Executive Briefings

Shippers Get a Break From Supply Chain Gridlock, But Relief May Be Temporary

Companies are rushing to take advantage of low-cost country sourcing, but the right processes and technology must be in place before expected savings can be realized.

Unlike in 2004, international containerized cargo moved relatively smoothly through the U.S. transportation system last year. But that doesn't mean that shippers and carriers can ignore the possibility of future congestion.

In fact, things weren't quite as rosy in 2005 as reports suggested. During the peak summer shipping season, imports moving to U.S. destinations by rail and truck were regularly delayed by up to a week, according to Albert A. Pierce, executive director of the Transpacific Stabilization Agreement. Containers arriving at West Coast ports, particularly in Southern California, were still backing up on the docks or at inland storage facilities. A shortage of rail equipment led to delays of between one and four days, as cargo became stalled at various points in the pipeline. Additional delays were seen at the Panama Canal, which was operating at near capacity due to carriers' increased reliance on all-water service between Asia and the U.S. East Coast.

None of those problems approached the severity of 2004, when shippers and carriers alike were caught unprepared for a sharp increase in imports from Asia. The result was massive tie-ups throughout the system. In some cases, vessels waited 10 days or more to unload their containers at the ports of Los Angeles and Long Beach. There were further snarls in the inland intermodal system.

The crisis of 2004 was due to multiple factors, according to Barry Horowitz, a former logistics executive who is now general manager of container marketing at the Port of Portland, Ore. Longshore labor was in short supply, the railroads weren't prepared for the surge in business, and carriers couldn't secure enough containers for the available freight. The last factor was partly the result of an economic boom in China, which snapped up most of the world's steel production in massive building projects.

Connecting infrastructure was similarly lacking. Road and rail capacity was "woefully inadequate," says Horowitz.

Carriers vowed that 2005 wouldn't see a repeat of that disaster. One major strategy was to divert import containers away from Southern California in favor of terminals in the Pacific Northwest. But if ports like Portland thought they were in for a windfall of new business, they were disappointed. Carriers continued to be drawn to Los Angeles and Long Beach due to a combination of that region's direct rail connections to the interior, and a massive consumer market for goods sold locally.

In theory, carriers should have been tempted more strongly by the Northwest's intermodal capacity, says Horowitz. As in Southern California, import containers unloaded at the ports can move intact all the way to destinations such as Chicago, Memphis and New York. But a demand for empty containers in Asia caused carriers to turn many boxes at the port, with their contents transloaded into domestic equipment. No shipping line could afford to have its equipment wandering around inland while it struggled to meet the demand for boxes moving eastbound from China and other Asian locations.

All-water service to the East Coast, via the Panama Canal, is another option to be embraced by trans-Pacific carriers. Some importers in the eastern U.S. are willing to wait longer for their goods if they can count on the shipments arriving on time. Still, Southern California continues to be the major gateway for U.S. containerized imports from Asia, and it's there that shippers and carriers are seeking long-term solutions to the congestion problem.

The PierPASS Experiment
The biggest effort to date is PierPASS, a program that levies a "traffic mitigation fee" on containers moving out of Los Angeles and Long Beach marine terminals by road during peak hours, from 3:00 a.m. to 6:00 p.m. Monday through Friday. The money is used to pay for additional shifts at the terminals from 6:00 p.m. to 3:00 a.m. Monday through Thursday, and from 8:00 a.m. to 6:00 p.m. on Saturday. The effect is to reduce the number of trucks on local roads and freeways during peak hours.

By all accounts, PierPASS has been an early success. More than half a million trucks were removed from peak daytime traffic between the program's startup in July and October 2005, officials claim. That represents roughly a third of all eligible containers moving over port docks. Organizers hope to increase that share to 50 percent.

PierPASS was "a big help," says Horowitz. "It had to be a cooperative effort, which we so rarely see in this business." The program's ultimate success depended on numerous players in the supply chain, including ocean carriers, marine terminal operators, labor unions, truckers and local receiving docks, all agreeing to operate in the off-hours.

Other factors in relieving congestion over the past year included the addition of trains and slower growth in trans-Pacific imports. At the same time, the International Longshore & Warehouse Union (ILWU) promoted 2,000 part-time workers to full-time and added 5,000 more part-time positions in Los Angeles and Long Beach alone.

"Anything that gives more flexibility to shippers, we're in favor of. That's something you'll see in 2006."
- Mark Yeager of Hub Group Inc.

