US intermodal rail fluidity improves, but larger questions remain

PALM DESERT, California — The US intermodal rail supply chain, exceedingly slow this winter, has eased over the last three to four weeks, a welcome relief to beleaguered shippers suffering from shipment delays ranging from five to 10 business days.

Calmer weather and a downshift in manufacturing following the Lunar New Year provided a pause for an overstressed railroad network. Nevertheless, demand remains elevated and train speeds are about two miles per hour slower, or 4 percent down compared with the prior year, based on conversations with intermodal marketing companies (IMCs) and data from the American Association of Railroads (AAR). Data from the Intermodal Association of North America also showed that volumes were up 8.1 percent in March on a year-over-year and sequential basis, fueled by double-digit growth from February in domestic intermodal and a smaller gain on the international side.

When trains eventually reached their destinations, the cargo idled in the rail yards as draymen balked at the idea of regional hauls requiring the use of an electronic logging device (ELD). Canadian National Railway, CSX Transportation, Union Pacific Railroad, and BNSF Railway restricted draymen returning containers during the height of the congestion, and trucking companies levied surcharges on shippers to pay their detained drivers. But shippers are experiencing even greater challenges in the US truckload market, so the Class I railroads offer a capacity option when supply is harder to find, IMCs told JOC.com at the Transportation Intermediaries Association Capital Ideas Conference from April 8 to 11.

Railroads: selling ‘the lesser of two evils’
“For a few years, the intermodal sell was cost, cost, cost. Now we’re back to viewing intermodal as a capacity play. And this year, shippers are looking for alternate solutions within the transportation network,” said Shelli Austin, president of Intek Freight and Logistics.

“We’re selling the lesser of two evils,” said Robert Rich, CEO of Roar Logistics. “I will tell a shipper, ‘I can get you an intermodal container tomorrow and it will take 10 days end-to-end to the West Coast or I can abide by our contract and it will take me 10 days to get you a truck and three days on the road.’ It’s like so-so pizza or Chinese food, it may not be the best, but it’s still good enough.”

In Chicago, where the problem was acute, the worst of the worst seems to have passed. In January, there were about 3,000 clicks per day on LoadMatch.com to find a drayman in the Chicago market, today it is only 1,000 clicks. Terminal operations have also settled down with no restrictions on trucks returning containers since mid-March.

“We have improved the efficiency of our Chicago terminal, both Bedford Park and 59th Street significantly. Everybody had challenges at Christmas time, especially in Chicago and Memphis when the winter weather came in at Christmas Day and just hung around for a month, so it slowed everybody down,” said CSX CEO Jim Foote in an April 17 earnings call.

“Part of the problem is also the number of cross-town trips that Norfolk Southern [Railway], [UP], and CSX have been trying to do and there are only a limited amount of trucks, and so you’re sucking all the capacity out of the market that should be on steel wheel interchanges,” one intermodal executive told JOC.com, speaking on the condition of anonymity.

Access to equipment for Los Angeles to Chicago routes, which was a problem in February, is also improving according to the IMCs. For example, J.B. Hunt Transport Services sent customer alerts in February about the equipment shortage affecting its truckload and intermodal operations. The company declined to comment on the current situation following its earnings report on April 16.

The AAR weekly data show a mixed picture in Chicago. UP’s dwell time is down to 39.3 hours versus 49.7 in mid-March, but CN deteriorated 4.1 hours and BNSF Railway only fell 0.4 hours.

There have been a couple lingering complaints in Chicago about Canadian Pacific Railway, possibly connected to delays at the Port of Vancouver’s Centerm terminal. The Canadian International Freight Forwarders Association (CIFFA) has been told that CP has enough locomotives, crews, and railcars, but the problem was related to access to the terminal and vessel bunching that has since been resolved.

CP’s weekly data show average dwell time in Chicago was about 11 hours in February but deteriorated to 14 to 15 hours in March, although the number returned to the February average in the first week of April. CEO Keith Creel, however, did not mention the issue in a letter to the Surface Transportation Board (STB) dated March 30.

Intermodal conditions are also improved in Georgia. Clicks on LoadMatch’s Savannah drayage directory have fallen from 2,000 per day in late January to about 600 this past week. NS also reported dwell times in Atlanta averaged 14 hours for the week ending April 6 versus 16.6 hours in mid-March.

In Memphis, Tennessee, however, draymen and IMCs are indicating conditions remain problematic with CSX and CN. Clicks on the Loadmatch.com directory were 500 per day in the most recent available week, down from the 800 average in the winter but a smaller rate of decline than in Chicago, Savannah, and Dallas-Fort Worth.

Donna Lemm, executive vice president for IMC Companies, said that all the railroads were a mess in Memphis through mid-March because the terminal operators did not have a plan to handle the additional volume and chassis were in short supply.

“It is fair to say that BNSF and UP improved in recent weeks, largely because the volume calmed down and chassis were more readily available, but CN and CSX continue to be a problem,” she said.

But Foote said on the CSX earnings call that while Memphis “has been a challenge for us” that it is now running smoothly.

Steve Clark, vice president of Memphis-based Dunavant Logistics Group, agreed that there were some improvements in March but finding a draymen continues to be a challenge.

“Because of what has happened this winter, you can’t get a truck for seven to 10 days even now. It may not be as bad as it was in early February, it’s gradually getting better, but it is nowhere near it needs to be,” he said. “CN is working its way through the problems. There aren’t 900 grounded containers anymore, maybe it’s half of that. But there isn’t a quick solution because trains are still arriving, it’s not like you can shut off shipments.”

Clark and Lemm said it is not as hard to find draymen to serve the UP facility in West Memphis, Arkansas, as it was in January and February. The West Memphis location requires going east to west on the interstate or traveling downtown Memphis to cross the Mississippi River into Arkansas, not an appetizing prospect for a driver this winter dealing with terminal delays on top of the highway congestion.

