News Article | 8/6/2010

Trains help companies cut costs, boost profits

The hot logistics trend for the past decade — using trains to transport goods normally hauled by trucks — has moved from buzzword to healthy profits for railroads and other logistics providers.


The ramp-up in using railroads to move goods long distances, known as intermodal rail transport, has been spurred by companies looking to save money by cutting back on trucks to deliver goods and materials.


The amount of national intermodal traffic hit a three-year high in June, although it is only about 1.5 percent of all rail traffic, according to the Intermodal Association of North America.


“Back when the spike in the price of crude oil hit in 2008, shippers ran from trucks to trains. Most haven’t gone back,” said Charles Clowdis Jr., top North American trade and logistics analyst for Global Insight, an international consulting and research firm. “It’s been a good lesson of the recession. We’ve learned to do more with less.”


The amount of savings available to shipping customers depends on many factors, including distance and time restrictions, but using trains to haul cargo most of the way can cut costs 15 percent to 18 percent, said Jesse Martinez, president of Radius Rail Logistics. The Jacksonville-based company, which provides customers rail car space and trucking to and from the trains, has tripled its business in a year and expects $4.5 million in revenue in 2010.


It’s still faster to truck goods and materials the entire route rather than moving most of the distance via rail, but the time difference has become less as railroads, including Jacksonville-based CSX Corp. (NYSE: CSX), have improved their systems.


Six days in a hot lane

“It used to take 10 to 15 days from the East Coast to the West Coast. Now it can take six days in a hot lane,” Martinez said. “Many customers find the savings are worth [having their goods and materials] showing up a few days later.”


CSX’s intermodal business tied to domestic transport steadily increased through the recession as customers tried to save money, and its intermodal business tied to exports and imports swung back up as trade picked up. In the second quarter, CSX’s intermodal business grew 7 percent to $304 million.


Part of that growth has been through its jointly marketed new intermodal service for jumbo-sized containers with Union Pacific Railroad. The service, called UMAX, gives customers a single gateway for the routing of up to 20,000 53-foot containers. CSX’s new Northwest Ohio intermodal terminal’s ability to cut international container transit times up to two days allowed it to snatch a contract from Norfolk Southern Corp. to provide service to Hyundai Merchant Marine, a major international shipping company. The $175 million terminal is part of CSX’s $842 million public-private project to increase rail capacity and improve service to East Coast ports.


Landstar System Inc., also based in Jacksonville, is working to increase its ability to handle intermodal business by encouraging agents to learn the necessary skills and by adding agents already comfortable with intermodal handling. Landstar, which provides transportation options from trucking to air cargo, is trying to make sure that logistics agents who know how to set up intermodal service are available so potential business isn’t lost, said Jim Handoush, the company’s co-chief operating officer.


More business for truckers

The growth of intermodal is also providing more business for truck drivers who haul containers to and from the trains, said Tom Malloy, an intermodal association spokesman.


With concerns over whether there are enough long-haul truck drivers to handle the growing amount of cargo needing to be moved, some customers will consider intermodal as trucking rates rise, said Frank Pendleton, vice president of International Transport Logistics, which arranges transport of cargo ranging from heavy equipment to yachts.


Malloy said the growth of intermodal has also spurred the building of logistics parks, or sites where manufacturing plants, warehouses and intermodal facilities are built near rail lines and major highways. One of the first of these logistics parks was Hillwood Investment Properties’ 17,000-acre center near Fort Worth, known as AllianceTexas.


The Dallas-based developer has a similar project at the 2,800-acre Cecil Commerce Center, which has been rebranded as AllianceFlorida. A rail connection at the north side of the Westside property makes it marketable to manufacturers and distribution centers, T. Preston Herold, the company’s vice president helming the project, said previously.


Intermodal rail transport


What is it? Using trains to haul goods and materials long distances most of the way instead of transporting them all the way by more costly trucks.


Why is it growing? Companies are looking to save on transportation costs, and better supply-chain handling allows them to factor in longer transport times. Railroads have invested and continue to invest in their rail systems to reduce transport times.


How much can a company save? A research firm found that transporting goods within three days from Chicago to Los Angeles using trains most of the way and trucking for the last leg of delivery cost about $2,700 per container. It would cost about $3,350 to truck the goods the same route in about two days.


Is it right for your company? The general rule of thumb is that if you need to deliver goods and materials less than 500 miles, trucking is a better deal. Contact a logistics expert to learn more.


Source: Staff research