Containing enthusiasm
Transloading picks up steam, but disappoints Schneider National chief.
By Eric Kulisch
Swapping loads between domestic and international boxes represents a major component of Schneider National's two port-connector services, but Chief Executive Officer Christopher Lofgren recently said shippers have not been wild about transloading.
His perception is at odds with recent signs of a transloading rebound.
'It hasn't taken off as I would have expected,' Lofgren elaborated in an interview following comments made during a roundtable discussion at the TransComp Exhibition and Intermodal Expo in Fort Lauderdale on Nov. 15.
| Lofgren |
One of the key reasons companies repack inbound container shipments in domestic equipment is to reduce inland transportation costs by taking advantage of the fact that the contents of three 40-foot containers can fit into two 53-foot domestic containers or trailers. The practice gained strength when railroads sharply raised intermodal rates, or fuel surcharges, in 2006.
Others change to domestic equipment to better control inventory costs. Many retailers do late-stage deployment of inventory, unloading boxes near a gateway and then stuffing the cargo from multiple vendors in 53-foot domestic containers for delivery to stores when they actually need replenishment rather than sending full containers to a pre-designated inland facility.
'I felt there was a value proposition in terms of inventories that could come from that. And, frankly, there was just a real reluctance to break those seals, there was just this belief that we'll just push it through our distribution centers.
'We have a transloading business. It's not like I've seen that thing accelerating in terms of its position. It's not that it doesn't grow, but the real opportunities, I just haven't seen it,' Lofgren said.
Michael White, president of North America for Maersk Line, said he too expected transloading to grow at a more rapid rate during the past 12 to 18 months. Industry experts note the transfer process works best for less dense, low-value merchandise. Electronics, for example, are not a good candidate for transloading because opening containers in transit creates extra opportunities for theft. Small importers don't have the critical mass to justify the use of transloading.
But 14 months ago several 3PL executives said the practice had gained popularity in reaction to the economic downturn. And shippers increasingly are using this form of consolidation for export shipments, especially when the imbalance between import and export volumes grows, industry officials say.
Schneider experienced a small uptick in export transloading, as well as interest from importers who want inventory flexibility, to split local consumption in the port city and inland distribution, or to respond to drayage capacity issues in California ports due to stricter emissions regulations, John Ferguson, the company's then vice president of international logistics, said at the time.
Nobody has a firm handle on the exact amount of cargo being transloaded because once it is stuffed in a 53-foot container or trailer there is no way for the railroad or motor carrier to know whether it's of international or domestic origin.
The anecdotal accounts reflect substantial swings in shippers' demand for the special logistics service.
Transloading has fluctuated from 20 percent to 26 percent of total imported TEUs during the past five years in Southern California, according to Tom Malloy, vice president of policy and communications at the Intermodal Association of North America. The figures are calculated by TTX, which reached its estimate by backing out straight-through international moves, and making assumptions about containers destined for the local market.
TTX is the entity established by the rail industry to manage a pool of freight cars that can be rented by any carrier.
Other third-party sources say 25 percent to 29 percent of international inland point intermodal cargo out of the Los Angeles area is transloaded into domestic containers and trailers. And the Alameda Corridor Transportation Authority, which manages a freight-rail expressway from the ports through Los Angeles and Long Beach, claims that transloaded containers now represents 45 percent of total rail volume from the basin, up from 34 percent prior to the recession.
Part of Lofgren's disappointment with transloading may be related to the fact that the practice is less prevalent on the East Coast, where ports are relatively close to population centers and the stores that supply them.
Transloading is much more extensive on the West Coast because it works better on long-haul moves that allow shippers to achieve economies of scale, and offset the $150 to $200 cost of extra handling through transportation savings, said John Martin, an economist who specializes in studying port market dynamics, following a presentation at a conference hosted by the American Association of Port Authorities in Tampa, Fla.
He estimated transloading only represents about 13 percent to 15 percent of total international cargo out of the Los Angeles basin, saying other industry estimates are too high.
'I think we'll see more transloading with the rise of fuel' prices, the head of Martin Associates told the port audience Feb. 1.
Office Depot was almost exclusively transloading on the West Coast four years ago, then changed its ordering pattern to consolidate most shipments in China and deliver directly to its distribution centers, Dennis Cohen, senior director of private brand operations, said in Tampa. Now the pendulum has swung back into better balance with the retailer making decisions on which tactic to employ based on transportation capacity and fuel prices, he said.
Container upsizing has been 'quite strong' during the past 18 months, particularly out of Los Angeles, John E. Kaiser, vice president and general manager of intermodal marketing and sales for the Union Pacific Railroad, recently told American Shipper.
UP is the nation's second-largest intermodal carrier and hauls many of the 53-foot domestic containers that have been stuffed with international cargo.
The rail carrier has seen the international cargo component grow to the mid-20 percentile of its total intermodal volume, up from the 18 percent to 20 percent range a couple of years ago, he said.
The growth in transloading is not coming from the immediate transfer from the international to the domestic box, as the practice is often defined, but from delayed inventory replenishment in which the goods sit for awhile in a distribution center before being loaded into the larger domestic container or trailer, Kaiser said.
Transloading should continue to rise on the shoulders of increased trade even if its share of container volumes doesn't change, said Paul Bingham, economics practice leader at Wilbur Smith Associates, in an e-mail.
The continued growth of third-party logistics providers and the shift of less-than-truckload carriers into the port services businesses is another factor that could accelerate the use of transloading because they specialize in consolidating small shipments, he said.
LTL carriers such as AAA Cooper, Old Dominion and Southeastern Freight Lines have recently turned to the intermodal and port drayage markets in search of higher margins and revenue from underutilized assets.
LTL carriers operate cross-docks for domestic freight interchange of piece shipments that are similar in function
to a container transload center. The LTL
industry was devastated by the recession and overcapacity. The truckload industry has begun to experience a small
improvement in freight demand, but LTL carriers still suffer from anemic volumes and the fixed costs of their terminal
network. In response, many carriers have fundamentally changed their business model to handle intermodal and international freight.
Any of AAA Cooper's 80 terminals that are near a port offer transload services, Lee McMillan, vice president of strategic services, said at the conference.
Southeastern Freight Lines said Jan. 4 it has created a new subsidiary, Southeastern Logistics Solutions, to arrange truckload, reefer, flatbed and intermodal rail transportation for customers. It eventually plans to add drayage, import distribution and air freight services, the company said.