For the moment, then, the crisis is over. Horowitz says shipping lines might even experience unused capacity this year, as larger ships come into service. But many of the problems that caused the crunch of 2004 are far from solved. On the contrary, they promise to set off a new wave of congestion if trade continues to grow in line with industry analysts' projections, and steps aren't taken to make the intermodal pipeline more efficient.

For Don Snyder, director of trade and maritime services at the Port of Long Beach, it all comes down to having the right infrastructure in place, both at the ports and inland. First, however, planners must decide who will pay for the necessary work. Government funding sources are rapidly drying up, as Congress cuts both taxes and public works programs. Snyder sees a disconnect between the U.S. government's push for more international trade and a transportation policy "that doesn't seem to be in line with that."

The catalyst for congestion in 2004 was the railroads' inability to provide enough equipment to move freight to and from the ports, says Snyder. That set off a chain reaction throughout the system, made worse by the shortfall of dockside labor. About half the containers entering the Port of Long Beach are transferred onto the rails, he says, but there isn't enough on-dock capacity to handle the volume efficiently. Moreover, intermodal yards are often too small to assemble an entire unit train.

One solution is to make better use of available land. Long Beach is launching a program of "land recycling," under which it will fill in slips and link smaller terminals to make larger ones. The work should aid in the assembly of mile-and-a-half-long unit trains to support giant new containerships coming online over the next year, with capacity of up to 8,000 forty-foot boxes. Taking up to five days to unload, such behemoths can paralyze a container yard and its connecting infrastructure.

Snyder cites PierPASS as a major reason why the docks remained mostly clear during the peak shipping season of 2005. Another was a reduction in free-time allowances by the ports of Long Beach and Los Angeles. Shippers now have four business days in which to remove their containers from port property without incurring storage charges, one less than before. What's more, the free period begins the moment an individual container hits the marine terminal. Previously, the ports didn't start the clock running until all containers were discharged from the vessel. The new plan means that containers move out of the port on a staggered basis, instead of cargo owners all showing up for their freight on the last day of free time.

Longer term, Long Beach has hatched an idea it calls the Virtual Container Yard. The plan calls for better communication among importers about local equipment availability. For example, a distributor unloading an import container at an inland point might learn that another shipper next door is in need of the empty box. The equipment is transferred directly without the need for an extra trip to and from the docks-yet another scheme for reducing truck traffic on local freeways. Snyder says the port hopes to launch the plan this year.

The Big Bottleneck
The biggest choke point at marine facilities is the entry and exit gate, says Ed DeNike, president of terminal operator SSA Containers. Truckers have long complained of the long wait times involved in picking up containers. PierPASS is one answer, but it's only the beginning. New scanning systems, utilizing optical character readers and radio-frequency technology, can help to speed the movement of trucks through the gate while eliminating paper documentation. In addition, DeNike says, planners must look for ways to increase terminal acreage and rail infrastructure.

Some U.S. ports have talked of shifting from wheeled operations, in which containers are immediately transferred to chassis, to a stacked configuration. Ports such as Hong Kong have long relied on stacking to make better use of limited berthside land.

DeNike says the concept is likely to gain popularity at U.S. ports, although SSA prefers to dray containers out of its yards and into off-dock sites as quickly as possible. Stacking requires heavy, slow-moving transtainers to shift grounded containers. Moreover, U.S. longshore labor contracts tend to require higher manning levels than those in effect overseas. "In Hong Kong," says DeNike, "you see a massive number of transtainers being moved, and there's one guy doing it instead of four."

For the moment, he says, the interface between ships and rail is a fairly smooth one. New problems could arise, however, as volumes rise. Today's marine terminals can easily handle more business, but the key to a free-flowing pipeline lies in the railroads' ability to boost capacity at the same time.

DeNike hasn't seen a significant shift in business away from Los Angeles and Long Beach in favor of Pacific Northwest ports, even though the latter have reported somewhat higher volumes. But all that could change in two or three years, when the region's facilities hit full capacity. "Southern California is doing the job," says DeNike, "but it's barely doing the job."

John Bowe, president for the Americas with ocean carrier APL, says congestion has been felt at virtually every point in the intermodal system, including railyards deep in the interior. Additional problems include a lack of trucks, caused by a driver shortage and deteriorating working conditions, and natural disasters, such as the hurricanes that have recently plagued the U.S. Southeast.

