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September/October 2017

Cross-Border, Mid-Range Intermodal Markets Could Spur More Intermodal Growth

Intermodal could capitalize on additional growth opportunities in the cross-border trade and in mid-range freight lanes, colloquially known as the “donut hole,” EXPO speakers said.

In two separate panels, speakers explained the promise and potential barriers arising from the current NAFTA negotiations and the tapping of U.S. markets where intermodal has little presence today. The mid-range market of 1,000 to 2,000 mile moves represents just under 15 percent of intermodal today. Longer, often transcontinental trips, and shorter runs, predominantly in the East, dominate the market, based on Gross Transportation Consulting statistics.

Both opportunities beckon for Kansas City Southern, whose vice president of intermodal, Erik Bo Hansen, offered the perspective of a north-south carrier with both U.S. and Mexican rail operations.

“We believe NAFTA opportunities will be there,” he said. “KCS can play a role. We need to continue close cooperation with all the Class Is [railroads]. We have joint products with nearly all of them.”

At the same time, he said cross-border traffic has to overcome challenges that are created when freight moves off the rails at Laredo, Texas. On the positive side, he noted opportunities to connect markets on both sides of the border whose total travel distance is in that mid-range market target.

Luis Hernandez, intermodal vice president for Ferromex, also was optimistic about NAFTA-related growth potential. He cited several factors that currently favor Mexican highway carriers over intermodal interests. They included higher gross vehicle weight allowances in Mexico, large trucking investments by Mexican businesses and freight activity in the Laredo area that is being slowed by the reluctance of customers to give up traditional cross-border freight management relationships.

Analyst Tony Hatch, a panel moderator, said railroads are seeking to capitalize on opportunities such as moving more corn to Mexico.

Those shipments are part of the three-country NAFTA trade discussions, which also have tackled issues such as country of origin labeling, a subject that vexes automobile manufacturers whose intermodal use for parts shipments complements northbound finished vehicle moves.

In the north, Keith Reardon, vice president, intermodal and automotive, Canadian National Railway said there was concern that NAFTA negotiations could bring quotas that will lead to less freight moving between the U.S. and Canada that is a mainstay for that carrier.

Cooperation is Key

Wilby Whitt, general manager of CSX Intermodal Terminals, and others addressed the mid-range market, stressing the need for cooperation to make that happen.

“The opportunity out there in front of the industry is to find more origin and destination pairs, whether it is single line or with partner railroads,” he said.

He offered the example of the Minneapolis—St. Paul market as an attractive one from an eastern railroad standpoint to connect over total distances of about 1,400 miles, with regions such as the Northeast and Southeast that are served by his company. However, western railroads’ interest is limited because the Chicago-Twin Cities trip of less than 450 miles is constrained by economics.

Ted Prince, chief operating officer at Tiger Cool Express, said mid-range market growth was constrained by the need to have enough traffic volume to run multiple daily trains so that attractive transit times can be offered and delays can be minimized.

As capacity tightens, the doors to markets such as that could open faster, Whitt said.

Schneider’s Vice President of Rail Management, Steve Rhode, said some mid-range intermodal markets could be expanded with more flexibility in drayage move distances.

There have been multiple signs of progress in the form of better service.

Whitt cited significant improvements in travel times through Chicago that once could have taken 72 hours. The operational changes have enabled CSX to move shipments from a Chicago arrival to its northwest Ohio intermodal terminal in as little as eight hours, he said.

At the same time, he noted “it’s hard to change perception” about Chicago as a choke point for all kinds of rail freight.

Rhode said it was “neat” to see railroads working together better than ever, which could lead to the closing of that “donut hole” in just a few years.

There is still more to be done. Whitt said there are still significant growth opportunities in the East.

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