Up in Prince Rupert, on British Columbia's Pacific Coast, developers are putting the finishing touches on the new Fairview Container Terminal. When it opens in October, it will offer importers a new point of entry into North America through a deep-water port that officials say is the continent's closest port to Asia.
Logistics service providers are already lining up to get in on the action. In May, COSCO Container Lines Americas Inc. signed on as the first steamship line to serve the new container terminal. But the driving force behind the development has been the Canadian National Railway (CN), which began drawing up plans in 2004 for a high-speed rail intermodal service from Prince Rupert to the U.S. heartland. CN says it will offer a service between Prince Rupert and Memphis, Tenn., for example, that features a 117-hour transit time.
Some 2,900 miles to the south, in Lazaro Cardenas, Mexico, a similar story is unfolding. Lazaro Cardenas is in the midst of a multiphase port expansion project aimed at boosting its container-ship capacity. Though the project's first phase has yet to be completed, the rail link is already in place. In June 2006, the Kansas City Southern railroad launched a daily intermodal service from the port to markets in the southeastern United States.
Similar developments are taking place along the U.S. East Coast. In February, the Union Pacific (UP) and Norfolk Southern (NS) launched a joint cross-country intermodal service from the East Coast container ports served by the NS—including Savannah, Ga.; Charleston, S.C.; and Jacksonville, Fla.—to Los Angeles. The Norfolk Southern has also begun work on a high-speed rail line (the "Heartland Corridor") that will move double-stacked containers from shipyards at Hampton Roads, Va., to the Midwest.
Whether they're located along the Atlantic or the Pacific, all of these ports—and the railroads that serve them—have their eye on the same prize: a share of the booming U.S.-Asian trade. Historically, Asian imports have entered the country through the ports of Los Angeles and Long Beach, where they were loaded onto trucks or trains that fanned out to destinations across the continent. But recent capacity and congestion problems at those ports have led importers and ocean carriers to seek alternatives—alternatives the railroads are eager to provide. Hoping to appeal to shippers frustrated by backups at the Southern California ports, they're out promoting their inland transportation services on the basis of convenience and speed. Carey Treadwell of Mallory Alexander International Logistics, a third-party service provider, notes that using the Port of Prince Rupert, for example, could cut 100-plus hours in transit time from the Asian port to the U.S. destination over shipments entering the country through Los Angeles or Long Beach.
A mixed track record
No doubt about it, the rails are riding high these days, their optimism fueled by booming global trade and shifting market dynamics on the domestic front. The same market forces that conspired to create a "perfect storm" for truckers (rising fuel costs, increasing highway congestion, and an intractable shortage of overthe- road drivers, to name a few) created favorable trade winds for the rails, allowing them to recapture some of the ground freight they had given up for lost.
As a result, intermodal volumes have marched steadily upward for the past few years. Last year was no exception. The major U.S. railroads handled nearly 12.3 million intermodal loadings in 2006, according to the Association of American Railroads. That was up 5 percent over 2005 levels; it was also an all-time high.
Demand for intermodal service will only grow if imports continue to flood into North America as predicted. Speaking at the Warehousing Education and Research Council's annual conference in April, J. Van Cunningham, assistant vice president of e-business for the Burlington Northern Santa Fe (BNSF), told his audience that the industry is projecting annual growth rates of 7 percent for several years to come. "That means we will double our volume every 10 years," he said.
But many question whether the railroads are up to the task. Despite billions in capital spending each year, rail capacity has been nearly as taxed as highway capacity. And there's little prospect of relief anytime soon.
Cunningham of the BNSF agrees that relief will be hard to come by. Adding capacity presents an enormous challenge for the railroads, he told session attendees. One problem is that the places where additional infrastructure is needed most are the places least likely to have space available: fast-growing metropolitan areas. Another difficulty is cost. A new intermodal facility can cost $200 million and a mile of track, $1 million. And even if a railroad manages to secure both the space and the funds, the lengthy approval and construction processes all but guarantee that it will be a long time before any rail project has much effect on the capacity shortage.
Getting better all the time?
Still, the outlook isn't all gloom and doom. At least one observer insists that rail intermodal service is improving. At another session at the Warehousing Education and Research Council's conference, Jim Gaw told his audience that service has become more predictable and, thanks to the railroads' ongoing investments, will continue to improve. Gaw is executive vice president of sales for the Hub Group, a major intermodal marketing company.
