The relevance of rail
Almost everything that affects domestic freight flows has been changing. U.S. imports have continued to grow, but some of their sources have shifted away from China to Western Asia and they are arriving on larger vessels that can be accommodated by the Suez Canal and soon the Panama Canal. Environmental regulations and cargo owners require ocean liners, trucks, railroads and ports to reduce their emissions. Truck transportation is further impacted by federal hours of service regulations, chassis availability, and chronic shortages of drivers due to demographic trends. Marine terminals are wrestling with the new Safety of Life at Sea convention’s container weight requirements.
Railroads, meanwhile, have been gaining share of both international and domestic freight intermodal movements, at the same time that their bulk commodity movements, especially coal, are declining.
The effect of shifting import sources and demand for intermodal is no more evident than in the chart shown here. Ports in the four corners of the lower 48 states compete for container volume trade flowing to and from the Midwest markets. The United States’ four corner ports also compete with Canadian ports to serve the U.S. inland market (e.g. the Pacific Northwest competes both with ports to its north and south for serving the Midwest market). Canadian ports are not explicitly considered in this chart since our focus is to assess the importance of rail in port growth. The chart shows the average growth rate over seven years for rail and port volumes (selected for illustration purposes) at the four corners: Los Angeles and Long Beach (LALB), New York and New Jersey (NYNJ), Savannah and Charleston (CHASAV) and the Northwest Seaport Alliance (Seattle and Tacoma, labeled PNW). In this chart the x-axis shows the changes in the port volume and the y-axis represents the changes in the rail volumes. The red line shows what the relationship between port and rail volumes would look like if they moved in line with each other. This chart implies that rail volumes have changed at a multiple of port volumes, which indicates a shift in source ports for serving the Midwest intermodal markets.
Post-panamax vessels have been calling at East Coast ports in the last several years, often bringing containers from China, Japan and Korea via the Suez Canal, because the Panama Canal expansion had not been completed. However, without rail capacity, it would not have been possible for the East Coast ports to serve the Midwest markets.
According to the American Association of Railroads, railroads have invested an estimated average of $26 billion per year in the last five years. Although some of this is related to the growth in crude by rail and for positive train control, it is worth noting that the growth in railcars carrying containers and trailers has been the steadiest of all types of freight.
Not all of the growth in East Coast container volumes is due to a shift from the West Coast. U.S. trade with countries in the western half of Asia, which normally transit the Suez Canal, has been growing as importers have sought to diversify their import sources. East Coast ports are attractive gateways due to their flexibility for handling cargo coming from Asia via either canal or from Europe. Flexibility helps importers keep their costs down. Cost control is paramount in a global economic environment characterized by low growth.
As volumes grow in U.S. ports, the key will be the last-mile connectivity. Ports are investing in intermodal, as well as other infrastructure. Logistics managers have been doing the same. Therefore, it is important to factor intermodal freight in infrastructure expansion plans.
Kemmsies is with Jones Lang Lasalle and can be reached by email at walter.kemmsies@am.jll.com, while Ali Rezvani is with Moffatt & Nichol and can be reached by email at ARezvani@moffattnichol.com.