As Troy Stephenson prepares to award his next round of transportation contracts, he's throwing as much business as possible to the people who provide intermodal service. "We've taken every lane that has the potential and we'll try and convert that," says the transportation expert for Owens-Corning.
That's sure to raise some eyebrows—the notion of a national brand like Owens-Corning entrusting its roofing, insulation and composite materials to cut-rate transportation providers. That's how many still see intermodal, whose reputation has undeniably suffered over the years. At its low point, following several ill-executed rail mergers in the '90s, service had deteriorated so badly that shipments that once took three or four days were taking 30 to 45.More than a few disgruntled shippers yanked their business and vowed never to return.
So why would Owens-Corning stake a bigger share of its $320 million annual transportation budget on intermodal? Because those service problems are history. Stephenson says he's seen the consistency of intermodal service improve substantially over the last five years or so. "Some are giving better service than trucking companies," he says. "They're hitting levels of 98-percent on time."
He speaks from experience. Owens-Corning has been moving about 30 percent of the half million shipments it makes each year via the hybrid truck-rail service. The company contracts with Schneider National and J.B. Hunt, large truckload carriers with substantial intermodal operations, and with Triple Crown Services Co. (an affiliate of Norfolk Southern Corp.), whose 53-foot RoadRailer trailers move both over the road and on the rails. It also works with two intermodal marketing companies (IMCs), Hub Group and Pacer International, that arrange and manage intermodal freight shipments. And it's been happy with the results.
That's not to say that service is dazzling on every freight lane yet. Though service in many corridors is as reliable and nearly as fast as truckload, it's still not up to speed in others. But for distribution managers who can analyze service lane by lane (Hub Group, for example, uses computer algorithms to analyze performance in a given corridor over the past 30 days), intermodal offers an attractively priced alternative to trucks.
On a roll
Stephenson's not the only shipper out there who's bullish on intermodal. Last year, intermodal shipping in North America grew by 6.4 percent, according to figures compiled by the industry's trade group, the Intermodal Association of North America (IANA). And in 2003's fourth quarter, intermodal shipping shot up by 8.8 percent over the same period in 2002. Though first-quarter 2004 figures weren't available at press time, there was nothing to indicate that the growth had been derailed. In fact, some preliminary numbers indicated the exact opposite: Domestic 53-foot trailer shipments grew by more than 16 percent over the first two months of the year, says Tom Malloy, vice president of business development for IANA, and 53-foot container shipments jumped by about 20 percent in that same period.
|All domestic equipment||5,222,984||5,433,041||4.0%|
Source: Intermodal Association of North America
As for what's sparking that growth, analysts can't point to one single factor. Some of the domestic container growth can surely be attributed to the transloading of foreign goods from international containers to the larger domestic containers, particularly on the West Coast. Some of it can simply be attributed to overall economic growth.
And a lot of it can be attributed to the trucking industry's recent misfortunes, which have worked to intermodal's advantage. Tight capacity in the truckload market and cost pressures arising from high fuel and insurance prices (as well as labor woes arising from the new truck driver hoursof- service rule) have conspired to drive business in intermodal's direction.
In fact, the market pressures on trucking have benefited intermodal in two ways: First, truckload carriers themselves are making greater use of intermodal for their linehaul operations. Second, higher rates have prompted many shippers to give the intermodal option a second look. And not just for hauling raw materials. Although historically, intermodal has had its widest application in plant-to-plant, plant-to-DC or DC-to-DC movements, more companies have begun using intermodal to move finished goods and retail products to customers.
Malloy of IANA confirms that his group's members— railroads, IMCs, motor carriers and even maritime companies —are seeing a shift in the type of freight they haul as customers gain confidence in the service. "Ten years ago, what we had moving was an entirely different kind of commodity," he says. "But as intermodal gains credibility as a valid option, there's been a shift, with a gain toward finished goods and retail products."
Hub Group is one of the companies that's seeing its retail business grow. The IMC has done business with most of the major retailers since its inception, says Jim Gaw, executive vice president of sales, but these days, he's seeing a change in the freight mix. In the past, a significant portion was international business, transloading goods at (or near) ports and moving merchandise inland from the coasts. But now, he says, Hub's beginning to see the migration of additional domestic business to intermodal.
Brian Bowers, vice president and general manager of intermodal services for Schneider National, has noted the same phenomenon. "Traditionally, we've lived in the DC-to-DC world. It's not as service sensitive, so lack of confidence didn't come into it. Now we've had some great successes in the DC-to-customer world. That's our biggest growth area."
Service or price: your choice
Can intermodal providers stay on the growth track? That depends partly on their ability to match service to expectations. Bowers parses intermodal customers into two broad segments: those looking for low-cost "value" transportation for freight that's not particularly time sensitive, and those looking for truck-like service. Though some might wonder if intermodal can ever hope to truly approximate truck service, Bowers insists it can—and does. Thanks to the railroads' high-speed express intermodal trains, he says, Schneider regularly provides truck-like service to the customers that require it. "If you want to pay a premium and put it on the truck-rail express," he insists, "you will get the same experience you would with a single-driver [truckload carrier]."
Whether they choose bargain basement or premium service, shippers say intermodal beats truck on price every time. Though widely varying prices make it difficult to generalize about intermodal rates, it's fair to say that even the highest bracket of intermodal service is priced below comparable truckload shipping. "It's reasonable to say that intermodal is discounted 10 to 20 percent from highway rates," Bowers says. "The express product, designed to compete with the single-driver model, would fall between those two price points."
Though intermodal service may be cheap, it's still not yet universally reliable. The industry's working toward that goal, but the results have not been consistent on a geographic basis. And the railroads, despite great strides in the last decade, continue to create resentment from time to time with what's perceived as poor communication.
"There are point pairs that are struggling," Bowers acknowledges. "We've seen variability that goes out two to three days beyond the schedule." He adds that the premium network consistently maintains a 90- percent or better on-time rate, but he says he usually builds in an extra day for the "value" option. "Rail service over the last five years has improved dramatically. But it's still not at a level where we're comfortable with it over the whole portfolio. … The real challenge we've got in working with our rail partners is to improve their performance in every key lane."
Stephenson, too, says that he believes the railroads are "really responding" to customer needs. But things are not perfect. "They are really poor communicators," he says. Even so, he says he believes intermodal service has come a long way."My confidence in intermodal is pretty high."