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June 09, 2014

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SURFACE & DOMESTIC TRANSPORTATION www.joc.com THE JOURNAL OF COMMERCE 53 speeds for the 2,100-mile haul between Los Angeles and Chicago means shipments arrive about five hours later than they did a year ago — not a shipper deal-breaker. In fact, shippers prize reliability over pure speed: Earlier-than-expected deliv- ery forces them to store their goods longer in warehouses, and late deliveries can result in the shutting down of production lines or empty retail shelves. "By itself, slower trains speeds are not an issue, but they are a proxy of congestion and variability of reliability," Gross said. Measuring how reliable intermodal ser- vice is now compared to last fall remains elusive. The railroads don't publicize such data and when they do share, it's with individual shippers. But anecdotes from railroads and intermodal market companies suggest that goods are arriving on schedule about 85 percent of the time, according to John Larkin, a transportation analyst with Baltimore-based Stifel. Many railroads pride themselves with nearly 100 percent on-time reliability. Despite the warmer weather in most of the country, it takes a lot of time for railroads to clear backlogged cargo for a variety of rea- sons. First, railyards are designed to handle a steady flow so that any additional cargo must be parked outside the terminal, Gross said. Parking the train at a railroad siding reduces capacity, labor availability and equipment utilization. Train crews must be transported back to the yard, soaking up personnel that could be used for other operations. A locomotive that returns to the yard requires additional labor. Leaving the locomotive at a siding is an option, but that hurts equipment utilization. These inefficiencies ripple down into container fleet utilization. The impact on the domestic container fleet — estimated at about 225,000 units — has been in the high single digits, Gross said. That's largely the reason growth in North American trailer volume (7.5 percent) outpaced domestic con- tainer volume gains (3.2 percent) in the first quarter, according to IANA statistics. With the intermodal peak season com- ing soon — international in August and the domestic season kicking off in October — Gross doesn't expect the rail industry to return to average pre-winter train speeds until late in the year. The U.S. railroads could get a bit of relief through the diversion of U.S.-bound cargo through Canadian ports to the north, said Ron Sucik, president of RSE Consulting. Fifty-four percent of the shippers surveyed by Wolfe Research said they plan to divert freight to other ports, with 55 percent of them saying they plan to ship through Cana- dian ports. A recent JOC survey was even more dramatic: Two-thirds of the 221 sur- veyed shippers said they planned to divert cargo away from U.S. West Coast ports to avoid potential disruption, with a quarter of them planning to use Canadian gateways. For now, the railroads have enough intermodal capacity, said Curtis Spencer, president of Webster, Texas-based logistics consultant IMS Worldwide. But if U.S. GDP hits 4 percent or more, their networks will become strained, he said. That's not much of short-term risk, considering the Interna- tional Monetary Fund expects U.S. GDP to expand 2.8 percent this year. Still, the surge in cargo has the railroad grappling with the loads — even if they aren't overwhelmed. "It's going to be a struggle unless the economy turns south," Sucik said. "Thank God it hasn't taken off too far north because I think (the railroads) would really be in trouble." JOC Contact Mark Szakonyi at mszakonyi@joc.com and follow him on Twitter:@szakonyi_joc. Source: Association of American Railroads NORTH AMERICAN INTERMODAL VOLUME GROWTH n In the first 21 weeks of 2013 vs. 2014 In millions of intermodal units 6.3 5.5% GROWTH 6.7 2013 2014

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