Like Chicago, a reluctance to handle regional drayage is also a problem in Memphis, according to Clark. The distance between Memphis and Jackson, Mississippi, and Birmingham, Alabama, is about 220 to 250 miles, which makes a round trip in a single day difficult. Even a dray to Little Rock, Arkansas, about 130 miles, is greater than the 100-mile exemption to the ELD mandate.

Kristy Knichel, CEO of Knichel Logistics, said CSX is not only inconsistent, it is just one of a couple concerns surrounding the carrier.

“CSX now requires 500 shipments in a lane instead of 250 shipments to get lock-in pricing. UP tried to do the same thing but are now being more flexible with their small and mid-sized shippers. We told CSX that they need to do a better job communicating with these shippers about why they are doing this and how it will affect them,” she said.

Getting inventive with equipment solutions
While most conversations about equipment shortages involve chassis, the railroads are facing another problem: a container shortage.

Shippers and IMCs are getting creative in finding ways to move cargo when 53-foot domestic containers are unavailable. The solutions are 40- or 45-foot international boxes and a return to trailer-on-flatcar service (TOFC).

“ISO boxes have become huge as an alternative. Not everyone needs a big box,” Austin said. “It is a domestic move, but they are using an ISO box if one is available quickly. The use of trailers is up too.”

“If it’s a rectangle and it can hold freight, shippers want it because they just have to get the items off their docks. Everyone is tapped out so shippers are willing to try different things than they usually would,” said a second intermodal executive, who spoke on the condition of anonymity because he was not authorized to speak on the matter.

Jason Hilsenbeck, founder of LoadMatch.com, noted the domestic container storage is only on railroad-owned equipment.

CSX, UP, NS, Kansas City Southern Railway, and Florida East Coast Railway fleets (EMHU, UMAX, CSXU, TMXU, and XFEU) owned 88,295 units as of February, or only 0.19 percent higher than the prior year. The number of privately owned containers grew 6.7 percent to 179,286 during the same period. The privately owned container owners include J.B. Hunt, Hub Group, Schneider National, XPO Logistics, and Knight-Swift Transportation Holdings.

“Take EMHU, which is used by UP, NS, and CP; they’ve actually eliminated 70 containers last year. But look at J.B. Hunt, which added 4,200 containers last year, or Hub Group adding 2,500 or Schneider adding 1,000. There is no problem getting 53-foot containers, but you have to go to the private-asset companies because the railroads have not invested in their equipment,” Hilsenbeck said.

He also noted that TOFC is becoming popular and recalled seeing e-commerce giant Amazon putting its Amazon Prime trailers on the rails in recent months. TOFC business rose 17.6 percent in March and 14.5 percent in the first quarter compared with the same periods in 2017.

The railroads are ready to respond
One intermodal executive compared the situation to someone on the beach during an earthquake. The executive, who was not authorized to speak on the matter, said that the railroads felt the tremors but chose to wait to confirm the existence and size of the tidal wave before reacting. Now the executive expects that the Class I railroads will properly invest in capacity to handle the next seasonal peak in the third and fourth quarters.

CN interim CEO Jean-Jacques Ruest in March outlined a plan to restore high-quality service to the network through the purchase of 200 railcars, new locomotives, additional sidings on the West Canada to Chicago corridor, and the hiring and training of new conductors.

Ruest also sent a letter to CIFFA on April 4 indicating that dwell times were 1.8 days in Prince Rupert, 2.7 days in Deltaport, 5.2 days in Vanterm, and 5 days in Centerm.

“A critical component of our ability to grow and add resiliency to the network is to invest in track capacity from the West Coast to Toronto and Chicago [and] $250 million in capital has been targeted for this spring and fall in advance of next winter,” he wrote in the letter, obtained by JOC.com.

CSX wrote in a March 28 letter to the STB that its metrics are better than one year ago, although the year-over-year comparison will soon go up against a major disruption that frustrated shippers last spring and summer.

“We have the right plan and the right team in place to deliver on the potential of our extraordinary rail network and market reach,” wrote CSX CEO Jim Foote.

UP CEO Lance Fritz told the STB that it has reactivated about 500 high-horsepower locomotives since mid-2017, including 100 since early February, and will be purchasing 56 new units as part of the capital budget. Fritz wrote that there are plans to hire 2,100 track, engine, and yard employees, restore furloughed employees to their jobs, and graduate 200 trainees each month between March and July to be deployed into the field.

“The issues we are experiencing will affect our ability to serve customers in 2018. Even so, we are working aggressively to minimize customer impacts as we move to restore service to the levels our customers have come to expect,” Fritz wrote.

NS CEO James Squires also acknowledged in an April 2 letter to the STB that “our local performance is currently 7 percent below where we typically perform. … These metrics are not where we want them to be. But we are committed to improving for our customers.” Squires said service has been resumed on a route between Macon, Georgia, and Birmingham, Alabama, which previously was ceased in early 2017. It has also leased 90 locomotives, of which 27 have been received and 22 are in service.

KCS CEO Patrick Ottensmeyer discussed the lease of 25 locomotives at the end of 2017 and told the STB that there are no plans to add more in 2018. He also wrote that there are no major staffing issues because the railroad did not use furloughs in previous years.

CP’s Creel wrote that the railroad will take possession of 110 remanufactured locomotives, of which 30 are already delivered and 80 will arrive before the end of August. He also set a goal of hiring 150 more employees to beef up staffing levels in Chicago; St. Paul; Enderlin, North Dakota; and the Quad Cities, Iowa.

Contact Ari Ashe at ari.ashe@ihsmarkit.com and follow him on Twitter: @ariashe_joc.