Some railroads are spending more than 20 percent of revenues on capital improvements to meet the growing demand for intermodal services.
Intermodal rail-truck service may not be as fast as trucking, at least in most transportation lanes, but Adam Achten, vice president of rail relationships at Schneider, says it does offer the consistency that many shippers are looking for.
“Trains run on schedules — you know when that train is going to depart and when it is going to arrive. Drivers do not have set schedules and set routes for the most part. It is a random network and you are relying on having that capacity in that market from a truck standpoint based on what gets shipped in there. There is an unreliability based on shipping patterns that intermodal does not have.”
“Intermodal does not have to rely on a certain amount of freight landing in a certain area in order to provide reliability on an outbound basis.”
Achten was one of the speakers this week in Long Beach, Calif., at IANA Expo, the annual trade show of the Intermodal Association of North America.
He noted that intermodal is less “driver intensive,” which can be a help at times like this when there is a shortage of truck drivers.
While some companies are saying autonomous vehicles could help ease the driver shortage, Achten believes they are “further out than most people are projecting right now. There with be stages of autonomy that will help in the driver market, but public acceptance of a driverless vehicle is still some ways away.”
Keith Reardon, senior vice president for consumer product supply chain at Canadian National (CN), said that the gap between the reliability of over-the-road trucking and intermodal service varies by region — “not just because of the rail but also because of the issues happening to the trucking community.”
“In some regions that we deal with, the trucks are not there and the customer is asking us to get better to fill in that gap,” he said.
Reardon noted that his company is spending heavily on improvements that benefit intermodal such as double tracking, increased sidings and increased purchases and leases of locomotives. CN also has hired 1,700 more conductors.
He said the company ordered 30 new cranes for intermodal terminals because CN realizes intermodal reliability also relies on fast turn times for drayage drivers.
Tony Hatch of ABH Consulting, a rail analyst who spoke at the conference, noted that capital spending by railroads is massive — with some spending 18 percent to more than 20 percent of revenues on capital improvements. Most industrial companies spend just 2 percent to 3 percent of revenues on capital improvements.
He said this year railroads are expected to increase capital spending following two years of decline.
Reardon said CN is spending 25 percent of revenue to spend enough money to stay ahead of demand.
He said there is a fine line. “Analysts don’t want you to spend too much money, but then on the other side they if you miss it, then they’re questioning why you were not there with the proper capital allocation.
“We understand that the impact of missing it is far greater than spending a little more and being ready,” he said. Since many of those assets have lives of 40 to 50 years, “there is a pretty good chance that in the next three or four years we will need that asset anyway, so it is a little short-sighted not to put the money in the ground.”
He also noted that the company can structure capital leases on rolling stock so if there is a downturn in the market, it can “release that equipment back to the market and get back to the proper amount of assets.”
Donna Lem, executive vice president of national sales at IMC Companies, said with the driver shortage, more companies are realizing how important drayage is to intermodal transport.
She said her company is striving “to make the driver experience the best we know how.”
Sam Niness, the president and general manager of Triple Crown Service and Thoroughbred Direct at Norfolk Southern, said, “We are constantly thinking about how to make the driver experience a profitable experience. We are focusing a lot of our energy on improving systems so that they can get in and out of properties faster, get loaded, get on the road and have them make money so they are attracted to working in our industry.”
He said NS plans to accommodate growth that is similar to GDP and perhaps a little more. However, in the first half of 2018, intermodal units moved by NS were 8 percent higher than in the first half of 2017, but he noted growth can be much higher in certain areas.
While NS is working full speed to accommodate the growth it has seen this year and prepare for next year, but he said intermodal expansions can take one or two years to complete.
Both Lem and Reardon said their companies are having to deal with higher costs related to chassis.
Lem said that in Memphis and Dallas, for example, there are problems with lack of availability of chassis and chassis not being in the right place at the right time. Some railroads mount containers on chassis at their terminals and others do not.
IMC also must deal with the fact that ocean carriers contract with different chassis providers.
In the United States, Reardon said CN has found it difficult to “manage all these different chassis pools in our terminals. Everybody has different rules and regulations.”
He said his company is beginning to buy chassis “in the states covering our own services and we will continue to do that until we get to the proper level where we feel we have enough.”
Intermodal providers tout reliability for shippers