In his talk, Gaw offered a detailed rundown on the investments being made by the nation's largest rail carriers: the Burlington Northern Santa Fe, the Union Pacific, the Norfolk Southern, and CSX Intermodal, as well as a large intermodal wholesaler, Pacer International.
As for the BNSF, Gaw noted that the railroad improved train velocity by 7 percent last year and is looking to boost velocity again this year. In addition to building intermodal facilities in Seattle, Chicago, Los Angeles, and Memphis, the BNSF has nearly completed double tracking its transcontinental network. (The double tracking is aimed at improving both velocity and capacity.) Gaw, who noted that the "BNSF has consistently been the best service provider in the western part of the country," added that the rail will make another $2.6 billion capital investment in its system this year.
Like the BNSF, the Union Pacific has been digging deep into its pockets to fund system improvements. The UP is making capital investments of $3.2 billion this year, Gaw reported. Though the UP still lags behind the BNSF in service, Gaw expects performance to improve as the railroad finishes double-tracking its Sunset Route between southern California and Texas over the next two years.
Though it's not spending at the same level as the BNSF and the UP, the Norfolk Southern will also put some money into its system this year, with $1.3 billion in capital investments. Among other initiatives, the railroad (which Gaw calls the top performer in the East) has begun work on its Heartland Corridor project, which will enable doublestacked international maritime and domestic containers to be transported by rail between Hampton Roads, Va., and the Midwest by raising bridge and tunnel clearances and modifying other overhead obstructions. That project, which is expected to be completed in 2009, should add capacity, improve service, and reduce transit times to the Midwest by a day.
To the south, CSX Intermodal is pouring $1.4 billion into capital investments this year. "It is working hard at rationalizing its network," Gaw said. "It is focusing on adding capacity through greater efficiency. The trend line is improving."
Gaw also reported that Pacer International, which operates largely on the CSX and the UP lines, was working to address service shortfalls. Noting that the wholesaler has 27,000 domestic containers in service, Gaw reported that Pacer was focusing on better utilization this year, which means more capacity. He conceded, however, that its performance left room for improvement. Though Pacer's on-time performance record has gotten better, he said, "it is not where it needs to be."
Asleep at the switch?
As for the future, at least one advocate of intermodal transportation says a little help from the government would go a long way toward resolving some of the sticky infrastructure issues. In a March speech at the National Press Club in Washington, D.C., Gil Carmichael argued that public officials sat on the sidelines throughout the intermodal revolution that has taken place over the past quarter century, letting private investors shoulder the load. Carmichael, who is senior chairman of the University of Denver's Intermodal Transportation Institute and a former U.S. Federal Railroad Administrator, thinks it's now time for the government to step up and invest in intermodal connectors—linkages among the surface modes and connections at public ports, terminals, and the new "logistics centers."
But Carmichael worries that policy makers still do not understand the importance of intermodal and the steps they must take to ensure its success. The problem is rooted in the government's organizational structure, he explained. "By tradition, government agencies concentrate on each mode's infrastructure. Highway agencies build and maintain roads. Airport authorities build and maintain airports," he said, according to the prepared text of the speech. "Our 'infrastructure mentality' also causes government to view the modes in isolation, yet the intermodal system prospers by efficiently unifying them horizontally."
In his address, Carmichael lamented the general ignorance about freight transportation in general and in government, and the implications for public policy. "Among public officials at all levels of government—including many people in transportation agencies—the ignorance of freight transportation is almost universal," he said. "Some regional planning agencies have written transportation plans [that] devote more attention to bicycle paths than to freight transportation. … Ignorance about freight leads to bad decisions and missed opportunities. Nearly all recent progress and innovation in U.S. transportation … [is] attributable to action and investment by the private sector—not government."
Carmichael urged support of the railroads' proposal to Congress for a 25-percent tax credit for railroad capital investment. He argued that the current rate of capital investments by railroads to expand capacity and enhance intermodal service—some $5 billion to $8 billion a year— was inadequate, and that the tax credit would encourage additional spending. That spending could make an enormous difference in the intermodal freight picture, he added. "The huge North American rail system has been single-tracked in the last 30 years. This right-of-way is probably carrying only 25 percent of its capacity. If we go back to double- or triple-tracking, grade separation, and GPS, it would equal three times more capacity—and this right-ofway already is in place and paid for!"
Carmichael conceded, however, that he doesn't expect to see much leadership on freight transportation issues from Congress. "Congress still operates as if this were the 1950s," he complained. "Members talk intermodal but vote for traditional highway projects."