Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
The two Western rail giants, Burlington Northern Santa Fe Railway and the Union Pacific Railroad Co., are positioning themselves to capitalize on a potential bonanza: The conversion of millions of truckloads mostly moving west of the Mississippi to domestic intermodal service.
Omaha, Neb.-based UP estimates that approximately 11 million truckloads shipped within its service territory are candidates for conversion to domestic intermodal service. About 3 million of those move in UP's 10 primary domestic corridors, according to the railroad. Fort Worth, Texas-based BNSF projects that 7 million truckloads in its territory are candidates for conversion. In 2010, BNSF handled between 2.25 and 2.5 million domestic intermodal loads, while UP handles, on average, about 2 million a year.
The Western rails, which like their brethren in the East have been criticized in the past for overstating the reliability of their intermodal service, say they have brought their infrastructure, rolling stock, and terminal capacity up to levels where they can now compete with trucks on most traffic lanes and at lengths-of-haul as short as 700 miles, well under their traditional 1,500- to 2,000-mile movements.
For the rails' senior intermodal executives, the prospect of converting 18 million truckloads to intermodal is sufficient motivation to get it right.
"We have a unique opportunity, and the opportunity is huge," says Steve Branscum, BNSF's group vice president, consumer products marketing.
The efforts by the Western rails—along with similar strategies being employed by their two Eastern counterparts, CSX Corp. and Norfolk Southern Corp.—represent a fundamental change in how the industry has marketed and operated its intermodal business. For decades, domestic intermodal operations were viewed as a "bolt on" to international service that involved a prior or subsequent ocean freight movement. Over the last decade, domestic intermodal has grown as a stand-alone service, but mostly from east to west and over lengthy distances. Eastbound intermodal movements remained mostly an extension of ocean service linking West Coast ports with inland points.
Today, however, challenges ranging from high fuel prices to fears of a driver shortage to highway congestion are forcing more truck shippers to consider domestic intermodal as an alternative, regardless of location. The increasing demand is fast making domestic the tail that wags the intermodal dog. UP, for example, reported a 17-percent increase in 2010 domestic intermodal volumes over the prior year. BNSF's 2010 domestic intermodal traffic volume rose 4 percent over 2009 levels. However, first-quarter domestic traffic grew 13 percent over the same period in 2010.
In the first quarter of 2011, domestic service accounted for 46.7 percent of total intermodal volume, slightly higher than full-year 2010 figures, according to the Intermodal Association of North America (IANA).
Hurdles to clear
But with the growth and opportunity come challenges, especially as the railroads become more aggressive in the 600- to 1,000-mile lane segments long dominated by over-the-road truckers. To be "truck-competitive"—which railroads define as competing with a solo driver on short and long hauls—railroads have to ensure their own networks, as well as those of the draymen responsible for bringing goods to the intermodal ramp, are synchronized to deliver fast, consistent service at lower price points than trucks can offer.
Many of those short- to intermediate-distance segments are located in what are known as "secondary markets" that lie outside of the railroads' primary corridors. It is in these lanes that the rails' intermodal efforts have been hurt by a lack of significant traffic density and a less-robust infrastructure relative to their primary corridors.
David Howland, vice president of land transport services for third-party logistics giant APL Logistics, says the railroads have made significant speed and reliability improvements in their intermodal operations, and can now compete with trucks across the country better than ever before. However, Howland notes that intermodal service in the secondary markets—he cites the Ohio Valley Kansas City corridor as an example—still needs work and will require significant investment by industry, government, and private sources to get up to speed.
Matt Gloeb, UP's assistant vice president of domestic intermodal, says the railroad is committed to the secondary markets and is addressing the concerns over service inconsistency. "The 11 million highway conversion truckload opportunities [for] Union Pacific include secondary markets that we are targeting," he says.
Gloeb says of UP's 10 primary corridors, only the Los Angeles–Seattle and Los Angeles–Houston lanes are not yet at service levels where they can regularly compete with trucks. The rail is expected to reach service parity on the two lanes by the end of the year, Gloeb says.
Another challenge for the railroads is convincing truck shippers that domestic intermodal can work for them and, perhaps more importantly, that the rails can deliver on their service commitments. UP and BNSF say with their physical networks in place, it now becomes a matter of persuading prospective intermodal customers to come on board, getting existing intermodal users to use more of it, and assuring both new and current customers that they can rely on it to do the job.
Branscum of BNSF says most of his company's customer base relies on intermodal for only about one-quarter of their total transport needs.
"A lot of customers keep freight on the highway because they don't think there's an intermodal solution," Branscum says. Gloeb of UP adds that the reluctance of shippers to convert to intermodal is largely due to "an issue of confidence" in the quality of rail service.
As part of its marketing effort, BNSF earlier this year stepped up its "Next Generation" program, launched in 2010, in which it works closely with intermodal providers to educate shippers on the benefits of the service, Branscum says.
Rates on the rise?
Education aside, intermodal users will be paying more for the service this year than they have in several years. Projections range from between 3 and 8 percent, with the high end being significantly above the increases expected to come from the truckload carriers. At a recent industry conference sponsored by New York City investment firm Wolfe Trahan, a panel of executives from the "Big Four" intermodal marketing companies—Hub Group Inc., Schneider National Inc., J.B. Hunt Transport Services Inc., and Pacer International Inc.—predicted rate increases of between 3 and 5 percent, with Schneider saying rates could go higher than that, according to a post-meeting report published by the firm.
The rails are well aware that in a climate of elevated diesel fuel prices, road congestion, and driver and capacity shortages, the intrinsic economics of intermodal service afford them some degree of pricing leverage. However, Branscum says the increases, if any, will just narrow the rate gap between intermodal and more-costly over-the-road service.
"If intermodal was discounted at 15 to 20 percent compared with over-the-road, then the increases might reduce the discount to 5 to 10 percent," he says.
Another issue that could affect intermodal rates is the availability of the containers in which most domestic intermodal traffic moves. Faced with a global shortage of ocean containers, steamship lines arriving at a U.S port of entry may want to trans-load inbound freight into domestic containers rather than have the international boxes moved "intact" to inland points. That could put additional pressure on an already-tight domestic container market, some analysts contend.
However, the four intermodal companies participating in the Wolfe Trahan conference say they are adding thousands of containers between now and the start of the peak holiday shipping season. UP, which controls about 60 percent of the domestic container fleet, added 14,000 containers in June 2010 to container pooling arrangements it has with CSX and Norfolk Southern. As of now, UP has access to 63,000 containers, according to Gloeb.
While there are many variables that could disrupt the railroads' best-laid plans to capture domestic intermodal share, what is clear is that a growing number of shippers are interested in at least exploring what the rails have to offer. Howland of APL Logistics, whose company is booking an increasing volume of domestic intermodal freight, says customers using intermodal for 15 to 20 percent of their traffic are looking to boost that ratio as high as 50 percent. Some shippers, Howland says, are looking at intermodal to move as much as 70 percent of their merchandise traffic.
"We are seeing a very aggressive stance on the part of our shippers to using intermodal," he says.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.