Bowe lauds PierPASS for its purely commercial approach, without government intervention. With 45 percent of its own containers moving in off-peak hours through Los Angeles, APL has embraced PierPASS with even more enthusiasm than other shipping lines.

Bowe points to more intractable problems, which will require either a change in the law or new capital investments in facilities. Special attention must be paid to the connections between modes, as well as adding train tracks, engines and railcars. Railroad investment in equipment and facilities, says Bowe, "are not going as fast as they should."

The new 8,000-TEU ships will put even more pressure on the system, he says. Many ports and marine terminals lack the water depth and terminal capacity to handle the vessels. Their inadequacies could prevent ocean carriers from realizing the economies of scale that were supposed to justify the big ships in the first place.

Bowe has no illusions about the U.S. government going on an infrastructure spending spree like that of the 1950s, when the interstate highway system was created. But he still believes that government help is required, in the form of limited funding and incentives for private investment, such as faster write-offs and other changes in the tax code.

With nearly every transportation project decried as "pork," there seems to be little appetite in Washington for a renewed commitment to infrastructure spending. The shipping industry might be forced to accept more user fees, like the ones that fund the Alameda Corridor between Southern California ports and downtown Los Angeles, as well as PierPASS. Bowe says most providers aren't opposed to user fees, as long as the money goes directly into the corresponding project, and not the general treasury.

Technology will play a major role in relieving freight congestion over the next few years. Many of the innovations are focused within terminals. Bowe cites APL's introduction of radio frequency identification systems within its terminals, to identify and track equipment. At the same time, he says, carriers and terminals can do a better job of planning, so that ships are loaded in a manner that expedites the movement of intermodal containers from dock to rail.

The Railroads Contribute
Railroads get much of the blame for gridlock, but they aren't standing still. The Burlington Northern Santa Fe (BNSF) made $2.1bn in capital commitments in 2005, according to Steve Branscum, group vice president of consumer products. In 2004, 11 percent of its capital fund was earmarked for expansion projects. In 2005, the percentage was doubled.

"We are very optimistic about the potential of the supply chain to handle growth in the next few years," says Branscum. One important step is the building of more productive trains. Those running in the southern corridor are already up to 7,500 feet long, but they aren't necessarily optimized for international freight.

Branscum says the rails can do a better job of matching containers to the proper size of railcar. A 7,500-foot-long stack train made up of 53-foot railcars, for example, can haul around 200 containers. Using cars that are better suited to international containers, which are usually 20 or 40 feet long, operators can carry another 60 to 80 containers with the same length of train.

To do that, the rails will have to acquire more of the shorter cars. In past years, they stocked up on 53-footers to accommodate growth in longer domestic containers. Now they must adjust to a steady increase in international boxes moving intermodally, Branscum says.

The BNSF continues to invest heavily in new inland intermodal facilities, including terminals in Chicago, Memphis and Dallas. It is also planning a new near-dock terminal in Southern California. At the same time, Branscum says, the railroad has worked hard to boost the quality of its intermodal service, which accounts for 40 percent of its total revenues.

Concord, Calif.-based Pacer International operates many of the intermodal trains that link the West Coast with interior points. Vice president and chairman Michael Uremovich says the rails have done a good job of providing power and cars over the past year to keep freight flowing. But the system still isn't designed to handle peak-period demand, he says. "The general view is that the terminal structure in Southern California is going to be like putting 10 pounds in a five-pound bag."

PierPASS is a step in the right direction, says Uremovich, but more must be done to accommodate the big new containerships and organic trade growth. The economics of making that happen have yet to be sorted out, he says.

Uremovich sees plenty of room for improvement in rail service. But the railroads can't just fix their intermodal operations, he says. Coal, grain, chemicals and other bulk commodities all compete for space on the same tracks, and must be accounted for in any major push for better service quality.

In the meantime, Pacer is working to simplify intermodal transactions by smoothing the flow of information between all service partners. Phone and fax must be replaced by the internet and other automated means of communication before data can move as quickly as physical freight.

An IMC Chimes In
Intermodal marketing companies are a key link between railroads and shippers. Hub Group, Inc., based in Downers Grove, Ill., is among the nation's largest IMCs. President and chief operating officer Mark Yeager says rail service quality still fell short in 2005, even though it was not "as wildly erratic as in 2004."

