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.
Kansas City Southern Inc. (KCS), the Kansas City, Mo.-based railroad, is poised to significantly expand its presence in the U.S.-Mexico intermodal market, a move that could not only strengthen the railroad's already-bright future but could also reshape how freight gets moved in one of the world's most important corridors of commerce.
KCS, the smallest in both geography and finances among the five Class I U.S.-based railroads, differs from its peers in one other important way. Unlike the other four, which have focused on the nation's east-west landscape, it has built its franchise around north-south routes extending from the upper U.S. Midwest to multiple points inside Mexico. Today, KCS operates from the Twin Cities of Minneapolis-St. Paul—which it doesn't serve directly but through interline partner Canadian Pacific Railway—to the booming Port of Lázaro Cárdenas on Mexico's Pacific coast.
The KCS network, which encompasses about 3,500 route miles spanning 10 states, is the product of a series of alliances and acquisitions over the past 18 years that, among other things, has made it the only U.S. railroad that doesn't need to interchange traffic at the border.
Up to now, virtually all of KCS's traffic has been measured in carloadings. Intermodal activity has been a non-factor because KCS's Mexican intermodal infrastructure was not sufficiently developed to meet burgeoning cross-border demand. Since 2008, however, the railroad has invested about $300 million to upgrade its intermodal network.
The investments include $180 million alone to expand 100 miles of track on a key line segment between the Texas cities of Rosenberg and Victoria to the south, about 240 miles from the border. Other investments include adding an intermodal facility in San Luis Potosi, Mexico; upgrading intermodal capabilities at Puerta Mexico to the east; and improving intermodal operations at Lázaro Cárdenas.
Wide-open opportunity
Cross-border intermodal currently accounts for slightly more than 1 percent of KCS's overall traffic mix, but the business is "growing very fast," Patrick Ottensmeyer, executive vice president and chief marketing officer, told DC Velocity last week. Intermodal revenues in the fourth quarter of 2011 rose 29 percent from the same period a year ago, albeit off of a small base.
KCS is placing the same bet on its north-south intermodal routes that its brethren are making on
their east-west lanes: that it can convince shippers, truckers, and intermodal marketing companies
to divert freight from the highways and onto the rails. The potential payoff for
KCS and other U.S. rails in the market could be even higher on the north-south routes because the
U.S.-Mexico market is dominated by truck transport. Intermodal accounts for about 6 percent of the
total cross-border market, according to KCS's estimates.
Ottensmeyer said that between 2.5 million and 3 million truckloads annually move across the border over lanes that his railroad serves. Of those, about 40 percent exhibit the characteristics—namely a truckload move of 800 to 1,000 miles or more—that would make those loads viable for intermodal diversion, he said.
"We've talked to truckers and intermodal marketing companies, and they are very interested in the opportunities here," Ottensmeyer said.
Between 1 million and 1.2 million truckloads originate in or are destined for Texas alone, a key factor in KCS's growth prospects since one of its units owns track that connects the rail's U.S. and Mexican operations at its main border gateway in Laredo. Included in the unit's portfolio is the only rail bridge that links the two countries through Laredo and over which 40 percent of all southbound rail traffic crosses.
Trucks move about 62 percent of shipments through Laredo, and Ottensmeyer sees this as a fertile proving ground for KCS's intermodal conversion efforts. Demand is fairly balanced in each direction, he said.
"I don't see any structural impediment" to expanding KCS's intermodal business, said Ottensmeyer. The one obstacle Ottensmeyer sees is more financial than operational; because ownership of the cargo changes at the border, the financial terms of sale could be different and could cause confusion, he said.
Low-cost option
KCS's strategy mimics that of the four other main U.S. railroads, which are touting their domestic intermodal service as a viable alternative to a truckload market plagued by impending driver shortages, higher fuel costs, and highway congestion.
According to a slide in a 2011 presentation, rail transport from Monterrey, Mexico, to Chicago costs 40 cents per cubic foot, and has a six- to seven-day time in transit. Truck transport on the same lane has a shorter transit time—four to five days—but costs more than double that of rail shipping, according to the KCS presentation.
The combination of ocean and rail transportation from Shanghai, China, to Chicago would cost $2.91 per cubic foot and take up to 25 days in transit, according to the slide. One of the goals of the presentation was to showcase Mexico's economic vibrancy and to highlight the potential advantages for U.S. companies of "nearshoring" their manufacturing and distribution closer to their end markets, especially as an increase in wages for Chinese workers narrows the gap with their Mexican counterparts.
KCS is not the only U.S. rail with its finger in the Mexican intermodal pie. Union Pacific Corp. touches about 95 percent of all intermodal freight running in and out of Mexico, though it doesn't operate trains into Mexico and interlines at the border with Ferromex—a big Mexican railroad in which UP owns about a one-quarter stake—and with KCS's Mexican operations. UP says it is the only railroad with access to the six U.S. gateways in and out of Mexico.
BNSF Railway uses trucks to move cross-border intermodal traffic to and from its hubs in Los Angeles, Houston, and El Paso, Texas. BNSF's 2011 U.S.-Mexico intermodal volume increased 14 percent over 2010 levels, according to Krista York-Woolley, a company spokeswoman.
Because KCS's route network is limited relative to those of its larger peers, it relies on interchange agreements with other railroads to feed U.S.-Mexican freight to points along the Great Lakes, the Southeast, and Southwest. For example, KCS relies on Norfolk Southern Corp. to move freight between KCS's hub in Meridian, Miss., and Atlanta, and it uses UP and BNSF to interline traffic between its Dallas hub and Los Angeles.
Growing KCS's intermodal business to its optimal level, Ottensmeyer said, "will require partners."
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.