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US intermodal experts say restoring service will take whole supply chain

Reynolds Hutchins, Associate Editor
Sep 22, 2015 6:00AM EDT

Link: http://www.joc.com/rail-intermodal/intermodal-shipping/us-intermodal-experts-say-restoring-service-will-take-whole-supply-chain_20150922.html

More than a year after the brutal 2013-14 winter roiled U.S. intermodal networks, service reliability and consistency still hasn’t rebounded entirely. Railroads are investing billions in their networks, but some suggest it will take a whole-of-supply-chain approach to restore service, one that includes investment from rail, drayage, trucking, ports, logistics providers and the U.S government. On Aug. 27, Reynolds Hutchins, JOC.com associate editor, discussed what’s been done and what still needs to be done in the intermodal sector with Joni Casey, president and CEO of the Intermodal Association of North America; Katie Farmer, current IANA chairwoman and vice president of consumer products at BNSF Railway; Adriene Bailey, chief strategy officer at Yusen Logistics; Phil Shook, director of intermodal services at C.H. Robinson; and Jim Newsome, president and CEO of the South Carolina Ports Authority.

What follows is part 2 of the JOC.com roundtable discussion. The conversation on major intermodal trends will continue at the 2015 Intermodal EXPO hosted by the Intermodal Association of North America (IANA) in Fort Lauderdale, Florida, through Thursday.

JOC: Does the intermodal network have the capacity and the fluidity to handle steady and constant growth?

Shook: All the railroads that I spoke with kind of reiterated some of what Katie has been saying. If you look back at all of the Class 1’s over the last 10 years, it’s been a steady increase on an annualized basis almost without fail. And they’ve invested in their network. Everyone seems to have contemplated long-term growth, so I think the infrastructure is largely there. I think there’s always the potential for disruption, but overall I’m very confident that the growth is there. And if you couple that with the listing of the anti-dumping law on the containers, I think the infrastructure from a capacity standpoint outside of the railroad is there so there’s ample equipment to haul more freight. Overall, I’m very optimistic that we’re going to be able to have mid-to-high single-digit growth for the foreseeable future without any reason for concern.

Bailey: I’d sort of take a little bit of a step back. From my perspective, I think the railroad is one of the strongest links in the supply chain. I think it’s been amazing to watch what they’ve accomplished with investment over the last few years. I’ll admit I was very – I wasn’t completely sure, Katie, that BNSF would be able to get the amount of infrastructure put in place in the timeframe that you guys set out to do it in the Northern Corridor and you did it in spades and kudos for that.

I think our bigger problem is how to get freight to door and it has to do with some of the other links in the chain. The highway system is in terrible shape. There are some corridors where – and I’ve experienced this, myself – we’re almost at horse-and-buggy speed on a large percentage of days. That’s a little bit of a dramatic statement, but it’s really not that far from reality. And we’ve got major problems in terms of the congestion in the ports. We have some of the lowest productivity ports in the world. So the capacity is actually there, if we’re willing to invest in the kinds of processes that need to be there to facilitate that. Technology can play a huge part. Cooperation and integration of processes can play a huge part. But we really have a lot of work to do outside the railroad system to get some of these other areas operating much more smoothly. And I think we’d all be surprised at how much more we could flow through the system if we really got our head wrapped around what’s needed to happen.

JOC: Do you think it has more to do with a lack of funds or more to do with a lack of knowing where to invest at the right time?

Bailey: I think it’s both. We as a country have not only expected the railroads to invest as a private enterprise, which they have done. We also layered on regulations which introduced positive train control, which is going to cost another hefty amount of money to implement on all of our behalves. They’re weathering those challenges extremely well. But as a country, we can’t figure out how to vote into law a tax revenue program that’ll support what we need on our roads.

If you look at the coordination issues that have to happen between chassis providers, steamship lines, dray providers, 3PLs, railroads and customers in big port areas like Los Angeles, that’s more of an issue of coordination, cooperation and setting up processes and technology that are going to make that flow and work together. So that goes to your second point which is, you know, what do you invest in and how do you set that up? So I think it’s a combination of both, but it’s a very disturbing situation.

Newsome: I mean, obviously, the ability to invest is driven by economic returns on the business activities. My observation as a port is that most segments of the U.S. supply chain are going to be looking for a little bit better returns to justify investment. But I think if that can happen, I think there’s the ability to invest and the ability to provide capacity.

JOC: We’re still hearing shippers complain about less-than-stellar service and less-than-stellar train speeds. Are the improvements there and we haven’t seen the effect, or are more improvement needed?

Shook: The question is focused really on the railroad. But as Adriene indicated, earlier, there are other parties involved that have to play a role. And improving things like terminal dwell time and getting the freight out of the gate in a timely manner, and delivered, and keeping the velocity of the container fleets high, really plays a large role in that effort to free up space, and is really key to trying to do more with your existing infrastructure. So while I think there’s still some improvement that will happen over the next six to 12 months from the railroads on improving the train speed, it’s incumbent upon everyone in the supply chain to do their part to make it more efficient. Otherwise, we’re just going to get back to where we were and end up in this vicious cycle and everyone points at each other. But it has to be a collaborative effort to improve the overall show.

JOC: Have the ports been pulling their weight?