The BNSF, like ocean carriers, has drastically reduced free time at its terminals and imposed stiff fines for storage. That caused shippers to pull their containers out of the yards faster and freed up space for incoming traffic. "The railroads need to force people to stop using their yards as parking lots," Yeager says.

He expects shipping lines to increase their rates for moving import containers into the interior. The move would entice shippers to transload into domestic equipment and leave international boxes at the port, where they can be quickly shipped back to Asia. Chasing containers in the U.S. interior represents a huge cost to the lines, he says.

One new idea at inland rail terminals involves the creation of neutral chassis pools. Shippers and truckers have complained loudly about a shortage of chassis at major terminals, delaying freight from embarking on the final leg of its journey to the consignee. The creation of a "gray" chassis would greatly increase the use of this vital piece of equipment. "Anything that gives more flexibility to shippers, we're in favor of," says Yeager. "That's something you'll see in 2006."

Appointment systems can also go a long way toward easing congestion. Chuck Schneider, vice president of professional services with Alameda, Calif.-based Embarcadero Systems Corp., says terminals can schedule a fixed number of appointments around a particular piece of equipment, spreading out the work and making the whole system more efficient. Early deployment of such systems has led to a 20- to 25-percent reduction in turn time for trucks, he says.

Once the system is in place, terminals can realize even greater economies. At the Hanjin Shipping facility in Long Beach, operators can view appointments for import containers two days or more ahead of time, allowing them to staff the terminal accordingly.

"Pre-advice" systems, deployed mostly outside the U.S., automate the entire container transaction within the marine terminal, eliminating the need for any direct interaction between truckers and terminal staff, Schneider says. But such systems might not be currently feasible at U.S. ports due to labor restrictions.

Optical character readers (OCRs) are acceptable, however, and are already having a big impact on terminal flows. Hanjin's Long Beach facility has automated 70 percent of the transactions involved in clearing a trucker to depart the terminal with a container, says Schneider. The remaining non-automated transactions are mostly due to unsuccessful OCR reads or incorrect chassis.

Still, given the continued rise of international trade flowing through the U.S. transportation system, any solution is temporary. The Alameda Corridor was a big factor in reducing freeway congestion when it opened in 2002, but traffic growth in Southern California has grown rapidly since then. And each new idea must take into account the requirements of every player in the supply chain.

"There are a number of variables involved here," says the Port of Portland's Horowitz. "We're in a chaotic universe."

Unlike in 2004, international containerized cargo moved relatively smoothly through the U.S. transportation system last year. But that doesn't mean that shippers and carriers can ignore the possibility of future congestion.

In fact, things weren't quite as rosy in 2005 as reports suggested. During the peak summer shipping season, imports moving to U.S. destinations by rail and truck were regularly delayed by up to a week, according to Albert A. Pierce, executive director of the Transpacific Stabilization Agreement. Containers arriving at West Coast ports, particularly in Southern California, were still backing up on the docks or at inland storage facilities. A shortage of rail equipment led to delays of between one and four days, as cargo became stalled at various points in the pipeline. Additional delays were seen at the Panama Canal, which was operating at near capacity due to carriers' increased reliance on all-water service between Asia and the U.S. East Coast.

None of those problems approached the severity of 2004, when shippers and carriers alike were caught unprepared for a sharp increase in imports from Asia. The result was massive tie-ups throughout the system. In some cases, vessels waited 10 days or more to unload their containers at the ports of Los Angeles and Long Beach. There were further snarls in the inland intermodal system.

The crisis of 2004 was due to multiple factors, according to Barry Horowitz, a former logistics executive who is now general manager of container marketing at the Port of Portland, Ore. Longshore labor was in short supply, the railroads weren't prepared for the surge in business, and carriers couldn't secure enough containers for the available freight. The last factor was partly the result of an economic boom in China, which snapped up most of the world's steel production in massive building projects.

Connecting infrastructure was similarly lacking. Road and rail capacity was "woefully inadequate," says Horowitz.

Carriers vowed that 2005 wouldn't see a repeat of that disaster. One major strategy was to divert import containers away from Southern California in favor of terminals in the Pacific Northwest. But if ports like Portland thought they were in for a windfall of new business, they were disappointed. Carriers continued to be drawn to Los Angeles and Long Beach due to a combination of that region's direct rail connections to the interior, and a massive consumer market for goods sold locally.

