieces of these moves with our various profit centers," says Shurstad. "That is how our intermodal business model is supposed to work."

Domestic Intermodal
Unfortunately, intermodal does not always work so seamlessly, especially for domestic moves that traditionally have been handled by small to medium IMCs with limited capabilities. Essentially acting as brokers, the IMC must sell freight capacity to beneficial shippers, obtain equipment-usually from the railroad-coordinate pickups and drop-offs with draymen at either end and manage the entire door-to-door service level. This complex arrangement yields thin margins and has not been a model for dynamic growth of domestic intermodal. While a handful of firms with IMC operations such as Pacer, the Hub Group, NYK Logistics and Alliance Shippers have grown into thriving third-party logistics operations with their own equipment, sophisticated systems and local logistics capabilities, the IMC industry as a whole has actually been losing market share to competitors for a number of years. According to the Intermodal Association of North America (IANA), which represents the entire intermodal industry, the annual number of loads brokered by IMCs has dropped from nearly four million in 1998 to about two million in 2005.

"[Railroads] won't let the disruptive problems of the past repeat themselves."
- Tom Shurstad of Pacer International

Steve Branscum, group vice president of consumer products marketing for the Burlington Northern Santa Fe believes that a more successful domestic intermodal model is being driven by motor carriers working in close partnership with the railroads. For the trucker, rail-provided linehaul service can greatly reduce their fuel and labor costs. From the railroad's point of view, truckers can solve a number of problems that have long stifled the growth of domestic intermodal. For example:

• Motor carriers do the pickup and drop-off in their own trailers, and take overall responsibility for services levels to the end customer

• Armed with data from the railroads, motor carriers can provide the in-transit visibility that customers demand

• Truckers own their own equipment, which saves the railroads capital. Because of they own the equipment, the truckers will manage its utilization far better than an intermediary only concerned about selling one-way moves

• Motor carriers have close relationships with their customers, so they know which freight can move intermodally. The motor carrier also can pick and choose freight that will allow them to balance equipment.

Of course, all railroads have long been happy to take truckers' freight-as long as it is in containers. But this restriction adds cost and operational complexity to motor carriers to the point only the largest ones, such as Schneider National and J.B. Hunt, have been major users. BNSF wanted to develop services that would attract freight from all motor carriers.

"Truckers had long been told by railroads that to move trailers intermodally they needed special suspensions and reinforced frames to withstand the lifting process," says Branscum. "We modified our lift equipment throughout our network so any truck trailer could be used."

BNSF also created an expedited truckload service that consistently provided service that matched or exceeded the 500 miles a day that quality motor carriers require. In fact, trailers moving across BNSF's 2,000-mile West-to-East system arrive in just 2.6 days, while containers moving on stacktrains-international or domestic-receive a standard service of just under five days.

"Motor carriers and parcel express companies use these different service levels to provide their customers with the services they demand," says Branscum. "As a result, our domestic intermodal business is growing nicely."

BNSF's domestic business now accounts for nearly 40 percent of its annual intermodal traffic of 5.5 million units. Of this domestic intermodal traffic, two-thirds is expedited trailer freight and the rest are carrier-owned containers. Perhaps more important, BNSF now is working with 65 different trucking companies, some of which are very small.

"Many railroads think that trailer-on-flatcar is a thing of the past, but we don't," says Branscum. "The TL industry is fragmented. No one carrier has more than five percent of the market, so thousands of small carriers control most of the freight. We created a product that makes it easy for them to use our railroad to support their customers."

Building Capacity
Generating more domestic intermodal traffic is just part of the challenge. Railroads must build capacity and improve service levels to handle this increased traffic. The BNSF alone is investing $2bn in capital projects such as double-tracking between the West Coast and Chicago and adding higher capacity terminals at either end of its system. According to Branscum, the BNSF has three initiatives that will specifically help it to meet its intermodal service requirements:

• Building logistics parks at the eastern ends of its network in Minneapolis/St. Paul, Chicago, Kansas City and Memphis and Dallas. Much of the international volume from West Coast ports needs to move rapidly to the center of the U.S., so the BNSF is developing logistics parks that include intermodal yards to receive stacktrain quantities of containers as well as space for large retail distribution centers and cross-dock facilities. The freight moves directly through these logistics parks by truck to retail stores.

• Increasing use of on-dock rail transfers directly from ships at West Coast ports. In the past, containers have been trucked from the piers to nearby rail yards, but these transfers are highly inefficient and time consuming. Now, 65 percent of the BNSF's international movements are being offloaded, or loaded at on-dock facilities. It was just 20 percent a few years ago.

• Running larger trains to fully utilize network capacity. A 130-car train takes the same slot on the network as a 250-car unit, so the BNSF maximizes the length of the train with the right kind of cars to carry the most shipments. That effort has been so productive that it ran an additional 1.5 million shipments over the last three years with no increase in the number of trains.

