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.
Congestion on U.S. highways is costing the trucking industry big, according to research from the American Transportation Research Institute (ATRI), released today.
The group found that traffic congestion on U.S. highways added $108.8 billion in costs to the trucking industry in 2022, a record high. The information comes from ATRI’s Cost of Congestion study, which is part of the organization’s ongoing highway performance measurement research.
Total hours of congestion fell slightly compared to 2021 due to softening freight market conditions, but the cost of operating a truck increased at a much higher rate, according to the research. As a result, the overall cost of congestion increased by 15% year-over-year—a level equivalent to more than 430,000 commercial truck drivers sitting idle for one work year and an average cost of $7,588 for every registered combination truck.
The analysis also identified metropolitan delays and related impacts, showing that the top 10 most-congested states each experienced added costs of more than $8 billion. That list was led by Texas, at $9.17 billion in added costs; California, at $8.77 billion; and Florida, $8.44 billion. Rounding out the top 10 list were New York, Georgia, New Jersey, Illinois, Pennsylvania, Louisiana, and Tennessee. Combined, the top 10 states account for more than half of the trucking industry’s congestion costs nationwide—52%, according to the research.
The metro areas with the highest congestion costs include New York City, $6.68 billion; Miami, $3.2 billion; and Chicago, $3.14 billion.
ATRI’s analysis also found that the trucking industry wasted more than 6.4 billion gallons of diesel fuel in 2022 due to congestion, resulting in additional fuel costs of $32.1 billion.
ATRI used a combination of data sources, including its truck GPS database and Operational Costs study benchmarks, to calculate the impacts of trucking delays on major U.S. roadways.
There’s a photo from 1971 that John Kent, professor of supply chain management at the University of Arkansas, likes to show. It’s of a shaggy-haired 18-year-old named Glenn Cowan grinning at three-time world table tennis champion Zhuang Zedong, while holding a silk tapestry Zhuang had just given him. Cowan was a member of the U.S. table tennis team who participated in the 1971 World Table Tennis Championships in Nagoya, Japan. Story has it that one morning, he overslept and missed his bus to the tournament and had to hitch a ride with the Chinese national team and met and connected with Zhuang.
Cowan and Zhuang’s interaction led to an invitation for the U.S. team to visit China. At the time, the two countries were just beginning to emerge from a 20-year period of decidedly frosty relations, strict travel bans, and trade restrictions. The highly publicized trip signaled a willingness on both sides to renew relations and launched the term “pingpong diplomacy.”
Kent, who is a senior fellow at the George H. W. Bush Foundation for U.S.-China Relations, believes the photograph is a good reminder that some 50-odd years ago, the economies of the United States and China were not as tightly interwoven as they are today. At the time, the Nixon administration was looking to form closer political and economic ties between the two countries in hopes of reducing chances of future conflict (and to weaken alliances among Communist countries).
The signals coming out of Washington and Beijing are now, of course, much different than they were in the early 1970s. Instead of advocating for better relations, political rhetoric focuses on the need for the U.S. to “decouple” from China. Both Republicans and Democrats have warned that the U.S. economy is too dependent on goods manufactured in China. They see this dependency as a threat to economic strength, American jobs, supply chain resiliency, and national security.
Supply chain professionals, however, know that extricating ourselves from our reliance on Chinese manufacturing is easier said than done. Many pundits push for a “China + 1” strategy, where companies diversify their manufacturing and sourcing options beyond China. But in reality, that “plus one” is often a Chinese company operating in a different country or a non-Chinese manufacturer that is still heavily dependent on material or subcomponents made in China.
This is the problem when supply chain decisions are made on a global scale without input from supply chain professionals. In an article in the Arkansas Democrat-Gazette, Kent argues that, “The discussions on supply chains mainly take place between government officials who typically bring many other competing issues and agendas to the table. Corporate entities—the individuals and companies directly impacted by supply chains—tend to be under-represented in the conversation.”
Kent is a proponent of what he calls “supply chain diplomacy,” where experts from academia and industry from the U.S. and China work collaboratively to create better, more efficient global supply chains. Take, for example, the “Peace Beans” project that Kent is involved with. This project, jointly formed by Zhejiang University and the Bush China Foundation, proposes balancing supply chains by exporting soybeans from Arkansas to tofu producers in China’s Yunnan province, and, in return, importing coffee beans grown in Yunnan to coffee roasters in Arkansas. Kent believes the operation could even use the same transportation equipment.
The benefits of working collaboratively—instead of continuing to build friction in the supply chain through tariffs and adversarial relationships—are numerous, according to Kent and his colleagues. They believe it would be much better if the two major world economies worked together on issues like global inflation, climate change, and artificial intelligence.
And such relations could play a significant role in strengthening world peace, particularly in light of ongoing tensions over Taiwan. Because, as Kent writes, “The 19th-century idea that ‘When goods don’t cross borders, soldiers will’ is as true today as ever. Perhaps more so.”
