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Special Coverage: Headwinds in the intermodal industry

After explosive growth in the last several years, could declining volumes be a sign of things to come?

Source: BNSF RAILWAY

   The intermodal industry has seen strong growth over the last several years, and although the overall outlook for intermodal remains positive, various potential headwinds continue to loom over the industry.
   According to the Intermodal Association of North America (IANA), total intermodal loadings grew from about 10 million for the full year in 2000 to over 16 million in 2016.
   Data from the American Association of Railroads (AAR) indicates that for U.S. railroads, intermodal volumes stood at 13.7 million containers and trailers for 2015, up from 3.1 million units in 1980.

Katie Farmer

Katie Farmer

   Katie Farmer, group vice president of consumer products at Berkshire Hathaway-owned Class I freight railway BNSF, said at the Midwest Association of Rail Shippers (MARS) Winter Meeting in January that although the intermodal industry is growing rapidly, to be fair, it is a relatively immature part of the supply chain. While traditional carload railroading has been around for 150-200 years, intermodal is relatively new within the last several decades.
   Despite the growth seen over the last several years, Adriene Bailey, Yusen Logistics (Americas) Inc. chief strategy officer and newly elected IANA chairperson, told American Shipper the intermodal industry is currently facing a marginal “freight depression,” with intermodal volumes actually falling in 2016 from a year prior. “While fourth quarter numbers showed improvement, the first part of 2017 will give us a better sense of how the growth curve will progress,” Bailey said.
   “Railroads continue to invest and innovate in ways that will open more short-haul corridors,” she said. “The investment by the eastern railroads in the last five years has proven their ability to take freight off the highway in lanes that were previously thought unaddressable by intermodal.”
   Challenges faced by the industry include intermodal providers continuously having to stay on par with infrastructure upgrades and technology to remain competitive, shifting consumer demand trends, the anticipated driver shortage in the trucking industry, and the impact of consolidation in the ocean shipping industry.
   Intermodal specific infrastructure plans at BNSF, for example, include adding track, lift machines and parking capacity at its Corwith Intermodal Facility in Chicago, and completing the construction of additional production and support track at its Alliance Intermodal Facility at its Dallas-Fort Worth Metroplex, Farmer said in an email.
   BNSF has also added six wide-span production cranes and six supporting stacking cranes at its Logistics Park Chicago (LPC) Intermodal Facility, which will be put into operation soon, Farmer said. The cranes will increase BNSF’s lift capacity at LPC by nearly 500,000 lifts per year once operational.
   Meanwhile, Union Pacific (UP), in partnership with 3PL Katoen Natie, is launching an export solution, called “Dallas to Dock,” that takes plastic resin from Gulf Coast production facilities to Dallas by a carload service and then packages it for intermodal container delivery to ocean ports through the company’s intermodal network. To support this new service, a plastic packaging facility is being built in Dallas, next to UP’s Dallas Intermodal Terminal. Construction will progress throughout 2017, with the full service launching in early 2018, according to UP spokesperson Kristen South.
   In addition, CSX is investing in a project it calls the “National Gateway,” a double-stack cleared route from mid-Atlantic ports to the Midwest, Gary Sease, CSX vice president, corporate communications told American Shipper in an email. The National Gateway includes clearances in the Virginia Avenue Tunnel in Washington, D.C. The first of two parallel tunnels opened to rail traffic on Dec. 23, 2016 and the second is expected to open in 2018. Construction continues on the intermodal terminal in Pittsburgh, which is expected to open later this year, and planning is underway on the Carolina Connector Terminal in Rocky Mount, N.C.
   In terms of technological advancements in the intermodal industry, Bailey said, “Emerging technologies such as autonomous vehicles, cloud computing, robotics and open source hardware, will impact the industry. Innovation is occurring at all levels – from facilities deploying mobile applications that assist truckers, to more automation within terminals, to more integrated visibility tools that help us manage freight flows, to new developments in equipment technology making our containers and chassis safer, smarter and more reliable.”
   Norfolk Southern (NS), for example, has an app called ExpressNS, which allows truckers to submit pre-gate information, improve terminal functions, see visual parking and pick up locations, look up a unit by reservation number and equipment ID, receive electronic gate receipts, and submit bad order data. Jeff Heller, NS vice president, intermodal and automotive, said in a phone interview the railroad released the ExpressNS app last year and is still in the process of rolling it out one terminal at a time.
   BNSF also released a similar app last year called RailPASS, specifically designed to help trucking partners move freight in and out of the company’s 25 intermodal facilities. BNSF plans to roll out expanded Rail-PASS app functions this year, Farmer said. She noted the railroad also released its Estimated Time of Notification (ETN) concept during 2016. Under the program, BNSF notifies customers 24 hours prior to train arrival when the unit is going to be at the hub and when it will be de-ramped and available for pickup.
   In addition to having to keep up with infrastructure and technological advancements, the intermodal industry has to keep up with shifting consumer demand patterns as e-commerce growth continues at a breakneck pace.
   “This is driving different requirements for those of us that are part of the supply chain,” said Farmer. “In this changing world, supply chain partners must work together to make the process more responsive and adaptable.”
   The threat of a truck driver shortage also continues to loom over the industry. Both Farmer and David Yeager, chief executive officer of trucking and intermodal carrier Hub Group, noted the industry’s aging driver base that has yet to be replenished at the MARS Winter Meeting.
   Farmer said that although BNSF believes this will create opportunities to pick up over the road freight business, it’s still not a net positive because trucking is such a crucial part of the freight transportation ecosystem. If the railroad does a great job getting freight across the country and de-ramped, but there is no truck driver to pick it up, the whole “relay race” breaks down, she explained.
   With regard to autonomous vehicles entering the trucking industry, Yeager said it’s not a matter of “if,” but “when.” He said the major issue with implementation will not be technology, but regulators and labor groups trying to thwart, or at least delay, the inevitable. Autonomous vehicles would greatly reduce costs for trucking companies, since 40 percent of the trucking industry’s cost stem from labor, he explained.
   Asked about the impact of consolidation in the ocean shipping industry on intermodal, Heller said it has an effect on the entire logistics and transportation industry. He said more consolidation will continue to put increased pressure on landside operations as ships continue to get bigger, bringing in more containers at once, instead of cargo arriving in smaller, more frequent amounts.
   At the MARS conference, Farmer referred to the recent ocean carrier consolidation as a possible headwind, but noted that it was likely something that needed to happen to preserve the long-term health of the industry given the severe imbalance of supply and demand in container shipping.