C. F. Lynch & Associates

Is Intermodal Too Darn Hot?

By Clifford F. Lynch

DC Velocity, September 2006

Visionary though he was, Malcom McLean probably had no idea what he had started on the April day 50 years ago when he loaded 58 highway trailers onto a modified World War II tanker for a six-day voyage from Newark to Houston. And no inkling that he had ushered in the era of containerized shipping. But thatís what he did, say Arthur Donovan and Joseph Bonney in their new book, The Box That Changed the World. Those trailers, which had been reinforced and had their wheels and undercarriages removed for the trip, represented the first major ocean container shipment. And although McLean made no claim to having invented the ocean container, what he did with that historic voyage was demonstrate the economic advantages of containerized shipping, and in the process, revolutionized global trade.

Today, over 70 percent of general ocean cargo is shipped in containers, and about 11,000,000 containers, representing $1.5 billion in goods, enter the United States each year. That number is projected to increase to 13,000,000 by next year, according to Rosalyn Wilson, author of the annual State of Logistics Report.

That has some observers worried. As the wave of incoming containers turns tidal, the question becomes whether the nationís transportation system can handle the flood. And despite their well-publicized congestion woes, itís not just he ports that are in danger of being overwhelmed. That surging tide of imports threatens to swamp intermodal handling facilities and the railroads as well.

Right now, virtually all of the containers that arrive at U.S. ports are hoisted onto trains for inland movement via intermodal service. And as the volume of incoming containers has risen in the past few years, so has the volume of intermodal traffic handled by the railroads. According to the Association of American Railroads, intermodal shipments reached record-high volumes in 2005, when an unprecedented 11.7 million intermodal units moved over the U.S. railroads. That trend, it adds, has continued into 2006.

But containerized imports arenít solely responsible for that growth in intermodal volume. Strange as it may sound, truckers have contributed as well. Unrelenting cost pressures in recent years have driven many truckload carriers to intermodal. Both J.B. Hunt and Schneider, for example, are investing heavily in intermodal equipment. J.B. Hunt today owns 25,000 containers, compared to 26,000 trailers.

As they scramble to cope with the growing traffic, railroads are increasingly taking advantage of the so-called inland ports. When containers arrive at the seaports, the rails load the containers onto flatcars as quickly as they can and whisk them directly to these inland ports. Cities like Memphis, Dallas, Kansas City and Chicago all boast intermodal yards where trains can be broken down, and in some cases, freight can be cleared by Customs.

Theyíre investing in these inland networks too. In June, for example, the Kansas City Southern Railway (KCS), along with its Kansas City Southern de Mexico subsidiary, launched daily service from the West Coast port of Lazaro Cardenas, Mexico, to Jackson, Miss., and points beyond. The Kansas City Southern also says it plans to develop an intermodal terminal at the Port of Lazaro Cardenas.

Though desperately needed, this new capacity is not a long-term solution. Much more is needed. And itís by no means clear that the rails can do it on their own. Although the nationís railroads continue to invest in new track, new equipment and infrastructure improvements (they will spend $8 billion for capital improvements this year alone), most industry watchers doubt this will be enough to keep up with demand.

The question, it seems, is no longer whether intermodal is here to stay. The question is, are we ready for it?



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