What lies ahead for intermodal

Railway Age, April, 2005

"An interesting world lies just down the track. There will be fewer railroads. There will be greater traffic. Competition will be tougher. Intermodalism will grow. Fuel will be more expensive. And the traditional railroad adversary, the trucker, may turn out to be the railroads' best customer."

--Curtis D. Buford, former Trailer Train president.

Buford's predictions in a 1981 Railway Age article celebrating TTX's 25th birthday were on target. And in all likelihood, he wouldn't be surprised to find that intermodal traffic has overtaken coal as the Class I railroads' top revenue source. On U.S. roads, originated traffic was up 10.4% in 2004 vs. 2003, with 10,993,662 trailers and containers (compared to 6,820,865 units of coal), according to the Association of American Railroads. Canada experienced similar--albeit slower--growth, rising 0.6% with 2,166,832 units. In 2005's first 10 weeks, intermodal traffic showed no signs of weakening. U.S. carriers hauled 2,145,504 units, a 9.5% surge over the same period last year; Canadian carriers, 411,637, a 6.4% increase over 2004.

"I've been associated with intermodal for close to 30 years, and I don't know if I've ever been this excited about its prospects," says Paul Waitte, vice president-IMX (Intermodal Excellence) for CN. Intermodal used to be a "second poor cousin" to other CN business units, but the railroad's new intermodal model, which includes reservations for shipment predictability, ensures profitable and sustainable growth. "We now have a seat at the capital table," Waitte says with pride.

Shippers and customers alike are positive about intermodal's long-term success. "Its future is bright," says Norman Black, spokesman for one of file first and now largest intermodal customers, UPS.

Why? Railroads like Kansas City. Southern say they may handle traffic increases of 6-10% over the next five to six years, according to KCS Vice President Marketing, Automotive, and Intermodal Michael Smith.

"We anticipate continued growth in transpacific container shipments from Asia as the number of companies sourcing their merchandise from the Pacific Rim--particularly China--continues to expand," says John McBoyle, vice president-intermodal for Canadian Pacific Railway. "There also has been growth in exports, but as we look ahead, we see a growing challenge to balance heavy import volumes with export volumes."

The truck driver shortage and skyrocketing fad prices are contributing to intermodal demand, as well. Many domestic customers are looking to convert traffic from highway to rail, confirms Paul Bergant, chief corporate officer of J.B. Hunt and president of the company's intermodal division.

Throughout its 50-year history, TTX has partnered with railroads, trucking companies, and other shippers to help keep traffic moving. It has successfully increased capacity by boosting the number and modifying the type of intermodal cars in use, and has aggressive new-car build plans, conversion programs for existing doublestack and conventional intermodal cars, and maintenance programs.

"Overall, TTX has done a good job managing the growth in intermodal, especially considering the fact that its owner railroads often have different strategies for the intermodal market," points out Steve Branscum, group vice president-intermodal for BNSF Railway.

It's done so by showing "foresight and flexibility in anticipating evolving industry equipment changes and responding, while keeping rates competitive," adds CSX Intermodal President James R. Hertwig.

This is particularly impressive in today's volatile market. TTX remains mindful of current trends and fast-changing trailer and container specs when it buys assets with life spans of 20-plus years, according to Bill Matheson, vice president and general manager, Intermodal Services, for Schneider National, Inc.

"More than one railroad chief officer has told me that he simply does not see that he will have the resources to deal with all of his company's equipment needs and still take care of the future needs of the changing physical plant. These circumstances suggest a continuing vital role for Trailer Train in the future."

--Curtis D. Buford

This still rings true today. Intermodal's biggest constraint is capacity. "Customers can't tolerate the variability that is seen in some [rail] lanes," says Schneider's Matheson. "Throughput continues to be a problem." Others agree. "I think we need to continue to improve this product in all aspects, so the pricing differential between truck and rail continues to minimize itself and rail service mirrors the consistency of trucks," notes J.B. Hunt's Bergant.

Railroads are working toward these goals. Investments in improved operational efficiency, productivity, and fluidity in the supply chain are critical first steps. CPR is among the railroads taking them. It has acquired new doublestack cars, extended sidings to accommodate longer trains, and introduced distributed power in intermodal trains to run longer trains through the winter, says McBoyle. In addition, CPR implemented an allocation system for import volumes at the Port of Vancouver to reduce demand volatility and bring the necessary level of predictability to this area of business. It also formed cooperative agreements with other railroads, including directional running, trackage rights, haulage services, enhanced interchange, and improved access to terminals mad service areas.