Guess who’s going intermodal?

Posted by Fred Frailey
on Sunday, January 9, 2011

One of the last big holdouts against partnering with railroads in intermodal transportation is joining the team. I’m referring to none other than Federal Express, the giant global transportation company. Starting January 31, as it completes a reorganization of FedEx Freight, its less-than-truckload division, the company will become a rail intermodal partner. Ironically, this happens just after another big intermodal shipper takes its trailers off the rails and puts them on the highway.

The news broke last week in an online news service, DC Velocity. William Logue, president and chief executive of FedEx Freight, says rail will be used “sparingly” at first, and railroad sources of mine confirm that. Specifically, as of the end of January the unit will divide its LTL services between “priority” shipments that must reach destinations within two days and “economy” shipments that take three days or more. Rail will be utilized for some of the economy shipments, Logue told DC Velocity.

My sources say most of the FedEx Freight intermodal shipments in the west will utilize BNSF Railway. The major carrier in the east will be Norfolk Southern.

We’ve all occasionally seen FedEx trailers on intermodal trains, but it usually involves repositioning of empty equipment. United Parcel Service, the chief FedEx rival for package delivery, relies on rail for most of its long-distance ground services. FedEx Express, the division that competes directly with UPS, will presumably continue to rely exclusively on air and highway transportation.

FedEx got into the LTL business in 1998, buying Viking Freight, and expanded its reach three years later, purchasing American Freightways, a large regional LTL trucker. In the 12-month period ending last May 31, FedEx Freight handled approximately 3,600 tons of freight per day. Its biggest LTL rivals are YRC Worldwide (formerly Yellow Freight and Roadway Express) and Con-Way Freight. Its adopted the FedEx Freight name in 2001.

The recession of 2009 was a disaster for the LTL companies, with revenue falling about 25 percent, according to the Journal of Commerce. U.S. LTL revenue of YRC fell 23 percent in 2009. FedEx Freight’s revenue dropped 11 percent in 2009 and another 2 percent in 2010; its fiscal years end May 31. This caused FedEx Freight to close 100 terminals (about one-fifth of its system, according to DC Velocity) and terminate 1,700 of its 34,000 workers.

How big a deal is this in FedEx’s march into intermodal? On the face of it, not much. But one rail strategist warns us not to be fooled by the slow rampup of FedEx intermodal. Over time, he says, this will be a major event. At the very least, it’s an admission by one of the biggest names in transportation that rail reliability and pricing is now truck-competitive in many markets. Don't be surprised to hear soon that FedEx Ground, its package-delivery arm that competes with UPS, is testing intermodal usage, too.

Someone should tell all this to the U.S. Postal Service. Last year USPS ended its use of railroads, except to return pallets and empty bags. Taxpayers take note: There's no way the post office can save money by doing this. Its costs will rise considerably. Oh, but I forgot, when USPS runs out of money it can just run to the government's printing press to get more. That printing press goes under the name of Postal Rate Commission. — Fred W. Frailey

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