Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
In the never-ending battle between rails and truckers to win the hearts, minds, and budgets of shippers, it seemed only a matter of time before the environment became a competitive weapon. And that's precisely what happened.
The Web site of the Association of American Railroads, the leading rail trade group, states that, on average, a train can carry one freight ton 436 miles on a gallon of fuel—four times farther than a truck can—and that an intermodal train removes 280 trucks, or the equivalent of 1,100 automobiles, from the road. AAR also notes that each ton-mile of freight moving by rail instead of on the highway cuts greenhouse gas emissions by more than two-thirds, and that by shifting 10 percent of domestic freight from truck to rail, emissions would be reduced by 12 percent and 1 billion gallons of fuel would be saved each year.
The AAR site includes a "carbon calculator" that allows users to plug in data on train sizes, traffic lanes, and commodities hauled to determine the reductions in carbon footprint if the goods moved by rail rather than truck. For example, a 100-car train moving intermodal or consumer-goods shipments from Atlanta to Chicago would save 125 tons of CO2 compared to the same amount of freight moving on the highway, according to the calculator. It would take 2,909 tree seedlings 10 years to remove that amount of carbon from the environment, the AAR site says.
While the numbers keep AAR statisticians busy and employed, they do little to endear the railroads to what is at once their chief rival and their key partner and customer: the trucking industry. Truck advocates argue that some environmental data spouted by the railroads is misleading, noting that even if virtually all long-haul truck freight (roughly defined as freight moving more than 550 miles) migrated to intermodal, a truck would still start and finish every intermodal haul. Thus, the elimination of long-haul truck movements would barely make a dent in the number of commercial vehicles on the road, truck advocates say.
Truckers also chafe at what they believe are slaps at their industry by the railroads in the name of environmental awareness. Clayton Boyce, spokesman for the American Trucking Associations (ATA), says many truckers "do not appreciate the railroad industry's penchant for attacking the trucking industry" to assert environmental superiority or further its legislative goals in Congress. The ATA has advanced an environmental initiative of its own, which includes limiting truck speeds to 65 mph and increasing the gross vehicle weight limit for single-trailer units to 97,000 pounds from the current 80,000 pounds.
In recent months, the topic of intermodalism has received attention from outside the industry as well. In late March, the political publication National Journal hosted a blog titled "Are We Intermodal Enough Yet?" The posts from thought leaders in the private and public sectors as well as academia focused on the importance of intermodal and the need to expand the intermodal network.
One notable exception was a post by Bill Graves, ATA's president and CEO. Graves said rather than wasting the nation's limited infrastructure funds on a "vision," money instead should be funneled into the highway system and to strengthen existing intermodal relationships. Graves said intermodal service should be encouraged when it makes sense for shippers. But he noted that 83 percent of all freight tonnage still moves by either truck or rail as a single mode. "Barring major shifts in lifestyles, land use, or freight logistics, this will be the reality for the foreseeable future," Graves said in his post.
Getting shippers on board
For all the political posturing, the real question is whether sustainability will become an economic factor in shippers' transport buying decisions. Few dispute that intermodal represents the most environmentally friendly mode of transportation. The question is whether railroads and intermodal marketers can connect the environment and the bottom line to persuade shippers that intermodal makes as much business sense as it does ecological sense.
Thomas K. Sanderson, chairman, president, and CEO of Transplace, a third-party logistics service provider, says there is "clear empirical and anecdotal evidence" that companies are factoring environmental concerns into their transport decisions. He cites continued demand for intermodal services despite declines in fuel prices and truckload rates, both of which should, in theory, drive significant traffic to truck. He also sees more shippers awarding more business to carriers certified under the Environmental Protection Agency's "SmartWay" program, which identifies products and services that reduce transportation-related emissions. "Enlightened shippers are ahead of the curve in making decisions that favor the bottom line and carbon footprint," he says.
Others are not so sanguine about shipper interest. Charles W. Clowdis Jr., managing director, North America, for the consulting firm IHS Global Insight's global commerce and transport practice, says that while some large shippers are "making noise" about environmentally friendly shipping, they normally default to the mode that offers the fastest transit times to maximize their inventory turns and shorten cycle times. Though railroads have improved their speed and reliability to market, trucks remain the fastest way of getting goods to stores and warehouses.
Tom Malloy, a spokesman for the Intermodal Association of North America, says that though environmental concerns are driving some additional intermodal growth, no data exists to quantify the claim beyond what a specific railroad would have on its own customers. The intermodal industry has been selling the environmental story for more than 30 years, he says, but only recently have shippers stated they are migrating to intermodal in an effort to be more environmentally responsible.
A question of access
Lawrence Gross, a senior consultant for the logistics consultancy FTR Associates, says environmental and economic issues may not yet be sufficiently connected to drive a mass migration to intermodal, but sustainability will soon be a critical buying factor in weighing rail versus truck. "It will become an issue to the extent that being a good environmental citizen will become more aligned with being a profitable operator," he says.
