Canadian Shipper

Feature

Intermodal Innovation





Canada’s railways are steaming aggressively ahead into the intermodal truck-rail marketplace, trying to capture the shipper’s fancy by marketing an alternative to congested highways and polluting trucks. While the veracity of these marketing claims are questioned by some, the strategy has managed to accomplish a couple of key things: it has improved the intermodal service offerings of railways, with new focus on scheduled departures and on-time service; and it has inspired the railways to invest in new intermodal technologies which, in the end, gives the shipper more choice.

Both Canadian Pacific Railway and Canadian National have made multi-million dollar investments to overhaul their intermodal offerings and are planning further expansion in the coming year. CPR’s Expressrail project (formerly known as the “Iron Highway”) completed its two-year pilot phase at the end of 1999, moving standard highway trailers on flatbed rail cars between Toronto and Montreal. It invested $48 million in the project and just ordered 240 new platforms, which are due for delivery in January and February. Those platforms are special designs based on CPR’s experiences over the past two years. “We were using a prototype developed by CSX, but it wasn’t really conducive,” says Raymond O’Meara, general manager of Expressway. “One drawback was that it caused some damage to loads. The equipment that we’ve ordered now has been completely redesigned.”

Having initially used temporary terminals for the service, CPR built dedicated facilities in Montreal and Milton, Ont. (just west of Toronto) last year, and a terminal in Detroit will be completed in the first quarter of this year. According to O’Meara, Expressway will start operating into Detroit by the beginning of March.

CPR also plans to extend the Expressrail product to Quebec City in the first quarter of this year and wants to be able to offer Quebec City-Montreal-Toronto-Detroit by the end of the quarter. By the fall it intends to open an Expressrail terminal in Chicago. “We’ll need more platforms for that,” says O’Meara.

Rival CN is betting on a different technology and strategy. For its RoadRailer service, which was launched on August 25, it opted for trailers that travel on railroad bogies. This allows the railroad to offer any combination of service between terminal-to-terminal and door-to-door. CN spent $13 million on 200 trailers and 130 bogies supplied by Wabash National Corp. of Lafayette, Indiana. “We went for this for several reasons,” says Mark Lerner, manager of RoadRailer. “It’s proven technology that has been around for at least 15 years. It’s been a huge success with Triple Crown (an intermodal marketing company). This is the lowest cost type of operation that you can run on the rail.”

Two other reasons for this choice were that the technology is virtually slack-free, which means little chance of loads shifting, causing possible damage, and because it is compatible with other railroads. “We move some Triple Crown equipment between Toronto and Montreal, and we can connect to networks in the U.S.,” says Lerner.

In mid-December Lerner submitted a proposal to acquire more trailers and open a new terminal. He wants to move intermodal traffic on Illinois Central and has Detroit and Chicago in his sights. He hopes to have the next terminal ready late in the first quarter or early in the second, and the new equipment should start coming in early in the year. “Everything’s set in place. We’ve just got to get the green light,” he says.

(The impact of CN’s merger announcement for the coupling with Burlington Northern Sante Fe on intermodal traffic is yet to be determined. In the statement outlining their merger plans, CN only touched on the impact of intermodal operations briefly: “The (combined) network will be more competitive with trucks and will promote growth in intermodal and merchandise traffic.” The only other mention of intermodal in the seven-page release was in reference to BNSF’s “strong intermodal” business.)

CN and CPR’s expansion plans suggest solid growth in the intermodal segment. According to O’Meara, utilization of slots has jumped from 63 per cent a year ago to 74 per cent. “We’ve had very good response from our customers. The evening train is full on several days. The morning departures are not full yet, but a morning run from Montreal to Detroit would be very attractive to our customers,” he says.

Currently Expressway has two departures a day. Customers would like to see three or four in a day and would welcome more capacity, he adds.

Intermodal traffic has increased continuously in recent years. Some estimates put volume growth at 10 to 15 per cent per annum over the last five years. “We try to expand our intermodal business,” says Joe Smelko, head of regional sales and marketing at trucking firm Schneider National. “Given the success we’ve had in the U.S. with our trailer-flat car program, there’s no reason why that model can’t work in Canada.”

