APL Logistics rebuilds domestic intermodal business a decade after selling double-stack business to Pacer.
It’s back to the future at APL Logistics as the company rebuilds its domestic intermodal business a dozen years after selling it to Pacer International.
APL, as American President Lines, pioneered double-stack intermodal rail and 53-foot domestic containers in the 1980s.
Domestic intermodal was a good business for APL, which was acquired by Singapore’s Neptune Orient Line in 1997. But in 1999 NOL needed funds and decided to divest itself of the double-stack business, selling it to Pacer International.
NOL entered into a long-term agreement for Pacer to provide rail management services for its APL liner business and APL Logistics continued its international logistics business.
While APL was able to retain a small part of the domestic logistics business for shipments related to international business, a non-compete agreement that was part of the Pacer deal kept APL Logistics from competing aggressively in the domestic market for a decade, said APL Logistics President James H. McAdam.
| McAdam |
Now that agreement has expired and with strong customer demand for land-based transport in North America, McAdam said, APL Logistics is once again building its U.S. intermodal business — be it for shipments part of an international move or between domestic locations.
APL Logistics is a global business, and McAdam said it has operations in nearly 100 countries, including all the major developing economies, especially in Asia.
“Our services run the gamut of what our customers need to facilitate international trade, all the services a shipper needs on land before and after an international shipment,” he said.
APL Logistics assists customers making sourcing decisions in places such as China, India, Southeast Asia and Latin America by vetting manufacturers, training suppliers, supporting manufacturing, overseeing purchase order management, consolidating shipments, and allocating shipments to customers.
For example, he said a sporting goods or footwear company planning a spring line may dump thousands of purchase orders on APL Logistics, which will then work closely with manufacturers so those orders are properly sequenced to all arrive at their final destinations on time, in the proper quantities, and at the proper location.
‘Eyes And Ears.’ “We become the eyes and ears upstream for most of our customers,” McAdam said. APL Logistics does little spot business; most of its clients “are long-term, committed customers, often using APL Logistics to replace in-house supply chain functions.”
The company also does traditional non-vessel-operating common carrier work, air freight brokerage and arranges shipments using APL and other steamship lines.
“We try to find the right solution for the customer,” he said. “On the destination side, we more or less repeat the same program in reverse — we provide deconsolidation services, customs services, land transport. We do this not only in North America, but also in the emerging markets, as customers look to take control of merchandise further up the supply chain. We do a lot of land transport and rail transport in Asia — India and China.
“We also have a contract logistics business — providing warehousing, order fulfillment, distribution, picking and packing orders and getting them to the point of final consumption and doing last mile trucking,” he said.
“Not all customers will buy across the entire supply chain. Some will only buy the origin piece, or some customers are only interested in the transportation piece, some only contract logistics, or drayage transportation.
“But more and more are looking for multifaceted solutions. We like that because it allows us to be creative and provide more of an enterprise suite of solutions to our customers,” he said.
For the first half of 2011, APL Logistics increased its operating profit 22 percent to $33 million on 18 percent higher revenue, at $682 million.
“Increased volume in most of our business lines is driving revenue higher,” McAdam said. “We are encouraged by the increasing contribution of emerging markets, particularly in China, to our first-half performance.”
Rebuilding Domestic. The company hired Dave Howland as vice president of land transport services in May 2010 from Schneider National, where as vice president of rail management he grew Schneider’s intermodal business. Earlier in his career Howland worked at C.H. Robinson and Burlington Northern Santa Fe.
At APL Logistics Howland “spent most of 2010 building a commercial organization, consolidating operations, getting the technology we need to be competitive in this business,” McAdam said. The company has been building up businesses related to its domestic expansion such as truck brokerage, and freight management services.
“Customers today are looking truly for a suite — it is not enough just to have intermodal rail transport. You need to be able to provide drayage on the front and back end,” he said. “Many customers are looking to outsource the entire transportation management function.”
APL Logistics ordered 1,000 53-foot domestic containers this year to support its U.S. operations. The containers are being made in China, primarily by CIMC and delivered this summer.
“We decided to become an asset player or a partially asset-owned player, which is how most of our key competitors are structured today,” McAdam said.
Howland said at any one time, APL Logistics controls a fleet of about 4,000 53-foot domestic containers. He expects that number to about double in the second half of the year.
APL’s domestic container fleet will be small compared to those of J.B. Hunt, Hub Group, Pacer, Schneider and Swift. But Howland and McAdam explained the company feels it is important to own some equipment because it gives APL Logistics greater flexibility to design a solution that meets the needs of its customers.
“What that means is we want to work with all the major railroads in both the east and west,” McAdam said. “We want to be able to deploy all of these railroads as part of a customized solution for our customers. Some rail carriers prefer that you bring your own private fleet, some rail carriers prefer that you use their own, owned equipment.”
For example, BNSF does not supply domestic containers while Union Pacific supplies its own through the UMAX pool it operates with CSX and the EMP pool it operates with Norfolk Southern. Norfolk Southern, CSX and Kansas City Southern have a mix of owned and customer-supplied containers.