In theory, carriers should have been tempted more strongly by the Northwest's intermodal capacity, says Horowitz. As in Southern California, import containers unloaded at the ports can move intact all the way to destinations such as Chicago, Memphis and New York. But a demand for empty containers in Asia caused carriers to turn many boxes at the port, with their contents transloaded into domestic equipment. No shipping line could afford to have its equipment wandering around inland while it struggled to meet the demand for boxes moving eastbound from China and other Asian locations.

All-water service to the East Coast, via the Panama Canal, is another option to be embraced by trans-Pacific carriers. Some importers in the eastern U.S. are willing to wait longer for their goods if they can count on the shipments arriving on time. Still, Southern California continues to be the major gateway for U.S. containerized imports from Asia, and it's there that shippers and carriers are seeking long-term solutions to the congestion problem.

The PierPASS Experiment
The biggest effort to date is PierPASS, a program that levies a "traffic mitigation fee" on containers moving out of Los Angeles and Long Beach marine terminals by road during peak hours, from 3:00 a.m. to 6:00 p.m. Monday through Friday. The money is used to pay for additional shifts at the terminals from 6:00 p.m. to 3:00 a.m. Monday through Thursday, and from 8:00 a.m. to 6:00 p.m. on Saturday. The effect is to reduce the number of trucks on local roads and freeways during peak hours.

By all accounts, PierPASS has been an early success. More than half a million trucks were removed from peak daytime traffic between the program's startup in July and October 2005, officials claim. That represents roughly a third of all eligible containers moving over port docks. Organizers hope to increase that share to 50 percent.

PierPASS was "a big help," says Horowitz. "It had to be a cooperative effort, which we so rarely see in this business." The program's ultimate success depended on numerous players in the supply chain, including ocean carriers, marine terminal operators, labor unions, truckers and local receiving docks, all agreeing to operate in the off-hours.

Other factors in relieving congestion over the past year included the addition of trains and slower growth in trans-Pacific imports. At the same time, the International Longshore & Warehouse Union (ILWU) promoted 2,000 part-time workers to full-time and added 5,000 more part-time positions in Los Angeles and Long Beach alone.

"Anything that gives more flexibility to shippers, we're in favor of. That's something you'll see in 2006."
- Mark Yeager of Hub Group Inc.

For the moment, then, the crisis is over. Horowitz says shipping lines might even experience unused capacity this year, as larger ships come into service. But many of the problems that caused the crunch of 2004 are far from solved. On the contrary, they promise to set off a new wave of congestion if trade continues to grow in line with industry analysts' projections, and steps aren't taken to make the intermodal pipeline more efficient.

For Don Snyder, director of trade and maritime services at the Port of Long Beach, it all comes down to having the right infrastructure in place, both at the ports and inland. First, however, planners must decide who will pay for the necessary work. Government funding sources are rapidly drying up, as Congress cuts both taxes and public works programs. Snyder sees a disconnect between the U.S. government's push for more international trade and a transportation policy "that doesn't seem to be in line with that."

The catalyst for congestion in 2004 was the railroads' inability to provide enough equipment to move freight to and from the ports, says Snyder. That set off a chain reaction throughout the system, made worse by the shortfall of dockside labor. About half the containers entering the Port of Long Beach are transferred onto the rails, he says, but there isn't enough on-dock capacity to handle the volume efficiently. Moreover, intermodal yards are often too small to assemble an entire unit train.

One solution is to make better use of available land. Long Beach is launching a program of "land recycling," under which it will fill in slips and link smaller terminals to make larger ones. The work should aid in the assembly of mile-and-a-half-long unit trains to support giant new containerships coming online over the next year, with capacity of up to 8,000 forty-foot boxes. Taking up to five days to unload, such behemoths can paralyze a container yard and its connecting infrastructure.

Snyder cites PierPASS as a major reason why the docks remained mostly clear during the peak shipping season of 2005. Another was a reduction in free-time allowances by the ports of Long Beach and Los Angeles. Shippers now have four business days in which to remove their containers from port property without incurring storage charges, one less than before. What's more, the free period begins the moment an individual container hits the marine terminal. Previously, the ports didn't start the clock running until all containers were discharged from the vessel. The new plan means that containers move out of the port on a staggered basis, instead of cargo owners all showing up for their freight on the last day of free time.

Longer term, Long Beach has hatched an idea it calls the Virtual Container Yard. The plan calls for better communication among importers about local equipment availability. For example, a distributor unloading an import container at an inland point might learn that another shipper next door is in need of the empty box. The equipment is transferred directly without the need for an extra trip to and from the docks-yet another scheme for reducing truck traffic on local freeways. Snyder says the port hopes to launch the plan this year.