Barry O’Niell, director of sales and marketing at logistics firm Hub City Canada, the largest intermodal marketing group in North America, says that the perception of what intermodal can do is shifting. “There are significant inroads in developing new intermodal lanes and opportunities with both CN and CP. We’ve identified some opportunities that certainly weren’t considered opportunities in the past. We see a lot of conversion of traditional non-intermodal business,” he says.

Smelko agrees: “We need to qualify what the customer can live with. Not every customer needs just-in-time, not everybody needs 10-hour/500-mile service.”

The main factor behind the growing appetite for intermodal solutions is necessity, though. There is a shortage of an estimated 50,000 to 60,000 truck drivers in Canada, and trucks are also in short supply. “With the driver and truck shortage, this gives our customers another option,” says O’Niell. “We need to be able to grow to continue to serve our customers. Intermodal is one way of doing that.”

Naturally the rail companies are quick to stress that intermodal is not just a stopgap. “This is not a necessary evil; this is a viable alternative. It offers a lot of value,” argues Lerner. O’Meara says that Expressrail offers lower cost and good transit time.

From a political standpoint the intermodal option also has attractions. It is environmentally friendly, as it reduces highway congestion and emissions into the air. An intermodal train can take up to 280 trucks off the highways, and moving a tonne of freight by rail instead of truck results in less than one-third the emissions into the air. On average rail intermodal service uses less than half as much fuel as highway transport to move the same shipment the same distance.

While no one disputes those advantages, trucking companies stress the need for railroads to guarantee consistency of their service, especially in a business world more geared than ever to just-in-time shipments and specific production scheduling. “The customer can live with a service that is less than truck if the rates reflect that and if it’s consistent. Transit times can’t be truck plus one day today, and truck plus two days on another day,” says Smelko.

Historically the railroads have struggled with a poor reputation for on-time performance. “There’s growing recognition at the rail companies that their service hasn’t come close to what motor carriers provide. I’m glad to see they’re recognizing that and are investing,” says David Bradley, CEO of the Canadian Trucking Alliance and president of the Ontario Trucking Association. O’Niell agrees that the rail companies have shown improvement on that front. “We see some slippage during peak times, but overall their performance and response times are beginning to improve,” remarks O’Niell.

Another concern has been bottlenecks, especially when it comes to trackage and yard flow. These have always been a major issue, says Bradley. No one disputes that the railroads have spruced up their act, but O’Niell and others find that more could be done. “We’ve seen improvements, but there’s no question t
hat surges continue to create some gridlock,” he says.

At Expressway terminals the dwell time is 15 minutes, according to O’Meara.

“The truckers are very happy with that. At conventional intermodal terminals you wait a lot longer,” he says. For his part, CN’s Lerner says that if a trucker spends more than five minutes in his yard, there is a problem. “There are no overhead cranes; you don’t have to wait for chassis. It’s all trailers. It’s a very simple operation,” he explains. All that’s required to load RoadRailer trailers is a forklift to set the bogies on the rails and a shunt truck to put the trailers on and off.

At first glance RoadRailer might conceivably engender some hostile reactions from the trucking community, as the concept allows CN to approach shippers directly, whereas CPR’s Expressrail is clearly targeting trucking firms. But truckers don’t seem unduly worried. “I don’t think anybody in the industry is concerned about competition from intermodal,” comments Bradley.

Smelko certainly isn’t concerned. “When we work together with them we set ground rules. They could lower their margins to solicit our customers, but they’re not going to bite the hand that feeds them,” he says.

“Do we compete with trucking companies? Yes and no,” says Lerner. “We employ many truckers to do pick-up and delivery. We offer the service to truckers and manufacturers.” Smelko says that one of the benefits of using RoadRailer for Schneider is that it frees drivers and tractors for other jobs.

How far can short-haul intermodal concepts like Expressway and RoadRailer be spread? O’Meara thinks it’s conceivable that they will be rolled out in other Canadian cities. He is not sure, though, if it would work if distances are below 300 miles; otherwise the transit time might not be comparable to trucks.

For the time being, CPR is focusing on the U.S. market. Management is looking at New York, which may be added to the Expressrail network by the fall of 2001. Other points under consideration are Milwaukee, St Louis and Philadelphia. “Long term we could have a link Chicago-Detroit-Buffalo-New York,” says O’Meara.

He’s clearly looking at continuing strong growth, and so is Lerner, who says “my only problem is that we’re growing too fast.”

Ian Putzger is a Toronto, Ont.-based freelance writer.


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