Ten years ago, intermodal transport was inexpensive and inconsistent. Today, it’s a highly fluid, effective mode of transport ideally suited to moving goods inland from ports and between distribution centers. Industry leaders are continuing to optimize operations, creating ripples of efficiency throughout the entire global supply chain.

Schneider National is a case in point. The largest trucking firm in the U.S. is morphing into a full service operation that offers door-to-door intermodal transportation, long haul trucking, a national brokerage for carriers, and logistics expertise. It is expanding its regional options in the U.S, and has networks in Mexico and Canada. Schneider opened logistics offices in China in early 2007 and recently purchased assets there. The China carrier “already is demonstrating success,” notes Bill Matheson, president of intermodal services at Schneider National, by providing the well-developed supply chain solutions that are driving efficiency in North America. The goal is to expand to 25 to 30 locations within the next five years.

Likewise, the Hub Group, the largest intermodal company in North America, prides itself on high asset ownership and a large network of assets upon which to draw. That, according to David P. Yeager, vice chairman and CEO, gives the company substantial surge capacity for shippers’ fluctuating needs. In addition to the 16,000 containers it owns or rents, it has access to 23,000 containers in its network, he explained at the JP Morgan Aviation and Transportation Conference last March.

The company also has a truck brokerage that comprises 19 percent of its business and, according to Yaeger, “is our fastest growing business.” Annual growth rates are predicted at between 15 and 20 percent—roughly the addition of one new driver per day, Jaeger says. Hub also has drayage operations for local transportation. “That,” he says, “has a lot of opportunity to drive economics,” and enhances Hub’s ability to provide a full service operation completely within its control.

The point both executives make is that the leading firms bring a lot of capacity and many options to shippers that allow quick responses to shipment variability, and the ability to know the exact location of goods anywhere in the network.

“Capacity, options and visibility are driving the growth in intermodal transport,” emphasizes Matthew Menner, Senior VP, Sales and Alliances for Transplace, a shipping and logistics technology organization. The decision of shipping mode depends upon distance and type of cargo, as well as total cost of ownership, lead-time and the delivery window latitude, explains John Beckett, VP of Operations, Menlo Worldwide Logistics. He uses intermodal options for distances of 1,100 miles or greater, based upon the types of cargo. CEVA Logistics, in contrast, rarely uses intermodal at all. As COO Sam Slater explains, as a premium transportation company, CEVA relies upon air freight to expedite time-sensitive materials throughout its network.

Shippers and carriers, however, have to become more innovative because of cost pressures, acknowledges Carla Reed, senior vice president of the supply chain risk management practice for Marsh Inc. “The world has changed, so companies have interests where they haven’t had a physical presence. Businesses must ship anywhere to anywhere,” she says. Consequently, “there’s greater cohesion between brand makers and outsourcing partners.”

That cohesion is changing the way carriers do business. “To compete with trucks, intermodal carriers have had to act like trucks,” Menner explains. Consequently, “Delivery times that used to be plus or minus days now are plus or minus hours for intermodal carriers.” 

The most recent statistics show a 2.7 percent rise in volume and a 3.7 percent increase in load for domestic intermodal traffic during the fourth quarter of 2007. Domestic container volume increased 9.5 percent during the same period.

Rail has another advantage that contributes to intermodal’s growth. It is seen as a green solution, requiring less fuel per ton/mile than trucks. According to the Intermodal Association of North America, the equivalent of a single gallon of gasoline can move one ton of freight 405 miles. To put that in perspective, “Rail is three to four times more fuel efficient than shipping over the road,” according to CSX railroad spokesman Garrick Francis.

Fuel efficiency is becoming more important, because the price of sweet crude oil increased 30 percent during the first quarter of 2008. That cost savings is driving shippers to rails, but the industry is working to further its advantage by becoming even more efficient. For example, Norfolk Southern is testing a system that switches idling engines to a generator that maintains air pressure until the power is needed again. Many railroads have added more fuel efficient locomotives in recent years.

In today’s economic and trade environment, congestion is a major concern, particularly in heavily-trafficked corridors. While highway transportation authorities deal with over the road concerns, rail carriers themselves have made significant infrastructure investments that have increased rail capacity.

During the past four years, Class I railways (those with operating revenue exceeding $346.8 million) invested approximately $6.4 billion for infrastructure expansions, and nearly $18 billion on renewal of infrastructure and equipment, including locomotives, according to the American Association of Railroads’ National Freight Infrastructure Capacity and Investment Study, which was published September 2007. Consequently, rail capacity, Matheson says, is adequate to meet demand and is likely to remain so, at least for the short term.

