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The Role and Impact of Rail-Truck Intermodalism on Efficient and Effective Transportation

While many look at intermodalism as a solution to congestion, transportation pollution and many other problems, the private sector, not the government, should invest in the railway infrastructure to ensure its future. Just as J.B. Hunt had the "vision" to move trucks off the highway onto the railroads, so will today's trucking and railroad executives need to develop the way forward for intermodal growth.

by Barton E. Jennings , Ph.D. and Mary C. Holcomb, Ph.D.

The first of a two-part series

Introduction

Every day, firms are faced with changing global supply chain conditions. To operate efficiently and effectively in this environment, a seamless end-to-end transportation system is critical. Port facilities and connecting transportation networks are key components of a seamless global supply chain. Unfortunately, the ports and transportation networks that support global supply chains are stretched to their limits as they accommodate growing international trade volumes, larger container ships, and increased transportation capacity issues on the land side. Traditionally, mode-specific solutions have been pursued to alleviate the land side transportation capacity issues. These challenges, however, require shippers, carriers and government agencies to work together to develop comprehensive methods to address the issues that currently trouble the transportation infrastructure. One major opportunity to enhance the efficiency and effectiveness of the land side transportation is the development of an interposal freight distribution system.

Interposal freight movements have been increasing over the past four years as more shippers are trying to reduce transportation cost. The focus of this article is to examine the current trends and issues related to a specific type of intermodalism-rail-truck. As the primary intermodal strategy, it is important for shippers to understand the role and impact that this type of intermodalism plays in having a seamless transportation system. Because many of the issues related to intermodalism are connected to the overall transportation system, the government's role must also be examined to determine their separate and distinct responsibilities in ensuring efficient and effective transportation.

The Current State of Intermodalism

The basic concept of intermodal has essentially remained the same. It is the use of two or more modes of transportation between the origin and destination of a shipment. The use of multiple modes allows the advantages and benefits of various modes to be combined to benefit the shipper. Current conditions such as an increasing volume of imports, high diesel fuel prices, constrained truckload capacity and the driver shortage in the motor carrier industry has increased the attractiveness of moving freight via several transportation modes. Within the United States, rail-truck is the primary intermodal strategy. This strategy allows the use of lower cost rail on the line haul while still having the facility access advantage provided by truck.

In terms of the domestic transportation network, intermodalism has removed highway traffic from the long lanes, such as Chicago to Los Angeles. This also enables trucking companies to reduce the amount of time that drivers are spending away from home as they can be redeployed to freight movements with shorter lengths of haul. What many people do not understand, however, is that intermodalism has created a concentration of freight volume in areas around terminals such as Chicago, Los Angeles and Fort Worth. (See Table 1.) Ironically, many of these cities are currently struggling to balance the demand for passenger and freight highway capacity.

TABLE 1

The boom in U.S. rail-truck intermodalism can largely be attributed to two factors: 1) growth in international trade and 2) issues with highway transportation that have affected cost and availability of service such as increasing fuel costs, driver shortages, a decrease in productivity due to new rules in hours of service, tight capacity in the truckload sector, and consolidation and attrition in the carrier base.

In 2006,U.S.rail intermodal loadings were 12,282,221 units; up 5.0 percent from 11,693,512 units in 2005.¹While the 2005 volume was the previous highest annual total ever, the third quarter 2006 increase in rail intermodal loadings set new records as an 8.6 percent rise in international traffic resulted in a 3.1 percent increase for domestic container traffic.² (See Table 2.) The third quarter 2006 container movements shown in Table 2 below marked the 18th consecutive quarter of growth for intermodal. The growth in intermodalism has been fairly consistent over the past few years with annual increases of 6 percent,6.4 percent and 8.6 percent from 2002 to 2004 respectively.³

