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."
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
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