Container availability, however, may create a hiccup in those markets, according to David P. Yeager, vice chairman and CEO, the Hub Group, speaking at the JP Morgan Aviation & Transportation Conference in March. The problem is that containers are clustering around the coasts, leaving some constraints in the central part of the U.S. Accordingly, interest is growing in 40-foot ISO containers. As a last resort, shippers are paying for 53-footers when the 40-foot containers are unavailable. Also, Yeager says, some time ago, “Burlington Northern decided you have to bring your own containers to be on their system. Most intermodal companies don’t have that capability.” The result, he says, reduces access to the BNSF rail line among carriers that lack their own containers or container licensing agreements.

Trucking also is facing some challenges. Yet, despite being pinched by high fuel costs and road surcharges, Yeager sees opportunities. Trucking has excess capacity, so, he says, “It’s a buyers’ market. There’s been a slight pick-up in bankruptcies, which you’ll see during any downturn, but it’s not rampant.”

The economic climate is making efficiency increasingly imperative for all carriers. Shipping technology firm Transplace, for example, is refining its relationships with intermodal carriers and railroads to work together more closely to optimize transportation.

Transplace is using the synergies throughout its transportation networks to leverage economies of scale to engage across multiple accounts. The notion, Menner explains, is to keep carriers—even local department store delivery trucks—filled so none in the network has to return empty. “Somebody’s outbound is somebody else’s inbound,” he says.

Information is key

With a global supply chain, it’s vital to manage information very closely, emphasizes Carla Reed, senior vice president of the supply chain risk management practice at Marsh Inc. As the transfer points increase, so does the risk that cargo will be left behind. Today, technology that pinpoints cargo’s location in real time is standard throughout the supply chain.

It’s vital to understand where shippers need information and where innovation can occur, Reed says. One of those areas is the multiple hand-offs as cargo is transferred from carrier to carrier. There are still a lot of hand-offs as goods travel from the coast inland, Menner says. A Los Angeles to Boston run, for example, typically involves two rail transfers, plus handling by many other parties on each end, he explains. “Over top of this is an intermodal carrier,” which orchestrates the movements to optimize efficiency and minimize costs. “The challenge,” he says, “is to make it seamless.”

“That’s where 3PLs come in,”’ Reed says. Their use of information technology, particularly at these points, decreases the instances in which things go wrong. “Information is key,” emphasizes John Beckett, vice president of operations for Menlo Global Logistics. Without the right information, global manufacturing models can’t work smoothly, he emphasizes. wt

Sidebar: Temperature Stability

One of the next challenges is to develop consistently reliable solutions to ensure temperature stability throughout transport for temperature-critical goods like bio-pharmaceuticals. That’s only part of the challenge for some industries. For biotech and pharmaceutical products, “The toughest part is temperature concerns,” notes Eric Isom, warehouse operations manager for Sentry Logistic Solutions. That’s the key element that prevents many pharmaceutical companies from using intermodal transportation, he says. Despite the availability of refrigerated carton, “they’re not available all the time,” Isom points out.

Consequently, intermodal is generally used in the pharmaceutical industry for generics and older products that don’t need controlled temperatures. New products, because of their huge market potential, are shipped to market in the fastest ways possible. “When a product first launches, having it available is key because there’s a lot of money to be made,” Isom explains. “As the patents begin to expire, you start looking at how to do things cheaper.” Generics, therefore, use intermodal transportation more often than does “big pharma.”

“If there was a way to track temperature with confidence that the temperature would be maintained during transport, the industry would be more comfortable,” Isom says. “A couple of companies have tried to do that.”

FedEx, for example, has offered its “TempAssure Validated” service for several years, providing temperature controlled containers with a hard copy data recorder that also can be viewed online. The temperature-controlled containers are used by pharmaceutical, food and beverage and high-end electronics industries.

Out of the Box Thinking

From a shipper’s perspective, the key to effective transportation is finding the right balance between cost and time, explains Carla Reed, senior vice president of the supply chain risk management practice for Marsh Inc. The shortest distance between two points isn’t necessarily the best option, she says. “It’s not always a straightforward issue.”

Innovative solutions can create an advantage for shippers that affects market share as well as delivery times. For example, Reed recalls, “A client in South Africa had a product manufactured in Taiwan.” Instead of shipping it directly, and expensively, to Johannesburg, “the company used a regional ocean carrier to send it to Singapore, where it was air freighted to Europe and then air freighted again to Johannesburg.” That convoluted route took 12 days, but drove down the shipping cost significantly, she says, because it leveraged economies of scale by accessing the high capacity routes. That’s a good strategy for established products with a steady demand.

Items with a high demand or short shelf life (high fashion as well as flowers) need a different strategy. Shipping is a relatively low percentage of the cost of many goods, Reed points out, and many products can accept the higher shipping costs in order to be first to market. When VCRs were first introduced, Reed was in South Africa. One of her clients used that strategy, importing VCRs from Asia. To capture the market, it chartered weekly Air France freight flights.