TABLE 2

The recent growth in intermodal movements is not new. Rail intermodal traffic has more than tripled in just over 20 years, rising from 3.1 million trailers and containers in 1980 to nearly 10 million units in 2003.Within the past ten years, the movement of truck trailers or containers by rail and at least one other mode of transportation (usually highway) has been the fastest growing rail traffic segment. This is largely due to the fact that intermodal combines the door-to-door convenience of trucks with the long-haul economy of railroads. 2003 was the first time ever that intermodal freight surpassed coal in terms of revenue for U.S. Class I railroads. Currently, intermodal accounts for about 22 percent of total railroad revenue.³

The Evolution of Equipment

Early container use was dependent upon the provider. However, in 1958, the U.S. Federal Maritime Board endorsed container standardization and in 1961, the American Standards Association (ASA) established the standard container lengths and widths typically used today (40'L x 8'W x 8' 6''H or 20''L x 8'W x 8' 6''H).

In late 1965,the International Organization of Standards tentatively adopted the ASA standards. However, as U.S. highway restrictions were eased in the 1980s, larger containers became possible. American President Lines (APL) introduced 45-foot boxes in 1984 and 48-foot boxes in 1986.Even larger containers entered the market in 1991 when Trailer Bridge modified the new 53-foot highway trailers and began moving 53-foot high cube containers between the U.S. mainland and Puerto Rico.⁴

In 2006,the industry shift to larger domestic boxes continued. In the first quarter of 2006, the number of 53-foot domestic containers grew by 31percent followed by a 24 percent increase in the second quarter.⁵ Growth in 53-foot containers occurred at the expense of 48-foot container loads. On the international scene, 8'-6'' high containers are rapidly being replaced by high-cube boxes that are 9'-6'' high, despite resistance in some established countries. Larger containers have been a major contributor to increased intermodal freight capacity in an environment of somewhat stagnant rail capacity.

There has been a major shift in port container operations during the last few years. Because international containers are generally smaller than domestic containers, incoming international goods are often trucked to distribution centers near the ports where they are broken down and then consolidated into larger domestic containers. The larger containers are then trucked to area intermodal terminals. This enables a company to offer better and more accurate product mixes to its retail customers. This type of transportation distribution strategy reduces the number of international containers moved inland - as well as the return costs paid by shipping lines for what is typically an empty box. Domestic containers, by contrast, are more likely to have a backhaul. This practice has become so popular that it is estimated that approximately 25 percent of all international cargo moves by rail in domestic containers within the United States.⁶

Impact of Demand Exceeding Supply

As intermodal volumes increase, rail capacity limitations are forcing route changes. A few years ago, 70 percent of Norfolk Southern's international container traffic came through West Coast ports. By 2006,this was down to 55 percent as traffic for eastern destinations had shifted toward East Coast ports.⁷ Areas that have excess capacity have also experienced changes. Wal-Mart has built a major distribution center in the Houston area to take advantage of excess capacity there. Table 3 below lists the highest volume terminals in 2005 and the controlling railroad for that intermodal depot.

TABLE 3

Rail intermodal transports a huge range of goods - everything from bicycles to automotive parts, lawn mowers to glassware, greeting cards to bottled water, and toys to computers. As manufacturing has become more global, and supply chains have become longer and more complex, intermodal is evolving to play a critical role in making supply chains more efficient for retailers and others. The efficiency of intermodal - and of freight railroading in general - can provide the United States with a huge competitive advantage in the global economy.⁸

With the growth of intermodal over the last five years, rail- roads went from a state of excess capacity to essentially having very little available capacity to sustain the surge in demand recorded in 2005 through the first three quarters of 2006. The slowdown in intermodal traffic that began in the third quarter of 2006 is forecast to last only to mid-year 2007,after which volumes are predicted to increase by 4-5 percent.⁹ Investment is needed to add capacity in critical areas. Despite the railroads' willingness to put private capital into this effort, the government has been less than a committed partner. An example is the Chicago Region Environmental and Transportation Efficiency (CREATE) project. All of the major railroads have intermodal ramps in Chicago. More than 40 percent of all domestic intermodal shipments make some type of connection through this gateway. Of the $1.5 billion that was needed to make improvements to the existing railroad infrastructure and the local road system, federal, state and local governments have only allocated $230 million.¹⁰ This shortfall cannot be covered by private railroad investment alone.