But the railroads cannot solve the intermodal transportation problems on their own. Branscum enumerates what ports can do to improve handling of international containers:

• Expand the PierPass program to include containers that will move via rail as well as truck. The PierPass program, started at the ports of Los Angeles and Long Beach, have greatly helped ease congestion and truck more containers out of the terminals by expanding the hours of operation of their gates. The railroads would like to see the ports expand the program to include on-dock rail operation. Most ports now only work two shifts a day, five days a week. "They need to work round the clock, 365 days a year, just like we do," says Branscum.

• Better manage dwell time of containers. Ports and steamship lines have been fairly lenient in how long they will let containers sit at the port. If this free time were reduced to a day or two, receivers, forwarders, transportation companies and other parties would move their containers out quickly and greatly reduce terminal congestion.

Shippers and receivers need to take more responsibility for the congestion problems that they so frequently complain about. Branscum provides three suggestions:

• Shippers can make better use of all the ports on the West Coast. Ocean carriers gravitate to L.A./Long Beach because so much of the cargo terminates in California. And by using just one U.S. port of call, the carriers can turn the ship around back to Asia more quickly. But shippers and receivers beyond California can lessen the congestion at these ports, and speed up their own cargo, by using ocean carriers that will call at other West Coast ports.

• When shippers make better use of other ports, they need to manage the freight flows better. Receivers create unnecessary delay and inefficiency by routing all freight to all inland destinations through all ports. Receivers need to be more cognizant of which inland destinations are best served from which port, and route freight accordingly. Railroads can then create greater density on certain lanes, which is good for rail efficiency and transit times.

• Once containers move to the inland point, the receivers need to make their operations more accessible 24/7. Company DCs often operate only five days a week with one shift, which makes timely delivery of containers and trailers impossible. These delays frustrate carrier service performance. In extreme cases undeliverable containers can clog intermodal terminal operations to the point trains have to be stopped en route because there is no place to discharge the containers. "There needs to be more syncing of hours of operations between the ports, the railroads and receivers," says Branscum. "We can provide much better service if these entities would work the same extended schedules that the railroads do."

Time for Federal Investment?
The question is, are the railroads' system-wide investments, coupled with productivity improvements, enough to meet the shipping public's intermodal transportation needs in the decades ahead? Or, has the time has come for some degree of federal support to improve rail infrastructure, especially for intermodal improvements? After all, federal and local governments spend billions on highways, port facilities and airports, but the rail industry depends entirely on private capital.

Gil Carmichael, former Federal Railroad Administrator at the DOT and now chairman of the Intermodal Transportation Institute at the University of Denver, is a strong proponent of more federal involvement in intermodal transportation with what he calls Interstate II. He favors federal backing for tax-exempt bonds that would allow railroads to upgrade their track rights of way to levels needed for decades to come.

"Interstate II would connect all of our major cities and transportation," says Carmichael. "The operational and economic efficiency of an interconnected intermodal freight system would conserve fuel, increase capacity, benefit our economy and reduce environmental impacts."

Last spring before the House Transportation and Infrastructure Committee, BNSF Chairman and CEO Matt Rose supported legislative proposals for a 25 percent investment tax credit for the railroads. He pointed out that such a credit would allow the BNSF's $2bn investment to be effectively leveraged to $4bn.

"It is an example of public policy that will incent continued investments for capital expansion by our industry," Rose said.

The NITL's John Ficker is skeptical. With the railroads earning record profits and private capital in abundance, he doesn't see the need for the federal government to step in.

"Railroads own the longhaul market for containers, and there aren't too many trucks routinely moving between L.A. and Chicago that are not on a train unless there is a special reason," says Ficker.

On the other hand, he says shippers would welcome broad public discussion on what all parties can do to shift more short-haul freight to rail. He even allows that there may be a need for local government investment in ramps or equipment to stimulate short-haul intermodal.

"But we are not willing to go down the path of direct federal investment in railroads," says Ficker, citing financial reports that show railroads are earning more than enough to make any needed investments.

Achieving a return on investment is the crux of the issue for those on the front lines of the intermodal industry. Unlike coal or agricultural products, intermodal transportation is still being sold at a steep discount to all-highway transportation, which means the margins are so thin that it is hard for railroads to earn an acceptable return on investments that can improve overall service. It becomes a vicious circle. The rate for moving a container by truck is now about $1.70 per mile, while moving that same container by rail earns only about $1 a mile. To a large degree, that discount is based on the incorrect perception that the service is inferior.

Phil Yeager, chairman of the Hub Group and a long-time leader in the intermodal industry, believes that some sort of federal support for infrastructure improvements are appropriate to deal with the capacity issues that threaten to stifle intermodal transportation.

"Customers are excited about intermodal and its ability to deal with long-term capacity problems, but they are looking for higher service levels with more consistency," says Yeager. The capacity situation is limiting the railroad's ability to provide higher levels of intermodal service, so Yeager believes that Federal support along the lines of what Rose calls for could speed up the time to deal with these challenges.

"All you have to do is to look at where China is putting its transportation investments," says Yeager. "A large portion of their investments are going to rail infrastructure, not just highways. China is building for its long-term freight capacity needs, and so should we. We are operating in a global economy, so let's make sure we are at least as smart as our competitors."