Rail snail mail?

Postal Service could save switching mail from truck to intermodal rail.
  

By Chris Dupin
  

   The U.S. Postal Service (USPS) Office of Inspector General’s Risk Analysis Research Center in a white paper released in July said “in the short term, shifting a portion of mail volume to intermodal rail could yield cost savings of about $100 million per year without changes to the Postal Service’s network.”
  
The report further explained USPS could “save transportation costs, gain long-term strategic advantages, and still continue to meet existing service standards. While fully realizing all potential cost savings would take time and effort, some savings are achievable without changes to the current network.”
  
Charles Crum, director economist at the USPS Inspector General (IG), said the rail and intermodal industry was enthusiastic about the proposed changes, but the reception at the post office has been mixed. Some USPS officials have raised questions about the how practical the recommendations are.
  
“We got a wide variety of perspectives of feedback and I don’t know if they are going to move forward with it,” he said.
  
Crum noted the $100 million savings were calculated if the Postal Service did nothing to reconfigure its network. He said companies like UPS have reconfigured their networks to make them more consistent with rail, but there are still postal facilities that could probably use rail and still meet service standards. Savings could be much higher if the network was designed around rail.
  
Bill Jusino, chief investigator for the IG’s study, said long distance movements — coast-to-coast or from the Midwest to the West Coast — for postal facilities that require only a short dray to a rail terminal would be the most attractive routes to start.
  
The report is issued against a backdrop of declining volumes of mail being handled by USPS. Between 2007 and 2011 the annual weight of first class mail is down 15 percent to 3.7 billion pounds, standard mail down 23 percent to 9.1 billion pounds, periodicals down 30 percent to 2.7 billion pounds, and packages down 22 percent to 1.8 billion pounds.
  
The postal services said it lost $11.6 billion in the nine months ending June 30, about double what it lost the prior year. 
  
“With regard to the overall conclusion of the report, I think it is dead on,” said Larry Gross, a senior consultant with FTR Associates. “Back in the day, and that is not that long ago, they were pretty heavy consumers of intermodal transportation. Then they made the decision and go entirely to truck.”
  
The IG report said in the 1980s “to regain volume from the trucking industry, the freight railroads began investing in trailers, flat cars, and intermodal yards located in industrial centers near major postal facilities.
  
“Meanwhile, the Postal Service’s business demanded a more standardized and reliable level of service. To meet their common needs, during the mid-to-late 1980s, the Postal Service and the freight railroads developed scheduled intermodal train services and integrated software and service information — major developments in logistical practices that are still used today.
  
“As intermodal rail developed and modernized, the Postal Service became the largest user of intermodal rail service. This was widely acknowledged in the industry, as the fastest and most reliable intermodal trains during the mid to late 1980s were called ‘mail trains,’” the IG said.
  
But as intermodal became more popular, the railroads “faced shortages of equipment, labor, locomotives, and facilities, shortages that gravely affected service reliability. As a result, the Postal Service, which had held more than $100 million in contracts with each of the major Class 1 railroads, began to transfer large amounts of mail from rail to more reliable but expensive trucking.”
  
Today, the IG said USPS “meets its surface transportation needs almost entirely by using trucks owned by highway contractors. In fact, in 2011 the Postal Service spent more than $3.3 billion on highway contracts and only $40 million on freight rail contracts.” Rail executives say much of that spending is not to move mail, but equipment such as bags and bins.
  
Crum said those trucking companies range in size from some of the country’s largest to small mom-and-pop firms with a single truck.
  
The irony is while the Postal Service abandoned intermodal, “by contrast, postal competitors have greatly expanded their use of rail and have worked hard to realign their networks with the nation’s railroads,” according to the IG.
  
“We are certainly one of the largest private users of rail,” said Susan Rosenberg, manager of public relations at UPS, both for inland movements of cargo carried by its ocean freight forwarding business as well as domestic hauls of small packages. The company, however, does not reveal how much it spends or how much cargo it moves by rail.
  
She said UPS moves cargo with all the Class 1 railroads, increasingly in domestic containers moving on double-stack railcars.
  
“For us, the rule of thumb with small packages is where it is feasible for ground packages that are moving 750 miles or more,” she said. The decision is driven by sustainability, fuel management, and whether packages can be transported to their final destination without undergoing an intermediate sort along the way.
  
The inspector general said “intermodal rail service has improved to the point it can now provide service standards competitive with highway. Today, it is widely accepted as industry standard that rail is far more economical than highway for long-distance surface transportation.”
  
The white paper noted “rail transportation is approximately four times more fuel efficient than trucking.”
  
Increased use of intermodal “would save a lot of money,” said Ted Prince, a long-time transportation consultant. He believes it hasn’t been adopted, in part because of politics within USPS and “a lack of retained subject matter expertise. Most of the people that dealt with the railroads have long gone.”
  
“One of the reasons that intermodal has been so successful is that the service has improved — mostly this is an improvement of reliability, more so than speed,” Gross said. He also said damage has been reduced.
  
