Following the almost interminable winter of 2013/2014, intermodal traffic in North America is responding to pent up demand, with intermodal freight loadings rising 10.6% to 173,000 units in March, according to Statistics Canada’s recent railway car loadings report.
From a tonnage perspective, traffic advanced 8.8% to 2.6 million tonnes, a gain that stemmed from both increased containerized cargo shipments and trailers loaded on flat cars.
Rail traffic received from the United States fell 3.7% to 3.4 million tonnes. The decrease was the result of a drop in non-intermodal shipments, Statscan noted.
Larry Gross, senior consultant with freight transportation forecaster FTR, commented that intermodal was growing “because of pent up demand from a slower operating perspective over the winter”, and this was reflected by an 8.5% rise in international intermodal shipments out of the US, he said in a webinar looking at intermodal recovery following the harsh winter season.
“We think 2014 will otherwise look at lot like 2013, after a relatively rough start and despite the service issues. 2014 indicates there is robust demand for intermodal potential for gains if they can get the service issues under control,” Gross commented.
“The intermodal pipeline is wide open and volume is flowing in. There is robust growth in the intermodal demand picture, but service issues remain,” Gross noted.
Based on average intermodal train speeds that are published on a weekly basis by all the Class 1 railways except CP, Gross noted there was a terrific decline in these speeds over the course of the winter.
Not only were speeds down but crew and assets reduced.
“So you still had these issues that were difficult to overcome unless you throw more crew and locomotives at them,” he said.
Addressing long-term bottlenecks will mean creating more reliance on other gateways.
“I think there are things that are ongoing, huge capital investments in intermodal and track infrastructure, but it is hard for the railways to ramp up quickly because of the lead times in locomotives and crew,” said Gross.
Problems were evident before the winter, and that situation just left the railways trying to play catchup.
“The industry has been struggling to recover, but it’s hard when volume keeps coming at them the way it has.”
As the railways gradually reduce their terminal dwell times and get their container fleets up to speed, domestic container fleets can fulfill their full capabilities. Gross noted this as particularly critical because of capacity issues on the over the road side.
“It’s also a great opportunity for intermodal to convert volumes,” he said. Leading the charge in intermodal offerings becoming more attractive to shippers is the driver shortage in North America, but we won’t see the full impact of this shortage until 2016, said Steve Golich president, Celtic International.
“Intermodal is a place lots of folks are looking at that can pick up capacity. The market for new shippers coming to intermodal is huge-the Class 1 railways estimate there’s an opportunity to convert some 11-12 million loads per year,” he said. Shippers are also expecting there to be a value-it has been branded as a lower cost alternative. They are probably less concerned about price vs. capacity. Many opportunities exist in the shorter haul, eastern US lanes.Intermodal was born based on transcontinental moves-the distances are greater, as well as the savings opportunities, but those routes are more saturated, he said.“We’re finding opportunities as low as 400 miles-shippers are adjusting to the transit. When you’re in a closer proximity, truck is a better opportunity transit-wise. Our job is to balance the equipment-we don’t ever want to give equipment back to the rail yard-we want to create capacity and velocity. We’re working on an all-rail option with UP and Ferromex which would allow freight to move in bond-cleared at destination. There has to be a better way to provide quicker border crossings-that’s the number one priority,” said Golich.
As railways start to drop more secondary terminals, Gross said intermodal share could rise from a range of 17-18% range up to as high as 25%.
“As you try and get to shorter lengths of intermodal haul the amount of highway miles you can support goes down. There are fewer low cost rail miles to work with, so you need a denser terminal network to bring the intermodal network closer to where the freight is,” Gross said.
He said that he expects to see an acceleration in rates.“We would not be surprised to see door to door rates increase in the low single digit to mid single digit range.”
At the end of May, CN Rail announced it was changing its domestic intermodal open tariffs CN 7290 and CN 8383 with price increases effective July 1st, 2014. These changes reflect the prevailing market conditions, the company said.
Speaking at the Translog Conference this spring, Gordon Graham, Director of Business Development, with Canadian National Railway, said that the winter of 2013/14 highlighted many things for the rail industry.
“A couple of the things became evident: winter was really tough on all railways in North America-the farther north you go it became even harder. It had a big impact down through the supply chain. It highlighted where the choke points are, where the concerns are, and the importance of planning in advance to address those,” he said.
To resolve these choke points, said Graham, from CN’s perspective process, technology and infrastructure are the strategies.
“We’re looking at opportunities to shift traffic off peak windows. CN is looking at providing rate incentives for Sunday-Monday. From a rail perspective and intermodal perspective there is more traffic on a Friday. CN has been trying to incent those shippers who are able to ship Sunday or Monday to reduce the amount of congestion on its own rails, and interface with the highway network,” Graham said.