Hyster-Yale Materials Handling today announced its plans to fulfill the domestic manufacturing requirements of the Build America, Buy America (BABA) Act for certain portions of its lineup of forklift trucks and container handling equipment.
That means the Greenville, North Carolina-based company now plans to expand its existing American manufacturing with a targeted set of high-capacity models, including electric options, that align with the needs of infrastructure projects subject to BABA requirements. The company’s plans include determining the optimal production location in the United States, strategically expanding sourcing agreements to meet local material requirements, and further developing electric power options for high-capacity equipment.
As a part of the 2021 Infrastructure Investment and Jobs Act, the BABA Act aims to increase the use of American-made materials in federally funded infrastructure projects across the U.S., Hyster-Yale says. It was enacted as part of a broader effort to boost domestic manufacturing and economic growth, and mandates that federal dollars allocated to infrastructure – such as roads, bridges, ports and public transit systems – must prioritize materials produced in the USA, including critical items like steel, iron and various construction materials.
Hyster-Yale’s footprint in the U.S. is spread across 10 locations, including three manufacturing facilities.
“Our leadership is fully invested in meeting the needs of businesses that require BABA-compliant material handling solutions,” Tony Salgado, Hyster-Yale’s chief operating officer, said in a release. “We are working to partner with our key domestic suppliers, as well as identifying how best to leverage our own American manufacturing footprint to deliver a competitive solution for our customers and stakeholders. But beyond mere compliance, and in line with the many areas of our business where we are evolving to better support our customers, our commitment remains steadfast. We are dedicated to delivering industry-leading standards in design, durability and performance — qualities that have become synonymous with our brands worldwide and that our customers have come to rely on and expect.”
In a separate move, the U.S. Environmental Protection Agency (EPA) also gave its approval for the state to advance its Heavy-Duty Omnibus Rule, which is crafted to significantly reduce smog-forming nitrogen oxide (NOx) emissions from new heavy-duty, diesel-powered trucks.
Both rules are intended to deliver health benefits to California citizens affected by vehicle pollution, according to the environmental group Earthjustice. If the state gets federal approval for the final steps to become law, the rules mean that cars on the road in California will largely be zero-emissions a generation from now in the 2050s, accounting for the average vehicle lifespan of vehicles with internal combustion engine (ICE) power sold before that 2035 date.
“This might read like checking a bureaucratic box, but EPA’s approval is a critical step forward in protecting our lungs from pollution and our wallets from the expenses of combustion fuels,” Paul Cort, director of Earthjustice’s Right To Zero campaign, said in a release. “The gradual shift in car sales to zero-emissions models will cut smog and household costs while growing California’s clean energy workforce. Cutting truck pollution will help clear our skies of smog. EPA should now approve the remaining authorization requests from California to allow the state to clean its air and protect its residents.”
However, the truck drivers' industry group Owner-Operator Independent Drivers Association (OOIDA) pushed back against the federal decision allowing the Omnibus Low-NOx rule to advance. "The Omnibus Low-NOx waiver for California calls into question the policymaking process under the Biden administration's EPA. Purposefully injecting uncertainty into a $588 billion American industry is bad for our economy and makes no meaningful progress towards purported environmental goals," (OOIDA) President Todd Spencer said in a release. "EPA's credibility outside of radical environmental circles would have been better served by working with regulated industries rather than ramming through last-minute special interest favors. We look forward to working with the Trump administration's EPA in good faith towards achievable environmental outcomes.”
Editor's note:This article was revised on December 18 to add reaction from OOIDA.
A Canadian startup that provides AI-powered logistics solutions has gained $5.5 million in seed funding to support its concept of creating a digital platform for global trade, according to Toronto-based Starboard.
The round was led by Eclipse, with participation from previous backers Garuda Ventures and Everywhere Ventures. The firm says it will use its new backing to expand its engineering team in Toronto and accelerate its AI-driven product development to simplify supply chain complexities.
According to Starboard, the logistics industry is under immense pressure to adapt to the growing complexity of global trade, which has hit recent hurdles such as the strike at U.S. east and gulf coast ports. That situation calls for innovative solutions to streamline operations and reduce costs for operators.
As a potential solution, Starboard offers its flagship product, which it defines as an AI-based transportation management system (TMS) and rate management system that helps mid-sized freight forwarders operate more efficiently and win more business. More broadly, Starboard says it is building the virtual infrastructure for global trade, allowing freight companies to leverage AI and machine learning to optimize operations such as processing shipments in real time, reconciling invoices, and following up on payments.
"This investment is a pivotal step in our mission to unlock the power of AI for our customers," said Sumeet Trehan, Co-Founder and CEO of Starboard. "Global trade has long been plagued by inefficiencies that drive up costs and reduce competitiveness. Our platform is designed to empower SMB freight forwarders—the backbone of more than $20 trillion in global trade and $1 trillion in logistics spend—with the tools they need to thrive in this complex ecosystem."