Having its own fleet allows APL “to make more definitive commitment to our customers because we control those assets full time,” Howland said.
In addition to the 53-foot domestic boxes it has built, APL Logistics will be able to make use of some 1,680 international 53-foot containers that first APL began adding to its fleet in 2007.
“Say when a box moves from Shanghai to Memphis and taken to a customer’s distribution center and stripped, then there is an APL international 53 that Dave’s team can use for a domestic move — ideally for the same customer, maybe from Memphis to Chicago or Memphis to Seattle,” McAdam said.
McAdam and Howland note differences between domestic and international 53-foot containers. An international container has to be built to withstand the stresses of being in a stack on an ocean voyage, so it is heavier than a domestic box, which means it may be able to load less cargo to comply with over-the-road weight limits.
Also, the lift points on a 53-foot international box have to be located at the same place the corner castings are on a 40-foot container. Those lift points create a small intrusion into the container’s interior. That might be important to a domestic shipper putting a second stack of pallets in the container.
The intermodal business is growing quickly, Howland explained, and in 2010, a combination of not enough equipment being produced, and demand developing faster than anticipated, left some U.S. shippers “high and dry without equipment to load.”
The rising cost of fuel and threat of driver shortages also means “a lot of freight wants to transition from highway to intermodal, leading to growth of the market that exceeds growth in GDP,” he said.
McAdam said while most of APL Logistics’ customers were hoping for stronger demand this year, there was still some hope this summer for a delayed peak season.
An exception for APL Logistics was its automobile business, which he said did “phenomenally well, with record volumes defying gravity in the first six months of the year.”
Mexican Market. As automotive companies went through their downturn in 2008 and 2009, they looked to outsource more production to Mexican factories. McAdam said there is a brisk two-way trade of parts moving to Mexico where they are made into assemblies and then shipped north to the United States.
Howland estimates 92 percent to 93 percent of the cargo APL Logistics moves to and from Mexico does so by rail, with a smaller amount by truck, mostly “Tex-Mex” trucking.
Howland said that recently announced plans to allow U.S. and Mexican truckers to operate in either country probably makes sense at some point because the two markets are so interlinked and because there are inefficiencies if drivers have to be changed at the border.
“Is that going to happen in the next day or two? No, but long term it is probably the right answer,” he said.
“We are one of the largest rail intermodal operators to and from Mexico,” McAdam said. “We are serving a dozen points all throughout Mexico in the interior. This is not a maquiladora program.”
He said there is also growth in “near-shoring” manufacturing in Mexico for white goods, appliances and industrial products.
“We are beginning to see some traction in that business, and that today is 90-95 percent truck, so we project that the same trends that are driving long-haul, over-the-road trucking to rail in the United States will also present itself in Mexico,” McAdam said.
APL Logistics has been working with railroads to increase the scope of services they offer, Howland said, so intermodal service is offered not only between Mexico and the Midwest, where the auto industry is centered, but also with the Southeast, Northeast and California. It is also working to improve dependability by making sure cargo is not held up at the border.
“We go right from the border to clear customs at the rail hub,” Howland said. Customs clearance in a location like Chicago or Kansas City can be done in a matter of hours rather than days at the border in Mexico.
While APL Logistics has a small trucking operation that uses owner-operators, it contracts for most of its trucking needs, Howland said. It has close relationships with a number of trucking firms, including J.B. Hunt, Schneider and Werner on the full truckload side; and Con-way, YRC and FedEx for less-than-truckload. Since most drayage is not handled by national companies, it typically contracts with three strong players at each port or rail hub to move its boxes.
Howland explained that while APL Logistics owns its chassis for use with international containers, it relies on pool chassis for the domestic business because railroads prefer to use a single pool to simplify operations.
India, China And Rail. McAdam said APL Logistics is beginning to offer domestic transportation solutions in developing countries such as China and India to support the growth of their domestic consumer markets. The services are similar to those it offers in the United States, including intermodal rail, truck brokerage and managed freight services.
“That’s very exciting because India and China historically made their name for themselves as exporters. But with growing consumerism in these countries, they are looking for the same sophistication in the supply chain that is required in meeting consumer demand in developed economies,” he said. “For companies like us that have been in these countries for many years supporting the exports, and who have built up the domestic supply chain capabilities in the U.S, it is exciting for us to leverage that.”
In India, APL operates its own private rail services from Mumbai to New Delhi, from Mundra to New Delhi, and from Pipavav to New Delhi and Punjab, he said.
“This year we will probably extend those trains to Hyderabad and down into Chennai. We are working closely with the automobile industry in India to transport not just parts, but also finished vehicles from factories to dealers,” he said.
In China, for the short term, inland moves will primarily be handled by truck, he said. China has been slower to liberalize or privatize rail operations. He estimates about 3 percent of Chinese containerized shipments move by rail.
As cargo moves north and west, some exports are being trucked as much as 250 kilometers — “which is just about at the outer edge of the bandwidth of being able to provide consistent, reliable service on a consistent basis to regularly scheduled ocean and air services,” he said. “In order for this expansion to continue, they are going to have to start to use rail more than they do today.”