While intermodalism, and its related network developments, is growing rapidly, its growth has been primarily driven by private industry, often led by the shippers of freight. Gil Carmichael, former Federal Railroad Administration (FRA) administrator, commented in 2006 regarding this trend with his statement that "there are encouraging initiatives underway to establish an integrated transportation network, yet they're coming mainly from the private sector."¹¹

Mr. Carmichael explained this lack of government involvement in intermodal freight transportation by stating that "most of the ministries of transportation around the world still function from a modal point of view. In the United States, Congress and the Department of Transportation (DOT) remain uncertain how to establish a coherent transportation policy for the 21st century. DOT remains organized into fiefdoms of highways, waterways, airways and railways. Capitol Hill still doesn't recognize the need for a strong well-financed, nationally integrated intermodal transportation program."¹²

The conclusion of a 2004 study by the National Center of Intermodal Transportation supports this view when it states that "research has also shown that the shift to this broader intermodal approach has not been universally embraced. Many state's Departments of Transportation (DOTs) are still largely highway-focused since a major responsibility continues to be highway maintenance and operations. Many state DOTs remain staffed with a large cadre of highway engineers, and most funding is still directed to the highway mode. As a result, not all state DOTs have embraced an intermodal philosophy to the same degree or adopted policies that promote intermodalism; indeed, some state DOTs have lagged behind others and much remains to be done before all embrace the commitment to intermodalism."¹³

The lack of a national intermodal plan, and the failure of many states to take an active role, has resulted in the situation where local governments are directly impacting day-to-day decisions regarding goods movement across the United States. This is one of the major findings of a series of symposiums on intermodal transportation sponsored by the Eno Transportation Foundation, which concludes that organizations such as local metropolitan planning organizations, often with limited staff and questionable information, "are being called upon to make decisions about issues that have national, and even global, implications."¹⁴

The second part of this article will appear in the next issue.

1. Data are from an Association of American Railroads news release, January 4, 2007.
2. Intermodal Association of North America, news release, November 6, 2006.
3. "Drafting a New Blueprint for Intermodal," Logistics Management, May 2006, p. 36.
4. Arthur Donovan and Joseph Bonney, The Box That Changed the World: Fifty Years of Container Shipping - an Illustrated History, East Windsor, NJ: Commonwealth Business Media, 2006, p. 21.
5. Intermodal Association of North America, news release, August 8, 2006.
6. Ted Smith-Peterson, "Railroading's New Economy: Part 2," Trains, September 2006, p. 39.
7. Tom Murray, cited in "Railroading's New Economy: Part 1, Ted Smith-Peterson," Trains, August 2006, pp. 26-35.
8. "Profile of U.S. Freight Railroads," adapted from Association of American Railroads, available online at: http://nationalatlas.gov/articles/transportation/a_freightrr.html#one.
9. John Gallagher and John Boyd, "Putting the Brakes on Intermodal," Traffic World, January 22, 2007, pp. 19-22.
10. Alex Blei, "CREATE: Past, Present, and Future," Business Leaders for Transportation Newsletter, February 21, 2006.
11. Gil Carmichael, "Intermodal Programs Key to Global Success," Supply Chain Management Review, May/June 2006, p. 11.
12. Ibid., pp. 9-11.
13. Andrew R. Goetz, Joseph S. Szyliowicz, Timothy M. Vowles, and G. Stephen Taylor, Assessing Intermodal Transportation Planning at State Departments of Transportation, National Center for Intermodal Transportation, Department of Transportation, University Transportation Centers Program, 2004, p. 132.
14. "Efficient Goods Movement and the Environment," Summary of Symposium Series, October 2005-March 2006, Washington, DC: Eno Transportation Foundation, 2006, p. 15.