The Big Bottleneck
The biggest choke point at marine facilities is the entry and exit gate, says Ed DeNike, president of terminal operator SSA Containers. Truckers have long complained of the long wait times involved in picking up containers. PierPASS is one answer, but it's only the beginning. New scanning systems, utilizing optical character readers and radio-frequency technology, can help to speed the movement of trucks through the gate while eliminating paper documentation. In addition, DeNike says, planners must look for ways to increase terminal acreage and rail infrastructure.

Some U.S. ports have talked of shifting from wheeled operations, in which containers are immediately transferred to chassis, to a stacked configuration. Ports such as Hong Kong have long relied on stacking to make better use of limited berthside land.

DeNike says the concept is likely to gain popularity at U.S. ports, although SSA prefers to dray containers out of its yards and into off-dock sites as quickly as possible. Stacking requires heavy, slow-moving transtainers to shift grounded containers. Moreover, U.S. longshore labor contracts tend to require higher manning levels than those in effect overseas. "In Hong Kong," says DeNike, "you see a massive number of transtainers being moved, and there's one guy doing it instead of four."

For the moment, he says, the interface between ships and rail is a fairly smooth one. New problems could arise, however, as volumes rise. Today's marine terminals can easily handle more business, but the key to a free-flowing pipeline lies in the railroads' ability to boost capacity at the same time.

DeNike hasn't seen a significant shift in business away from Los Angeles and Long Beach in favor of Pacific Northwest ports, even though the latter have reported somewhat higher volumes. But all that could change in two or three years, when the region's facilities hit full capacity. "Southern California is doing the job," says DeNike, "but it's barely doing the job."

John Bowe, president for the Americas with ocean carrier APL, says congestion has been felt at virtually every point in the intermodal system, including railyards deep in the interior. Additional problems include a lack of trucks, caused by a driver shortage and deteriorating working conditions, and natural disasters, such as the hurricanes that have recently plagued the U.S. Southeast.

Bowe lauds PierPASS for its purely commercial approach, without government intervention. With 45 percent of its own containers moving in off-peak hours through Los Angeles, APL has embraced PierPASS with even more enthusiasm than other shipping lines.

Bowe points to more intractable problems, which will require either a change in the law or new capital investments in facilities. Special attention must be paid to the connections between modes, as well as adding train tracks, engines and railcars. Railroad investment in equipment and facilities, says Bowe, "are not going as fast as they should."

The new 8,000-TEU ships will put even more pressure on the system, he says. Many ports and marine terminals lack the water depth and terminal capacity to handle the vessels. Their inadequacies could prevent ocean carriers from realizing the economies of scale that were supposed to justify the big ships in the first place.

Bowe has no illusions about the U.S. government going on an infrastructure spending spree like that of the 1950s, when the interstate highway system was created. But he still believes that government help is required, in the form of limited funding and incentives for private investment, such as faster write-offs and other changes in the tax code.

With nearly every transportation project decried as "pork," there seems to be little appetite in Washington for a renewed commitment to infrastructure spending. The shipping industry might be forced to accept more user fees, like the ones that fund the Alameda Corridor between Southern California ports and downtown Los Angeles, as well as PierPASS. Bowe says most providers aren't opposed to user fees, as long as the money goes directly into the corresponding project, and not the general treasury.

Technology will play a major role in relieving freight congestion over the next few years. Many of the innovations are focused within terminals. Bowe cites APL's introduction of radio frequency identification systems within its terminals, to identify and track equipment. At the same time, he says, carriers and terminals can do a better job of planning, so that ships are loaded in a manner that expedites the movement of intermodal containers from dock to rail.

The Railroads Contribute
Railroads get much of the blame for gridlock, but they aren't standing still. The Burlington Northern Santa Fe (BNSF) made $2.1bn in capital commitments in 2005, according to Steve Branscum, group vice president of consumer products. In 2004, 11 percent of its capital fund was earmarked for expansion projects. In 2005, the percentage was doubled.

"We are very optimistic about the potential of the supply chain to handle growth in the next few years," says Branscum. One important step is the building of more productive trains. Those running in the southern corridor are already up to 7,500 feet long, but they aren't necessarily optimized for international freight.