Gross cautions, however, that intermodal's environmental advantage will go largely for naught unless the railroads build more secondary ramps and terminals to make intermodal service more accessible to shippers that are located away from the nation's major freight corridors. Currently, intermodal operations in these tertiary markets must depend on an often lengthy and expensive dray to get freight from factories to a main rail line for the intermodal haul.
Legislation introduced in the House by Reps. Eric Cantor (R-Va.) and Kendrick Meek (D-Fla.) might, if enacted in its current form, help remedy the situation. The bill (H.R. 272) would provide federal tax incentives for investments in new track, bridges, and tunnels that would enable more freight to move by rail. A similar bill was introduced in the last Congress but was never given serious consideration. As of mid-May, the legislation had not been scheduled for hearings in the House, and no companion bill had been introduced in the Senate.
The nation's big truckers, as represented by ATA, say they will take a wait-and-see posture toward the legislation. UPS Inc., the nation's largest single intermodal user, would oppose the bill if there are no guarantees the funds would be dedicated to rail improvements. UPS spokesman Malcolm Berkley says the company favors the creation of a railroad trust fund largely financed by user fees.
Dollars and sense
The key determinant in choosing intermodal may not be green but the black gold of oil. With diesel fuel prices at $2.22 per gallon, the cost of shipping a double-stack container moving 2,000 miles door to door from Chicago to Los Angeles would be $1,613, according to data from intermodal and drayage provider Pacer International Inc. and IHS Global Insight. The same shipment moving over the road on a 53-foot trailer would cost $3,315, according to data from the companies. (Both examples include fuel surcharges of between 12 and 14 percent.) When diesel prices were more than double the prevailing rate last July, the industry saw similar price differentials but on shorter hauls.
In ironic timing, the railroads raised their intermodal rates at around the time diesel prices began falling from their July 2008 peak of $4.76 per gallon. The converging events made it more economically compellingfor shippers that had been using intermodal to switch back to the highway. Today, the fast pace of growth enjoyed by intermodal for most of 2008 has dramatically slowed in response to the economic downturn.
According to FTR Associates data, in the fourth quarter, intermodal's share of international and domestic containerized freight moving more than 550 miles fell by 0.2 percent to 12.1 percent. Though first-quarter 2009 data were not yet available at press time, Gross of FTR says he expects the trends for intermodal to remain soft for some time to come.
Despite the talk about promoting sustainability and making the planet greener, shippers are likely to use intermodal for freight movements where it makes sense to save shipping dollars. The issue for shippers has been and continues to be whether they are willing to accept longer transit times in intermodal in return for cost savings. Whether green is or will be a factor in that calculation remains to be seen. Sanderson says that, for shippers, the choice of mode will not rest with fuel, the environment, or the structure of the intermodal network, but with the ability of rail or motor carriers to provide reliable service. "Getting the right product to the right place at the right time, and in the right condition and quantity will drive buying decisions," he says.
A real-time business is one that uses trusted, real-time data to enable people and systems to make real-time decisions, Peter Weill, the chairman of MIT’s Center for Information Systems Research (CISR), said at the “IFS Unleashed” show in Orlando.
By adopting that strategy, they gain three major capabilities, he said in a session titled “Becoming a Real-Time Business: Unlocking the Transformative Power of Digital, Data, and AI.” They are:
business model agility without needing a change management program to implement it
seamless digital customer journeys via self-service, automated, or assisted multi-product, multichannel experiences
thoughtful employee experiences enabled by technology empowered teams
And according to Weill, MIT’s studies show that adopting that real-time data stance is not restricted just to digital or tech-native businesses. Rather, it can produce successful results for companies in any sector that are able to apply the approach better than their immediate competitors.
While many companies are launching artificial intelligence (AI) products for use as generic “co-pilots” or consumer-focused gadgets, the Swedish enterprise resource planning (ERP) software vendor IFS says its “Industrial AI” version supports industry-specific processes in “hardcore” sectors based on assets such as power grids, cell phone networks, aircraft maintenance, elevator operation, and construction management.
“Industrial AI is at the very core the solutions we are powering for customers. They are pushing us for ready-to-use AI that they can adopt quickly to solve real industrial challenges like labor shortages, supply chain disruption, [and] stagnated productivity," IFS's Chief Customer Officer, Cathie Hall, said in a release.
In presentations at its user conference in Orlando today, known as "IFS Unleashed," the company said that its latest IFS Cloud 24R2 release supports more than 60 in-depth Industrial AI scenarios. They span generative AI examples like: content generation for training and reports; recommendations for sourcing and suppliers; and contextual knowledge for assembly instruction. The tools also include predictive AI applications like event forecasting; optimization of resources and capacity; and anomaly detection for proactive quality control.
