Intermodal rail service providers are experiencing a banner year, thanks to unprecedented levels of imports into America’s seaports, surging demand for capacity, and an e-commerce–driven economy that just keeps on truckin’. This confluence of events is shining a spotlight on the critical interplay between rail lines and ports, truckers, drayage providers, and warehouse operators, illuminating fundamental challenges and weaknesses that are causing record delays in moving containerized cargo over the rails.
Who’s to blame? You can spread it pretty much equally across all participants in the nation’s overwhelmed supply chains.
Railroads, which cut staffing during the pandemic, have been challenged to rehire crews and bring more mile-long intermodal trains online quickly enough to meet demand. Ports have been dealing with a record number of ship calls, which has overtaxed shoreside capacity and created backlogs at sea and on land. In early September, for example, 44 container vessels were anchored in Southern California’s San Pedro Bay waiting for a berth; once unloaded, containers at the Port of Los Angeles terminals faced peak dwell times of over five days.
Truckers have been overwhelmed as well, as they contend with critical shortages of both drivers and container chassis. And warehouses, already stacked to the rafters with forward-stocked inventory, have been pushing back container deliveries, and in some cases simply parking containers on wheels in their lots, delaying the return and redeployment of the all-important chassis.
Shippers are seeing the port/rail congestion and service delays affect their operations at different points in the supply chain, particularly the “middle mile” segment, where they are moving goods out of ports and then to distribution centers around the country.
That’s exactly what Kitchen Cabinet Distributors (KCD), a Raleigh, North Carolina-based importer of ready-to-assemble cabinetry, has encountered. Although KCD’s struggles to move freight are hardly unique to the company, they are nevertheless leaving its customers frustrated, according to Glen Wegel, vice president of operations and IT. The impact has been significant enough that KCD is rethinking its mode choices. “We are in general avoiding rail when possible due to the deterioration of services across all rail carriers,” he says. Still, he recognizes that while the rail carriers are working through backlogs “as best they can, they’re up against [the same] labor and [Covid-19] struggles as the rest of us.”
The intermodal backlogs largely originate at congested seaports. That’s one reason Wegel completely avoids the Southern California ports; instead, KCD lands most of its import containers at the Port of Virginia complex and makes “pretty heavy” use of the Port of Houston as well. Wegel notes, however, that congestion in Houston, where in late August it was taking upwards of seven days to clear vessels, is starting to feel like the congestion on the West Coast.
KCD also uses the inland port system from Savannah, Georgia, to get boxes to destinations in that state and Tennessee. There’s no relief there, either. “Inland ports are where my freight continues to get held up,” Wegel says, citing delays in some cases of six weeks to get a box on the rail and headed inland. That won’t be a problem in Florida, though. KCD has built a new DC in Orlando that will be served from the ports of Tampa, Jacksonville, and Miami, which between them have containership calls from Asia seven days a week, he notes.
Wegel sums up the situation this way: “Port congestion is costing me a boatload of money. The labor issues, congestion, and lack of trucks and chassis are making it extremely difficult to predict freight arrivals.”
Domestic intermodal is also facing service challenges, but for different reasons. “This is a super-disruptive time,” observes Rob Kemp, president and chief executive officer of Lebanon, Pennsylvania-based DRT Transportation, an asset-light logistics, trucking, brokerage, and transportation management firm that, he says, does “tens of millions of dollars a year” in business with the rails. “Since this precision railroading started, [the railroads] are just not equipped to handle the volumes they are moving.” (Under precision scheduled railroading, or PSR, freight trains operate on fixed schedules, much like passenger trains, instead of being dispatched whenever a sufficient number of loaded cars are available.)
The inconsistencies in the railroads’ service make it hard to make commitments to DRT’s customers, Kemp says. Intermodal’s capacity and service challenges are pushing the company to move more of its customers’ freight over the road, to the point where he’s added more tractors and hired more drivers. “We have always been a road-to-rail conversion company,” he observes. “We are a really big channel partner. We have a large book of business, but when volume spikes and a [rail intermodal] ramp is flooded with 100 loads, [the railroads] will take it and we kind of get lost in the shuffle.” The pricing delta between rail and truck has been painful: “The losses we have incurred in our intermodal and trucking operations due to disruption caused by the railroads is significant,” he says.
Kemp does say that not all Class 1 railroads operate that way, noting that some are “trying to live up to their commitments even in this disruptive environment.” Nevertheless, in this market, it’s a constant battle to meet shippers’ needs. “We move 20 loads a day, and when [the railroads] tell us we can only move five, what do I tell the other customers? They get delayed until I can get it on the train, or I have to move it over the road—if I can find a driver.”
He’s not optimistic about peak season and the outlook for service and capacity. “I think they are working desperately to get ready for the fourth quarter,” Kemp says. “[But] I have not seen anything that makes me [confident] that it will not turn into another disruptive event.”
