What do the rails need more of, right now?

The answer: domestic intermodal containers, and I trust you sense the irony. Here we are in mid-2010, coming out of an economic Armageddon, with 369,090 freight cars (23 percent of the fleet) in storage, and railroads and their intermodal customers are falling all over themselves scrounging up 53-foot boxes and the chassis on which they ride over the highway. Whether it's boxes or chassis in critical supply depends upon who you talk to, but it’s a serious problem. Union Pacific in mid-May announced it would spend an extra $100 million this year on containers. Its domestic intermodal loadings are up a reported 30 percent this year, after having its best year ever in this business line in 2009.
 
Let's begin with the big picture. Domestic intermodal container shipments rose 16 percent in the first quarter of 2010 compared to a year earlier, reports the Intermodal Association of North America, and year-over-year gains accelerated as the quarter progressed. There’s no single answer to why domestic intermodal is racking up numbers like that and running out of places to put things. One well-placed railroad executive sees two trends feeding the frenzy. The first is an increase in the proportion of 40-foot containers coming from Asia that are transloaded in warehouses in California or Washington into 53-foot containers. Think about it: Goods for a Target store in Memphis come over from China in bits and pieces, perhaps inside a score or more of standard 40-foot containers. Consolidate everything for that store into a 53-foot container holding half again as much stuff, and you save shipping costs and can bypass the regional distribution center as well.
 
The other trend this source notices is “a combination of diesel-fuel prices and intermodal service improvements, both of which have made it more attractive for motor carriers to switch over their new volume to intermodal rather than add to their own line-haul cost structure.” This makes sense. Diesel fuel prices at the pump are up more than 80 cents a gallon from a year ago. Meanwhile, BNSF Railway earlier this year announced scores of schedule improvements for its sizable fleet of intermodal trains. And Union Pacific cored out tunnels on Donner Pass to permit unrestricted use by doublestack trains, speeding deliveries on its Central Corridor. Improvements of these sorts are causing smaller truckload carriers to open up intermodal departments. When they do, they don’t want to use their highway trailers, because traditional piggyback service costs more. Instead, they’re seeking leases on those 53-foot containers or finding railroads that will make them available.
 
Speaking of which, I sense that in the West, Union Pacific has an advantage over rival BNSF in satisfying domestic intermodal demand. UP is co-owner with Norfolk Southern of 30,000 containers bearing the EMP logo, available to shippers who can’t furnish their own boxes. Plus, it can supply another 20,000 containers to shippers thanks to its new UMAX partnership with CSX Intermodal. BNSF, on the other hand, got out of the business of supplying containers to customers and has nothing of its own to offer. I sense, for example, that UP’s container supply was one factor that led Hub Group last year to consolidate all its business in the West with UP rather than BNSF, which had been its major carrier. Hub itself owns relatively few containers.
 
Don’t shed tears for the BNSF boys yet. Their railroad hasn’t had to plow hundreds upon hundreds of millions into container inventories that until recently weren’t in hot demand. Plus, a huge part of BNSF’s domestic intermodal traffic comes directly from giants J. B. Hunt Trucking and Schneider National, both of which own their own container fleets. On the other hand, UP’s domestic intermodal customers, like Hub, tend not to have big container fleets and rely on the railroad for these.
 
I’m making all this seem like a terrible problem. Since when has having customers battering down your door to throw business at you a problem? Let’s just say we’re in an adjustment phase. When the economy finishes its healing process from the meltdown of 2008 and most or all of those 369,090 freight cars in storage are put back to work, in addition to all this new intermodal business, for which ample numbers of new containers and chassis will be in place, imagine how hot the rails will feel then. — Fred W. Frailey