In remarks from the keynote stage, new IFS CEO Mark Moffat—who was appointed to the top office in January—said the company may be less well known than ERP vendors such as SAP, IBM, Oracle, and Infor, but it benefits from a tighter focus on its core users. Instead of selling software across dozens of industries, IFS serves just six industries: aerospace and defense, construction and engineering, energy and utilities, manufacturing, service, and telecommunications.
Thanks to that tight approach, he said the company has earned top Gartner rankings for its software products in field service management (FSM), enterprise asset management (EAM), enterprise resource planning (ERP), and enterprise service management (ESM). And to compound that advantage, Moffat said IFS continues to grow swiftly through acquisition, having bought up a handful of companies in recent months: Assyst, Ultimo, Boka, empowermx, Bolo, Tobin, Merrick, and Copperleaf.
“You need an AI business plan” Moffat told the room. “If you have an AI business plan, that’s terrific, but you can improve it. This area is just moving so fast.”
The top three corporate development priorities in consulting firm PwC’s current strategy are climate, artificial intelligence (AI), and business model reinvention (BMR), the company said in remarks today at an Orlando user conference for IFS software.
That approach meshes well with IFS, the Swedish firm which has added dozens of AI applications to its cloud-based enterprise resource planning (ERP) tools in recent months, that firm said at its "IFS Unleashed" event in Orlando. And underlying the industry’s rush to AI is the growing availability of massive amounts of data, PwC analyst Matthew Duffy said in a session at the show.
According to Duffy, data drives all the major technology changes that PwC advises businesses to examine: subscription or as-a-service models, connected devices and sensors, and conversions between business to business (B2B0 and business to consumer (B2C) approaches.
“Data availability now is greater than it’s ever been, and that’s where AI comes into play,” Duffy said. “It’s not just about driving cost efficiencies in an existing business model, but understanding your customer and your customer’s customer, so you can create a whole new value proposition.”
In fact, he said that PwC is not just giving that advice to its clients but applying it to the firm’s own strategy as well. That can be seen in the firm’s move in recent years to build its “Connected Solutions” business unit.
However, that trend is counterbalanced by economic uncertainty driven by geopolitics, which is prompting many companies to diversity their supply chains, Dun & Bradstreet said in its “Q4 2024 Global Business Optimism Insights” report, which was based on research conducted during the third quarter.
“While overall global business optimism has increased and inflation has abated, it’s important to recognize that geopolitics contribute to economic uncertainty,” Neeraj Sahai, president of Dun & Bradstreet International, said in a release. “Industry-specific regulatory risks and more stringent data requirements have emerged as the top concerns among a third of respondents. To mitigate these risks, businesses are considering diversifying their supply chains and markets to manage regulatory risk.”
According to the report, nearly four in five businesses are expressing increased optimism in domestic and export orders, capital expenditures, and financial risk due to a combination of easing financial pressures, shifts in monetary policies, robust regulatory frameworks, and higher participation in sustainability initiatives.
U.S. businesses recorded a nearly 9% rise in optimism, aided by falling inflation and expectations of further rate cuts. Similarly, business optimism in the U.K. and Spain showed notable recoveries as their respective central banks initiated monetary easing, rising by 13% and 9%, respectively. Emerging economies, such as Argentina and India, saw jumps in optimism levels due to declining inflation and increased domestic demand respectively.
"Businesses are increasingly confident as borrowing costs decline, boosting optimism for higher sales, stronger exports, and reduced financial risks," Arun Singh, Global Chief Economist at Dun & Bradstreet, said. "This confidence is driving capital investments, with easing supply chain pressures supporting growth in the year's final quarter."
The firms’ “GEP Global Supply Chain Volatility Index” tracks demand conditions, shortages, transportation costs, inventories, and backlogs based on a monthly survey of 27,000 businesses.
The rise in underutilized vendor capacity was driven by a deterioration in global demand. Factory purchasing activity was at its weakest in the year-to-date, with procurement trends in all major continents worsening in September and signaling gloomier prospects for economies heading into Q4, the report said.
According to the report, the slowing economy was seen across the major regions:
North America factory purchasing activity deteriorates more quickly in September, with demand at its weakest year-to-date, signaling a quickly slowing U.S. economy
Factory procurement activity in China fell for a third straight month, and devastation from Typhoon Yagi hit vendors feeding Southeast Asian markets like Vietnam
Europe's industrial recession deepens, leading to an even larger increase in supplier spare capacity
"September is the fourth straight month of declining demand and the third month running that the world's supply chains have spare capacity, as manufacturing becomes an increasing drag on the major economies," Jagadish Turimella, president of GEP, said in a release. "With the potential of a widening war in the Middle East impacting oil, and the possibility of more tariffs and trade barriers in the new year, manufacturers should prioritize agility and resilience in their procurement and supply chains."