Can intermodal break out of the "dry van" box?

Current-day rail intermodal folk like their comfort zones. Unlike the swashbucklers of prior years who took risks to build the business, the current crop are loath to stick their necks out for fear of rocking the proverbial, and what has become a profitable, boat.

Tom Finkbiner and Ted Prince can attest to that. In late 2010, the two veterans joined with Tom Shurstad, a former president of intermodal service provider Pacer International, to create a program they believed could change the way fresh fruits and vegetables move in the United States and expand intermodal's miniscule share of the produce transportation market.

Once the business plan was readied, the group began sending out feelers to rail and intermodal executives. More than two years later, though, the parties are still doing little more than talking.

The program, code-named "New Cool Venture," would coordinate the nationwide movement of produce shipments using a mix of intermodal containers and boxcars. Finkbiner and Prince said the difference between their offering and other produce-hauling rail services is that it would be promoted as a network solution to follow the growing seasons in various geographies. For example, when the season ends in California, the service would support agricultural regions in Florida, Mexico, and elsewhere.

Under the service, higher-density produce items with generally longer shelf lives—think carrots and grapefruit—would move in boxcars, which have 7,700 cubic feet of capacity and carry 186,000 pounds of cargo, roughly equal to four truckload trailers. Lighter-density items with shorter shelf lives, like lettuce and grapes, would move in faster, double-stack containers.

The executives said the service plays to intermodal's strengths, namely to support a seasonal business where shipments move over long-haul, irregular routes. The venture would come to market with cheaper line-haul costs—as much as 20 percent off truck rates—and lower fuel surcharges than highway transport can offer. And it has the potential, according to Prince and Finkbiner, to convert thousands of truckloads of produce—virtually all of which are now handled by small, independent truckers—to the rails. Intermodal currently has about a 2-percent share of the nation's produce traffic, according to Finkbiner.

"There are 30,000 perishables trailers a week moving off the West Coast alone," traveling over distances of up to 2,000 miles, that are in intermodal's wheelhouse, said Prince, who runs a Kansas City-based transport consultancy bearing his name.

OBSTACLES AHEAD
What both men also knew from the start, however, is that such out-of-the-box thinking would be a tough sell with intermodal executives, especially at a time when they are doing just fine staying with what's familiar. Today's intermodal network is designed to move dry goods, and branching big-time into produce would mean cost and service challenges that the rails aren't accustomed to.

For one thing, railroads would need to expand their infrastructure to go where the growing is, no easy or inexpensive feat for an industry that has traditionally marketed a new service as a low-cost option to users. Finkbiner estimates that it would cost $40 million to establish service in just one traffic lane.

Beyond the infrastructure expense, there is the cost of specialized equipment. One refrigerated boxcar alone runs about $270,000, according to Finkbiner. There would also be the expense of fuel to run the train as well as to power the refrigeration unit sitting in the well of a stack car.

The refrigeration unit itself, a heavy, bulky contraption, would add weight to the container and cut into its available capacity. The increased weight and reduced cube means that only about 41,000 pounds can profitably move in a container that could otherwise hold about 45,000 pounds.

Finkbiner and Prince also must convince retailers that intermodal can consistently meet the exacting reliability standards demanded of produce transporters. These days, the companies that need convincing are the mega-retailers like Wal-Mart Stores Inc., Target Stores Inc., and Costco Wholesale Corp., which have muscled in on the grocery action, cutting out the traditional wholesalers and doing the buying themselves. In so doing, they have changed the model of sourcing the goods and procuring the transportation.

Finkbiner said he and Prince have been told by retailers to first develop the network and then return for serious discussions.

Finkbiner said it is unclear if rail intermodal can consistently handle very "short cycle" items that have shelf lives measured in days. By contrast, many items with longer shelf lives can move via rail without being compromised, he said.

Of course, step one is persuading the railroads. While intermodal executives recognize the potential in expanding into other commodity groups, most are too busy trying to convert dry stuff from truck to rail to take the plunge into an unproven business with higher costs and stricter service requirements.

"You have to make a full commitment," said Brian Bowers, senior vice president of intermodal and automotive for Kansas City Southern Inc., the Kansas City-based railroad whose intermodal business is 100 percent dry van. "You don't just dip your toe into the refrigerated pool if you want to keep your toes."

Bowers said KCS, whose strength is its trans-border network linking the United States and Mexico, plans this year to assess the feasibility of intermodal service supporting produce traffic out of Mexico. For now, however, KCS is too focused on building its relatively small but fast-growing intermodal business for trans-border dry goods to concentrate on a totally new intermodal service, Bowers said.

The executive also expressed doubt as to whether produce shipments could generate enough density to justify the extensive capital and operating investments, especially in Mexico with its less-than-mature intermodal infrastructure.

Drew Glassman, assistant vice president for intermodal at Eastern rail CSX Corp., agreed that the conceptual promise clashes with today's reality, namely the high equipment costs, the added weight and lost cube from outfitting a container with a refrigeration unit, and the concerns about demand and density.

CSX, whose intermodal business is predominantly dry van, incorporates non-dry-goods traffic into its regular intermodal network, according to Glassman. That structure is likely to remain for quite some time, he said.

"It's not a big enough market to justify its own schedules," Glassman said. "It would take a long time, and a lot of density, to justify that."

Judging by data from the trade group Intermodal Association of North America (IANA), there's no mad rush to add non-dry van containers. Of the nearly 247,000 containers projected to be in service in North America in 2013, all except 2,322 will be dry vans, IANA said. In 2012, all but 1,672 of the 235,000 containers in circulation were dry vans, according to IANA data.

Despite the obstacles, Finkbiner, who is principal of a consultancy called Surface Intermodal Solutions LLC and until recently was a top sales and marketing executive at Railex LLC, a coast-to-coast refrigerated service operated in conjunction with CSX and the Union Pacific Railroad Co., remains optimistic. As he sees it, the rails will look for new revenue sources to offset a pronounced decline in their bread-and-butter coal traffic. Fresh fruits and veggies, he said, could be the ticket.

"Once a generation, the coal business bellies up," he said. "This is a chance for railroads to see what else is out there."