Tuesday, September 20, 2011

Domestic intermodal is on the rise

Intermodal seen closing gap with trucking

Domestic intermodal rail service is now service competitive in relatively shorter-haul traffic lanes traditionally dominated by truckload carriers, and after more than three decades is finally being regarded by shippers as a viable transport option, according to a long-time intermodal consultant.

Lee A. Clair, a partner at management consultancy Norbridge Inc., said domestic intermodal service can compete with solo truckers on stages as short as 500 to 550 miles, a distance usually covered by a solo truck driver in one day. Clair appeared on a Sept. 16 webcast sponsored by the investment firm Stifel Nicolaus & Co., which transcribed Clair's remarks.

Based on total freight spending, rail-based domestic and international intermodal represent only 3.8 percent of the total U.S. market, Clair said. However, intermodal is now the largest class of traffic moving on North American class I railroads, based on units moved, Clair said. The consultant defined units as containers, trailers, or carloads.

Domestic intermodal has grown to become nearly as large as the international segment, which has traditionally been most closely associated with intermodal service, Clair said.

Shippers looking to reduce their fuel spend and their carbon emissions are increasingly eyeing intermodal as a more cost-effective alternative to truckload carriers for domestic deliveries. Railroads, in turn, are investing more marketing dollars and operational resources into strengthening their domestic intermodal businesses.

The trend is a break from the past, when U.S. intermodal service was considered an extension of international service that involved a prior or subsequent ocean freight movement. For railroads to compete strongly in the domestic arena, however, they must deliver consistent and reliable service comparable to truckload operations at shorter distances. A typical intermodal move stretches anywhere from 1,200 to 2,000 miles.

Domestic container traffic in the second quarter rose to 1.22 million containers, a 9-percent increase from the same period a year ago, according to data from the Intermodal Association of North America (IANA). International container traffic rose 5.4 percent in the same period to 1.88 million containers, IANA said.

With the future introduction by GE of hybrid locomotives reducing fuel consumption up to 15% and mullings by BNSF of electrification, this is a trend that I think will only continue to accelerate.

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