He said that technology offers a lot of opportunity as well for trucking and rail to communicate with each other on the progress of the loads.
“You can always put more money into the ground and build it but if you can solve your problems another way it’s nice to be able to give your money back to the shareholders,” Graham said.
With the higher cost of fuel, and reduced access potentially to drivers, the pricing gap between intermodal and truck has been expanding.
“In the old days 800 was kind of the number where if your cities were closer than 800 miles apart rail didn’t seem to have the competitiveness. That number is coming down, particularly in the eastern US where the population density is higher and you see intermodal services between cities starting to bite into what was traditionally a highway market,” Graham said.
Graham suggested there is also more room for better relationships between stakeholders in the supply chain who may not be directly related.
“In the intermodal business CN moves containers to ports. Traditionally all the parties aren’t related. The steamship lines will choose a port and hire a party to move inland.
The railway and the port don’t have a commercial relationship-they have a relationship with the steamship company but not with each other. It’s an example of how we could improve efficiency and make our joint customer more efficient in the marketplace. All of the Canadian ports have signed agreements with CN outlining their responsibility toward each other. I think there’s still more that can be done in that range,” Graham said.
As Canadian Shipper was going to pres
s, the International Longshore and Warehouse Union (ILWU) contract faced expiration at the end of June, threatening to affect West Coast port operations,
While there is every indication there won’t be a strike, “It doesn’t mean there won’t be slowdowns or other labour actions,” Gross said. “Shippers are understandably nervous with regard to the situation,” he added.
Gross said drayage could be a real flashpoint this year in terms of the intermodal situation.
“Drayage drivers have not been not getting the kinds of turns they need. They have a number or options available with over the road carriers, who are hungry for experienced drivers. The balance of power will change in a dramatic way between dray carriers, shippers and ocean carriers. Capacity will be king. The dray carriers will be in a position to raise rates this year, and in a differential manner. If a shipper isn’t treating the driver time with respect that shipper will have a hard time finding dray capacity this year. Dray carriers may also shift to international handling to avoid port issues,” said Gross.
Chassis in short supply
A long-lingering issue in the intermodal segment is consistent access to lightweight, quality chassis when and where shippers need them, as demand for chassis in shared pools often outstrips supply.
Last December Schneider National created a company-owned and managed chassis fleet, aiming to offer “truck-like” service in its intermodal segment.
“Establishing a company-owned chassis fleet gives Schneider complete control of assets used in an intermodal move and makes our service even more efficient for shippers,” Bill Matheson, president of Intermodal Services at Schneider, noted.
The chassis will offer more freight capacity per load at 500 pounds less per unit, and Schneider will maintain control over the maintenance of its chassis units.
The company expects to convert its entire North American intermodal operation to an owned-chassis model over the next two years.
Jim Filter, senior vice president, of Schneider’s Intermodal Commercial Services, said the rollout of the new chassis started last December, and the company will place 2800 chassis over the remainder of this year, focusing on the eastern half of its network and moving north from there.
Having a standard piece of equipment, he said, will be an improvement for shipper customers who were frustrated with loading and scaling equipment themselves.
“We can integrate our equipment with our own system to understand what chassis the driver will be assigned. When we implement at a ramp we only use our chassis. We continue to add boxes to our fleet-at this point it’s difficult to say when we’ll be done. We’re just going to continue to buy them and take this on one ramp at a time. When you use out of a pool, every chassis is a little bit different in weight. With our own design we are seeing fewer breakdowns. So far the shipper response is exactly what you would want it to be. It’s transparent to them,” he said.
The need for transparency is heightened after the extra long winter experienced across the continent this year.
“55% of our freight touches Chicago at some point. When things were really bad 6800 was the average number of units processed (versus 11,000 in a typical winter season) and that caused some issues for us,” said Filter.
“It’s amazing how cold it stayed and for how long. The cold went so far south we were seeing train restrictions we had never seen before,” he added.
Canada-Mexico is one of the fastest growing lanes for intermodal, which allows for a much more streamlined border crossing at both the Canada-US and US-Mexico borders, Filter said.
“There’s a pretty big cost savings crossing intermodal,” he said.
There is also growth from southern California/the Pacific US to Toronto and Montreal, and from shippers looking at other opportunities from Mexico to Chicago, eliminating transfer costs at the border.
Driven by a lack of truck capacity, shippers are starting to look at intermodal lanes they would not have looked at before.
“You’re getting into small and medium-sized customers choosing intermodal,” Filter said.
“There are still opportunities to convert freight. We are converting freight from Toronto to Chicago. It really is broad support based, for retail and automotive, and more recently food and beverage have been growing faster,” he said.