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April 2 2018

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14 The Journal of Commerce | April 2 2018 Land Lines Lawrence J. Gross NORTH AMERICAN INTERMODAL has gotten off to a rough start this year. January and February normally mark the slowest period of the year, but business has remained brisk and meeting demand has proved difficult. The intermodal industry is racing to clean up the situation even as more severe challenges loom. The outcome for the intermodal sector for the rest of the year is by no means certain. The intermodal model is com- plex, requiring a coordinated ballet in which various inputs — including rail line capacity, railcar supply, terminal capacity, chassis supply, container supply, and drayage capac- ity — all need to be in balance. A shortage in any one of these inputs can ripple out quickly, slowing sys- tem velocity and causing shortages to appear elsewhere. Such was the case in early March. The immediate culprit has been drayage capacity. Long the neglected stepchild of intermodal, the dray carrier is emerging as the critical link in an intermodal network in which each move invariably involves a truck. One of the unknowns heading into the electronic logging device (ELD) mandate, which took effect in mid-December, was the effect the requirement would have on the drayage sector. With three months under our belts, it appears the impact has been significant, at the upper end of our range of expectation. The biggest issue has been in the long-haul dray segment, which requires ELD-equipped trucks and in which drivers are most vulnerable to terminal and other delays simply because they have a smaller time cushion. The results include sharply higher rates, but that's only half the story. The more significant issue is the resulting lack of dray capacity being felt most acutely in the Mid- west, where length of haul tends to be longer. Now, the interconnected nature of the intermodal system has become obvious, and not in a good way. Lack of dray capacity has caused containers to stack up in the intermodal ramps awaiting highway movement. The passage of con- tainer returns to the ramp also has been impaired, slowing equipment velocity. Chassis supply, which had been adequate, suddenly became tight because too many chassis were trapped on the street awaiting movement back to the terminal. As inbound rail flow into the terminal continued, the number of grounded boxes mounted, until there was sim- ply no more room, at which point an embargo of a few days was required to reset the stage and gain some breathing room. But these embargoes them- selves entail ripple effects. As of this writing, the most recent was the closure to inbound containers off the street of CSX Transportation's 59th Street Chicago terminal for several days. Hopefully, this will allow CSX to clear out volume onto outbound trains and free up some terminal capacity. But highway movement of con- tainers out of the ramp will be impaired because dray carriers will be reluctant to incur the extra cost of a bobtail move into the ramp to pick up a load for delivery. In addition, there is the question of what will happen to the flow of rub- ber-tire crosstown moves that nor- mally arrive at the CSX ramp each day from the Union Pacific Railroad and BNSF Railway ramps cross-town. With nowhere to go, these units will stack up in the western rails' terminals as the inbound trains from the west continue to arrive, causing congestion at those facilities. The effect of these dislocations has been apparent. Just about every Class I railroad has had to put a temporary embargo on at least one of their Chicago terminals in recent weeks. Marine chassis supply has become so short that the intermodal equipment providers were forced to relocate additional chassis supply from other locations into Chicago at considerable expense. Time is short to get things under control. In a normal year, volume begins to ramp up significantly from February to March to April. Add to this the beginning of full enforce- ment of the ELD mandate beginning April 1. Over-the-road and drayage capacity will only tighten further. Can we expect rolling embargoes of intermodal terminals much like the rolling blackouts that occur when the electrical power supply can't meet demand? It's a poor time for a carrier to have to negotiate a long-term contract, but that's exactly the place ocean carriers find themselves with regard to their store-door deliveries. They are between a rock and a hard place because their inland costs are skyrocketing. Many undoubtedly would prefer to wash their hands of the situation and offload the prob- lem onto the beneficial cargo owner (BCO). But with the self-inflicted problem of too much mega-ship capacity, the steamship lines aren't in a position to take a hard line with large BCOs. These big customers will likely insist that now isn't the time to make a change in the longstand- ing store-door arrangements. In short, it looks as if it's going to be a turbulent year, and things are likely to get worse before they get better. JOC Lawrence J. Gross is president of Gross Transportation Consulting of Durango, Colorado, and author of the monthly analytical newsletter Intermodal in Depth at www. Contact him at and follow him on Twitter: @intermodalist. Intermodal winter of discontent It's a poor time for a carrier to have to negotiate a long-term contract.

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