Branscum says the rails can do a better job of matching containers to the proper size of railcar. A 7,500-foot-long stack train made up of 53-foot railcars, for example, can haul around 200 containers. Using cars that are better suited to international containers, which are usually 20 or 40 feet long, operators can carry another 60 to 80 containers with the same length of train.

To do that, the rails will have to acquire more of the shorter cars. In past years, they stocked up on 53-footers to accommodate growth in longer domestic containers. Now they must adjust to a steady increase in international boxes moving intermodally, Branscum says.

The BNSF continues to invest heavily in new inland intermodal facilities, including terminals in Chicago, Memphis and Dallas. It is also planning a new near-dock terminal in Southern California. At the same time, Branscum says, the railroad has worked hard to boost the quality of its intermodal service, which accounts for 40 percent of its total revenues.

Concord, Calif.-based Pacer International operates many of the intermodal trains that link the West Coast with interior points. Vice president and chairman Michael Uremovich says the rails have done a good job of providing power and cars over the past year to keep freight flowing. But the system still isn't designed to handle peak-period demand, he says. "The general view is that the terminal structure in Southern California is going to be like putting 10 pounds in a five-pound bag."

PierPASS is a step in the right direction, says Uremovich, but more must be done to accommodate the big new containerships and organic trade growth. The economics of making that happen have yet to be sorted out, he says.

Uremovich sees plenty of room for improvement in rail service. But the railroads can't just fix their intermodal operations, he says. Coal, grain, chemicals and other bulk commodities all compete for space on the same tracks, and must be accounted for in any major push for better service quality.

In the meantime, Pacer is working to simplify intermodal transactions by smoothing the flow of information between all service partners. Phone and fax must be replaced by the internet and other automated means of communication before data can move as quickly as physical freight.

An IMC Chimes In
Intermodal marketing companies are a key link between railroads and shippers. Hub Group, Inc., based in Downers Grove, Ill., is among the nation's largest IMCs. President and chief operating officer Mark Yeager says rail service quality still fell short in 2005, even though it was not "as wildly erratic as in 2004."

The BNSF, like ocean carriers, has drastically reduced free time at its terminals and imposed stiff fines for storage. That caused shippers to pull their containers out of the yards faster and freed up space for incoming traffic. "The railroads need to force people to stop using their yards as parking lots," Yeager says.

He expects shipping lines to increase their rates for moving import containers into the interior. The move would entice shippers to transload into domestic equipment and leave international boxes at the port, where they can be quickly shipped back to Asia. Chasing containers in the U.S. interior represents a huge cost to the lines, he says.

One new idea at inland rail terminals involves the creation of neutral chassis pools. Shippers and truckers have complained loudly about a shortage of chassis at major terminals, delaying freight from embarking on the final leg of its journey to the consignee. The creation of a "gray" chassis would greatly increase the use of this vital piece of equipment. "Anything that gives more flexibility to shippers, we're in favor of," says Yeager. "That's something you'll see in 2006."

Appointment systems can also go a long way toward easing congestion. Chuck Schneider, vice president of professional services with Alameda, Calif.-based Embarcadero Systems Corp., says terminals can schedule a fixed number of appointments around a particular piece of equipment, spreading out the work and making the whole system more efficient. Early deployment of such systems has led to a 20- to 25-percent reduction in turn time for trucks, he says.

Once the system is in place, terminals can realize even greater economies. At the Hanjin Shipping facility in Long Beach, operators can view appointments for import containers two days or more ahead of time, allowing them to staff the terminal accordingly.

"Pre-advice" systems, deployed mostly outside the U.S., automate the entire container transaction within the marine terminal, eliminating the need for any direct interaction between truckers and terminal staff, Schneider says. But such systems might not be currently feasible at U.S. ports due to labor restrictions.

Optical character readers (OCRs) are acceptable, however, and are already having a big impact on terminal flows. Hanjin's Long Beach facility has automated 70 percent of the transactions involved in clearing a trucker to depart the terminal with a container, says Schneider. The remaining non-automated transactions are mostly due to unsuccessful OCR reads or incorrect chassis.

Still, given the continued rise of international trade flowing through the U.S. transportation system, any solution is temporary. The Alameda Corridor was a big factor in reducing freeway congestion when it opened in 2002, but traffic growth in Southern California has grown rapidly since then. And each new idea must take into account the requirements of every player in the supply chain.

"There are a number of variables involved here," says the Port of Portland's Horowitz. "We're in a chaotic universe."