“We hold the railroads accountable to their time schedules and they have certain times of the day and days of the week and we also have the weekend as kind of catch-up where they may run high-speed rail moves for freight,” Rosenberg said. “I think we have been effective in maintaining transit times by having that combination of rail and ground movement.”
  
She said if there is excess volume or a container does not make a train schedule it may use a sleeper team to move small packages.
  
During a presentation to investment analysts this summer, Fredrik Eliasson, chief financial officer of CSX, said on-time performance at his railroad was near record levels, with on-time originations at 89 percent and on-time arrivals at 80 percent.  
  
“There’s no longer a huge penalty to using intermodal and more shippers have become comfortable accessing the cost saving that it can offer,” Gross said.  “I think intermodal offers savings over truck—that’s ordinary truck—in the 15-20 percent range and I suspect the cost structure for Postal Service movements is different and higher than ordinary truckload-type moves, so the savings could be higher.”
  
He said intermodal may be particularly attractive for lower cost, bulk-type cargoes.
  
“All that we are recommending is that the Postal Service starts testing it,” Crum said. “It seems likely they could successfully use rail for some portion of what they call non-expedited mail and packages as opposed to the first class mail. There is some historic use of Amtrak to transport first class mail in the Northeast Corridor, but this paper was really about freight rail and packages and standard mail.
  
“You want to test it out, see if you want to separate out packages from the standard mail, little tweaks you would have to resolve,” he added. “But the potential savings make it worth figuring out these details.”
  
Intermodal has grown quickly over the past decade. According to the Intermodal Association of North America (IANA), volumes totaled 14,071,525 units in 2011, 4.9 percent more than in 2011 and the best year since 2007.
  
An analysis of intermodal traffic over the 11-year period from 2001 to 2011 by Prince found traffic was up 33 percent during that period.
  
IANA said “the industry has spent the last five years trying to recover to 2006 levels” because of a drop-off in movements in intermodal traffic moving in international marine (ISO) containers, while movement of freight in larger domestic containers and trailers — 53-feet or 48-feet long — has been on a fairly continuous upturn.
  
Between 2001 and 2011, moves of freight in marine containers were up 36 percent, while moves in domestic containers and trailers were up 58 percent. (Loads in smaller domestic equipment actually fell over the period by 36 percent, but they only account for 3 percent of the intermodal equipment fleet today compared to 11 percent in 2001.)
  
“If you look at the last 10 years of growth, the chief engine for growing intermodal was the onslaught of Asian imports that were coming in as a result of offshoring manufacturing. A lot of that freight landing at the western (U.S.) ports was highly conducive to intermodal because of the long length of haul and also because the supply chain was measured in weeks, so the transits were very acceptable for that kind of freight. That fueled a lot of the growth in the first half of the decade,” said Bill Matheson, president of Schneider National. 
  
“What has happened more recently is that the opportunity for growth has been taking what has traditionally been thought of as typical over-the-road truck lanes and converting them to intermodal,” he added.

  
Matheson said the challenges are finding truck drivers and reduced productivity because of new regulations on the trucking industry, such as hours of service rules, and fuel costs.
  
He also agreed rail service and performance — access to capacity and reliability of transit times — have “improved to the point where they have become a strong competitor with truck service.”
  
As a result, intermodal has become a bigger share of Schneider’s business, and Matheson said “we expect that to continue going forward.”
  
While he would not say what share of Schneider’s business is intermodal, he noted that as an industry, intermodal is forecast to have annual growth of 7-9 percent over the next few years while his company does not plan to add trucks in its over-the-road van division.
  
“So, just by virtue of growing intermodal and holding our truck business flat, it will certainly be taking share in our company,” he said.
  
Gross said intermodal is becoming more viable over shorter distances. 
  
Railroads, particularly those in the East, are building denser terminal networks. That means shippers need to dray a shorter distance to get their containers on or off a railroad.
  
“Both Norfolk Southern and CSX have been busy laying down that network,” Gross said. “They have been putting in a lot of new services between those terminals.”
  
As examples, he pointed to CSX’s new terminal in North Baltimore, Ohio, which the railroad said will eventually have capacity for 2 million containers per year, and act as a hub to serve many cities in its network. Norfolk Southern is developing new corridors aimed at domestic shipments such as the Crescent Corridor, a 2,500-mile rail network that will run from Memphis, Tenn., and New Orleans to New Jersey and the Patriot Corridor between Mechanicville, N.Y., near Albany, where a new terminal opened in February, and Ayer, Mass., near Boston. The Crescent Corridor will have major new or improved terminals near cities such as Memphis; Birmingham, Ala.; Harrisburg, Pa.; and Charlotte, N.C.
  
Companies can make intermodal more efficient by locating near rail hubs. Rosenberg said UPS located its Chicago-area consolidation hub, or “CACH,” at Willow Springs, Ill, and it’s now the carrier’s largest hub and is adjacent to a BNSF rail facility. Packages from Chicago are shipped to locations as far away as the Pacific Northwest; Southern California; Kansas City; Jacksonville, Fla.; New Jersey and Baltimore.