July/August 2018

E-commerce Creates Growth Opportunity for Intermodal

Intermodal has significant potential to expand its role in supporting e-commerce,  according to freight industry experts.

"E-commerce providers are being attracted to intermodal for the same reasons customers have utilized the service for years. It provides a cost-effective option for transit on certain lanes and certain commodities," said Kerry Byrne, president of 3PL Total Quality Logistics.

His view was reinforced by rail industry officials and others, who emphasized a key step to support further growth.

"Consistent service will be the most significant requirement for intermodal to be a viable option for retailers and e-tailers," said Todd Fowler, a KeyBanc analyst. "As fees increase for missing service windows, this will require intermodal service to be more consistent, but not necessarily faster, to meet the requirements of an evolving retail landscape."

Railroads recognize that fact, said Tom Williams, group vice president of consumer products at BNSF Railway.

"Consistency and reliability of service have been important to intermodal, even before e-commerce became as big it is," Williams said, though e-commerce has magnified the importance of those qualities.

"E-commerce is definitely a positive for our industry," he said. "The things that are attracting large e-commerce retailers are the same as the brick and mortar businesses. Intermodal is a very effective way to move large volumes of goods to large population centers."

'Significant Role'

"Intermodal will play a significant role in filling the fulfillment centers, and we believe this will be a strategic industry need for years to come," said Doniele Carlson, a spokeswoman for Kansas City Southern. Intermodal service complements other modes in completing order fulfillment, including final-mile delivery, she said.

Others emphasized how intermodal fits into a broader package of services.

"We are seeing an uptick in intermodal use," said Jess Dankert, vice president for supply chain at the Retail Industry Leaders Association, as members continually re-evaluate their transportation strategy to meet burgeoning e-commerce demand.

At XPO Logistics, President Troy Cooper told Intermodal Insights that intermodal is an important part of its portfolio to support a wide range of services relating to e-commerce, including brokerage, trucking and last-mile delivery.

"E-commerce continues to be a major tailwind," Cooper said. "Overall, e-commerce activity is predicted to grow globally at double-digit rates through at least 2025."

Inventory Support

Intermodal also supports e-commerce by meeting inventory needs.

"Securing capacity availability, especially for peak demand periods, is key to supporting retailers," Carlson said. "This drives the ability to recover when weather or other factors disrupt service, thus limiting the risk of prolonged delays and empty shelves."

Fowler agreed. "Intermodal will be an increasingly important mode to build inventories ahead of the traditional retail peaks," he said, though railroads must guard against service disruptions that could risk products being stranded en route. Fowler also cited another opportunity — a tight highway market. "As truck capacity is increasingly strained, intermodal becomes an increasingly viable source of capacity for e-commerce, provided adequate service is maintained," he said.

Enhancing Freight Visibility

Byrne said that in the past five years e-com-merce has increased the demand for freight visibility and accelerated transit times.

"This has impacted the transportation industry as whole," Byrne said. "Although truckload was quick to adapt to customer expectations, I believe intermodal is putting a strong focus on meeting those expectations as well."

Carlson reinforced that point, emphasizing the need for visibility through enhanced tracking, tracing and faster handling of trade documentation.

"Railroads and intermodal providers will need to stay attuned to the customer requirements to support these highly complex supply chains in the future," she said. Dankert also emphasized the link between visibility and intermodal. More companies are experimenting with intermodal, she said, as they seek capacity and a collaborative approach that includes greater freight visibility and the drive to move more inventory closer to the customer.

Additional Opportunities

There are other ways intermodal can grow its presence, several experts said. "As they become more familiar with intermodal, it may change customers’ mindsets when it’s proposed as an option for moving a load," Byrne said, as 3PLs’ customers cope with demand planning and inventory requirements.

"Intermodal has been leveraged by companies that have a lot of scale, with big distribution centers near population centers," Williams said, with the prospect of significant additional growth where those facilities are located in logistics parks. "Sometimes you don’t need speed," Dankert said. "Retailers are looking at their overall transportation network, and intermodal can fit where freight doesn’t have to move quite as fast. Generally, you don’t see freight networks that are all one flavor, so to speak. Retailers are working various levers to optimize supply. More than ever, they are trying to have a supply chain that’s responsive and flexible."

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