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Commentary: Looking '"Back To The Future" For Perspectives On Intermodal 2025+

FreightWaves

FreightWaves features Market Voices – a forum for voices with unique knowledge of numerous transportation/logistics/supply chain sectors, as well as other critical expertise.

The "Renaissance Period" for railway intermodal was the 2002-2006 time period.

A number of railway freight records were broken. For example, 2004 railroad traffic in the U.S. hit a number of high-water marks, including a best-ever 1.61 trillion ton-miles (Association of American Railroads).

Railroads moved 17.42 million carloads, up 2.9 percent over 2003. However, intermodal grew by 10.4 percent, reaching 10.99 million loads. Intermodal was on its long-expected (and hoped for) growth spurt. What could go wrong?

That growth lasted for another two years, and then the U.S. economy headed into the worst recessionary period since the Great Depression hit in 1929.

Ignoring the collapse of all freight because of the recession, what was the primary focus of most strategic planners? It was about capacity. Capacity shortages in the face of predicted high traffic demand growth was the strategic issue back then. And it was an issue not confined to just ports, airports and highways. It also was a railway issue.

Multiple experts, including John Vickerman – principal at the time of TransSystems Corporation (and now president of Vickerman & Associates) – cited capacity challenges. In 2006 Vickerman focused on maritime and rail intermodal capacity in the face of high growth rates out towards 2024. Other rail experts tended to agree.

Then, unexpectedly, a giant economic curveball flattened oncoming growth for most of the next decade.

Why was that freight recession missed? Principally because demand market forecasts are often unconstrained. Predictions assume average continuous compound annual growth rate (CAGR). In real life, down cycles occur. 

The railroads responded to the expected ongoing business volume expansion with expensive track infrastructure adjustments. They also invested in thousands of locomotives and tens of thousands of freight cars. Large-scale capacity projects included more than $4 billion in privately financed track and bridge upgrades including:

  • Along the Union Pacific (former Southern Pacific) Southern Corridor
  • BNSF main line double tracking between California and Illinois
  • An added fourth main line track over the top of Cajon Pass in California

Separately, the nation's highway system planners considered the long-term growth of trucking volume along the major interstate and U.S. primary highway links. By 2020, highway planners calculated that the volume of truck-moved freight traffic on the roads would increase by 70 percent compared to 1998 levels (source: Federal Highway Administration's 1998 Freight Analysis Framework).

Where? As of the 2002 base year, the heavy red areas on the following two maps identify where the increased volume was to have the greatest highway impact by 2020.

Calculated Highway Trucking Market Served Density Map Base Year 2002

 

Calculated Future Highway Trucking Market Density Map by Year 2020

How could highway planners lower tucking highway demand? A growth in freight moved via intermodal railroad was the game plan.  From Wall Street to corporate rail offices, that seemed logical.

In part it did happen. But there were serious geographic holes. Here are a few:

  • Shifts of short-haul distance freight to intermodal trains has not occurred as previously expected.
  • Multiple parties did not come to grips with the complex industry differences of each mode's business model. There was a gap in understanding the role of costing and pricing that is fundamental to being engaged in the execution of freight logistics.
  • The railroads instinctively saw the opportunity for long distance land-bridge moves. By 1992 managers had become convinced about the profitability of double-stacking containers in lanes like Los Angeles to Chicago. That was the long-awaited breakthrough from rail technology to boost intermodal as a container rather than a trailer rail service.

The photo below shows how the earliest transcontinental APL Liner Train stacked container railcars three decades ago.

(Internet photo)

  • Congestion in urban areas was attacked with projects designed to reduce train path congestion by eliminating both rail-to-rail and rail-to-highway grade crossings in dense corridors. The Alameda Corridor and the Chicago CREATE project exemplified these big project improvements.
  • There was public agreement to participate in financing such urban rail freight grade separation projects since motorists delay times would drop.
  • By 1990-92 a new kind of rail intermodal network emerged. Ironically, it was led by the success of APL Lines, an ocean container company. It, rather than the big railroad companies, advertised the first robust network of daily container trains across the U.S. and even into Mexico. 

APL didn't build all-new track. It paid a toll (rail rates) to ride on the existing railroad network with its all-new service package.

Shift ahead now to the mid-point of 2019. What does a market audit reveal today about the future?

Since 2009, annual rail intermodal growth rates have been inconsistent. Once fed by a CAGR of 8.3 percent (1994 to 2004) from its share of related world container maritime traffic (according to a Global Insight report), the future outlook dropped to about 5 percent CAGR. 

Here are the strategic higher growth rail corridors for trade (port) intermodal.

  • Between the LA/San Bernardino/Ontario (California) outbound freight markets, railway service by both Union Pacific and BNSF towards Texas and points east and Kansas City and Chicago and points to the northeast are well supplied with trains per day of containerized rail service. However, future growth is highly dependent on foreign trade. An absolute volume decline of rail traffic is theoretically possible.
  • Similar high-volume trade-dependent rail intermodal flow is provided eastbound out of the Seattle/Tacoma/Portland ports.
  • East of the Mississippi River there has been solid growth along two Chicago-northern New Jersey rail intermodal corridors that is likely to continue:
    • One via Cleveland, Pittsburgh, Harrisburg and Allentown on Norfolk Southern.
    • The other via Cleveland, Buffalo, Syracuse and Albany on CSX rail lines.

So-called domestic intermodal growth has disappointing in several corridors:

  • Interior California intermodal services didn't develop. The distances were too short.
  • The same is true in part for the Los Angeles to Seattle lane. It has been an under-performing mid-distance intermodal market.
  • Traffic hasn't grown the New Orleans to Florida corridor.
  • There is relatively low intermodal volume into New England.

Conclusions

History patterns are not always a true indicator of future markets. There has been a low success rate on several intermodal lanes where growth was expected.

  • Houston north to Dallas/Ft. Worth and Oklahoma City.
  • Mexico markets north towards Kansas City.
  • Chicago to St Louis.

Reno, Salt Lake City and Denver don't generate sufficient daily volume to be major rail intermodal markets. The railroads have recently been cutting service to some of those smaller markets.

Optimistically, over the next decade, there could be a shift towards more Suez Canal routing of Asian and Indian sub-continent containers towards the East Coast ports of New York/New Jersey,  Norfolk and Savannah ports. Longer haul westbound intermodal trains reaching Nashville, Memphis and Chicago will at some point then develop. But that's not the case yet.

The pattern of U.S. rail intermodal growth between about 1989 and 2016 has seen about six cycles of increase and decrease. Into 2019 (not shown on the graph), intermodal growth has slowed.

Meanwhile, railroads are not matching either trucks' spot rates or service performance levels within much of the "domestic trucking" markets in states east of the Mississippi River. 

Bottom line – "rail intermodal is not yet taking as many trucks off of the nation's highways as federal and state planners had hoped." 

What is your outlook?

Image sourced from Pixabay

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