Newsome: I can’t obviously speak for all ports. I think I’m a pretty close observer of the Southeast ports. You have a few straightforward levers you can pull to make sure your capacity, your density, your turn times work, and we’ve worked to extend gate hours. We want to make sure that the truckers are successful in serving our port and they have good turn times. That’s been successful. We have and continue to invest in new lift equipment. I mean, if you think about it, the port industry has converted from substantially wheeled operations in a lot of places to grounded operations. Railroad ramps are a little different. I mean, that’s one of the conflict points. But we’ve invested in enough equipment to handle containers to and from the ground in a quick matter and we’re prepared to do more. If we need to extend gate hours further, we’ll do that. It’s not lost on everybody. We work shifts 24 hours a day, 7 days a week, but we have in many cases limited gate hours. So that’s one way that you improve your capacity. I think we’re going to have to look at dwell time. Phil mentioned that. It's obvious to me, running a port, if you have weekly services and if you have longer free time than one week, you’re going to have congestion in your terminal. So certainly dwell times are going to have to be reviewed to make sure we have appropriate capacity because waterfront capacity is really expensive and it’s hard to permit. I think we’ve done a good job, but we’ve got to continue to focus on how do we get more throughput in an acre of terminal property because it is so expensive and scarce.

JOC: How has intermodal service been down there in South Carolina? I know you touched on that you guys have seen the volume. But as far as the service is concerned, what are you seeing and what are you hearing down there at the port? When we hear that service is bad from time to time, or not at the level we want it to be, are we talking about longer transit times or are we talking about railroads not meeting their stated goals?

Newsome: Well, okay, I think the railroads in the East were very open and honest about the fact that their service suffered during the winter and they had to take corrective actions to get back on track. And so there was less reliability in terms of service. But then, on the other hand, we have seen some really good examples of service improvement. I mean, if you’re an inland port and you have overnight train service between Greenville, South Carolina and Charleston, which really mimics the efficacy of trucks; that’s really good. There are some examples of service improvements to go along with just the general degradation that happened due to the winter and maybe due to some congestion.

You know, we have strategic relationships with both the Class I railroads in the East and I see a lot of creativity on their part. I think they’re really thinking outside the box: “How can we do more?” You have to think about the intermodal network as part of a total chain – the railroad network has a really small percentage of the track capacity that actually has intermodal trains. And I think they’re being creative and they’re stepping up to the challenge.

JOC: When we hear about service being bad from shippers, or from 3PLs, what are we talking about, specifically? What are we hearing, specifically? Are we talking about slower train speeds? Are we talking about longer transit times? Are we talking about the railroads not meeting stated goals? And, Katie, at BNSF – you can jump in on this – you guys have admitted the service sometimes wasn’t stellar in the past. When we say that, is it one particular problem? Is it the winter? Is it volumes? Is it trying to meet demand? What exactly is poor service?

Farmer: We are actually seeing continual improvements in network velocity and on-time performance. And you can pull all of those statistics that we give to the Association of American Railroads every week. And you can see that even through some of the challenges we had in ’13 and ’14 relative to the increased growth in the winter, our intermodal network still operated the fastest across all the Class I’s. I can’t speak specifically to the reference that you’re making. But, again, like I said, this is all about continuing to invest in capacity, expansion, continuing our strong maintenance program, and when we finish that at the end of this year we will have a better railroad that is positioned for long-term growth. And, again, we continue to see improvements in our service.

And I agree with what Phil said, earlier, that with that capacity that we’ve added, we still need to work on the endpoint and how we move freight fluidly through our hub facilities. And we’re working closely with our carrier partners and our customers to look at opportunities to do that. And I think you’ll see that improve the overall, you know, door-to-door service.

Shook: I think the other part is it seems like you’re painting with a very broad brush when you say “bad service.” I think what I’ve heard at least from our customers, not that the service is bad, it’s that it’s been inconsistent. And that makes it difficult for them to plan their supply chain. Now, that being said, that’s not solely on the railroads, but overall I think that service has continued to improve. It is at a level that it’s salable, where I don't think that was the case probably nine months ago. I think it was more of a challenge to introduce that service to new customers. But I think what I’m hearing from the clients is they just want to know what they should expect and they want consistency, whether it’s a published transit time or not. They just routinely ask us to tell them what they should budget for and then deliver upon that – to Katie’s point – on a door-to-door basis, not necessarily just focusing on the rail aspect of it.

JOC: As far as the future of intermodal growth is concerned, where do we see the most potential for intermodal growth in the near future? I’m talking about in the next half of this year and 2016, as well. Or will much of that be winning over market share that was lost the highway in the past?

Casey: I’ll jump in just to frame that up. If you go back to my initial observations, and based on what we’re seeing in the various lanes and markets, there are ebbs and flows throughout the intermodal supply chain. And at any point in time there are a variety of variables that impact all the different factors. You’ve got the economic activity, overall, then you’ve got subcomponents of that, such as the value of the dollar. Everybody mentioned the trucking capacity and drivers, in particular, and price of fuel and even the weather. So, the coefficient to those variables changes depending on the time of year and the different levels of markets, imports, exports, etc. So I think the thing to focus on, at least from my perspective, is the consistent and continued growth in all of those market segments for intermodal. And it’s a payoff of inconsistent metrics, so you can’t really point to one particular area or another that’s going to impact.

So, you know, you’ve heard folks talk about the increased investment and that has to go throughout the intermodal supply chain. There are some areas we’re not seeing the level of investment, or the level of process change, that supports the volumes that are being seen. So it’s a dynamic model and at any point in time you have to look at all the different variables that are feeding into that. Not that that specifically answers your question, but I just think it’s something that needs to drive home, versus focusing on one particular component of the supply chain.

Contact Reynolds Hutchins at [e-mail] and follow him on Twitter: @Hutchins_JOC.