The Class 1 railroads say they are working hard to keep intermodal traffic moving, but they’re hampered by capacity constraints. “A railroad is a linear network, so we can only move as much into an area as we can move out of it,” commented Jeff Heller, vice president of intermodal and automotive for Norfolk, Virginia-based Norfolk Southern. He says the amount of time a container stays at a terminal has gone up because warehouses are full, and “there is no place for [it] to go.”
That also has increased the time it takes to “turn” a container and its chassis, with the longer cycle time creating additional delay. All of this causes containers to stack up at port terminals and rail yards, contributing to congestion. “The chain has slowed,” Heller says.
He provides another interesting observation: that peak season, which this year never seemed to end, has evolved into three distinct phases. “International—moving import containers—starts in August and runs through November. Domestic starts in September and runs through Thanksgiving. Then the e-commerce–driven parcel peak [for which rails provide the middle-mile service] starts at Thanksgiving and runs through the end of the year,” he explains.
“We're running pretty hard right now," Heller says. “While business will continue to move, the ability of the North American supply chain to handle it is pretty limited to the run rate we’re [at] today.”
Heller describes the challenges of the last year, and likely the remainder of this year, as “a generational event.” “I’ve never seen anything like this,” he says, adding that the Norfolk Southern, as the second-largest intermodal service provider in North America, continues to step up to the plate and “invest in our network to accommodate the throughput and support customer demand.”
Seana Fairchild, assistant vice president, marketing and sales, premium for Omaha, Nebraska-based Union Pacific Railroad (UP), agrees that lack of warehouse space, labor, and drayage capacity have all contributed to increased terminal and street dwell time and delays, particularly in Chicago. She says UP is working closely with stakeholders and has taken several actions to increase fluidity and reduce congestion.
First, in July, the railroad “hit pause on West Coast import traffic for a week,” she reports. “We temporarily reopened our Global III facility in Rochelle, Illinois, to store international containers,” which helped to alleviate port congestion and provided ocean carriers with a more efficient inland storage solution. Second, the railroad added more locomotives and railcar assets, which supported an incremental increase of approximately 150 to 200 containers per day from the Long Beach and Los Angeles marine terminals. And third, the UP marshaled the resources of its Loup Logistics subsidiary to help shippers overcome a scarcity of drayage capacity for final-mile delivery.
Those moves helped drive improvements in Chicago operations, Fairchild says, and “while things are more fluid now, candidly, we expect the entire supply chain to be stressed for the remainder of this year and into 2022.”
Similarly, the Burlington Northern Santa Fe Railway (BNSF) has made operational changes to alleviate congestion. “We recognize that strong demand is still in front of us and have taken several actions to push more volume through our network,” says Tom Williams, group vice president, consumer products. Systemwide, the BNSF has hired more staff and increased lift at all of its facilities by 20%. It has also reopened its Harvard facility in Marion, Arkansas, for intermodal service and has taken two track segments at its Logistics Park Chicago out of service and converted them to a stacked-container area, which, Williams says, helps the BNSF improve its ability to de-ramp trains and immediately stage units.
The strains on the supply chain imposed by Covid-19 and a surging economy have presented a perfect storm of challenges, says Scott Taylor, chairman and chief executive officer of Oakland, California-based GSC Logistics. “The record import volumes have stressed every single mode,” Taylor observes. “We don’t see it ending anytime soon.”
GSC’s core competencies, according to Taylor, are transloading, deconsolidation, and local and regional trucking. The company is also one of the largest providers of local drayage services at the ports of Oakland, Seattle, and Tacoma, making GSC a fundamental link connecting ports, rails, and shippers.
One of Taylor’s biggest concerns is that increased dwell times at warehouses and unusual cargo routings have placed severe stress on the availability of container chassis. In response, GSC over the past year expanded its chassis fleet by nearly 40%, to 1,000 units. Even with that expansion, he says, “we are 95%-plus every day on chassis utilization.”
Like other port-oriented logistics service providers, GSC has seen its mix of truck versus rail loadings shift as a result of the intermodal rail capacity squeeze. “Where it used to be 60% intermodal and 40% truck, it’s flipped,” Taylor observes; now over-the-road truck makes up 60% of moves and intermodal rail accounts for 40%. The top request Taylor is getting from customers: Find me capacity, at almost any price.
As for when the situation might ease, it’s anybody’s guess. As the fall peak season accelerates, supply chain managers remain under the gun, facing tremendous pressure to get goods out of ports, on the rails, and ultimately delivered to retail shelves (and e-commerce fulfillment warehouses) and made available to consumers. Ports again are packed with ships, containers are sitting in congested yards, and warehouses are full. Equipment to move containers from port to rail, and on rail across the country, remains capacity-constrained, with most industry executives expecting no letup until after Chinese New Year in 2022.
“There is such displacement going on in the market right now,” says GSC’s Taylor. Yet for all the turmoil, he still holds out hope that the situation can be resolved. Service providers, working together and understanding how each segment impacts the overall chain, can find workable solutions, he says. “It’s a matter of how you handle these challenges at the grassroots level. It all comes down to communication, integrity, and delivering certainty.”