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Rail News Home Intermodal

October 2006



Rail News: Intermodal

How Class I railroads are prepping key North American corridors for even more growth



— by Jeff Stagl, managing editor

The fall peak in spring? It certainly seemed that way in the second quarter, when North American intermodal volume totaled 3.58 million trailers and containers, surpassing fourth-quarter 2005's 3.56 million units. For the first time since the Intermodal Association of North America (IANA) began reporting traffic in 1996, second-quarter volume bested units handled in a previous year's fourth quarter.

How about the fall peak in summer? In July, nine major U.S. ports handled 1.38 million 20-foot equivalent units (TEUs), breaking a record of 1.37 million TEUs set in October 2005, according to Global Insight Inc. And in August, North American intermodal volume totaled 1.3 million units, a 6.9 percent increase compared with August 2005, IANA said.

International volume is skyrocketing because Asian shippers continue to import goods at a blistering pace. Domestic traffic is increasing because diesel prices remain, truck drivers still are in short supply and highway congestion persists.

"I don't see anything on the horizon that would slow volume growth," says IANA President and Chief Executive Officer Joni Casey.

But there's one factor that has the potential to do so: rail capacity. Although North American railroads will spend more than $8 billion this year to add infrastructure, they'll need to spend billions more, says Phil Yeager, chairman of intermodal marketing company the Hub Group Inc.

"I think intermodal volume will grow 6 to 8 percent for a while and the railroads will be OK, but I don't want to see a repeat of 1994 when volume grew 14 percent and the industry fell on its nose trying to accommodate it," he says.

North American Class Is are trying hard to remain upright, and not just by constructing double track and ramps. They're implementing technology to improve terminal traffic flow and changing operating practices to load more containers on each train. They're also partnering with government agencies or other roads to share the cost of corridor upgrades.

Nowhere are Class Is' efforts more evident than along key intermodal lanes. They've been devoting much of their attention — and resources — to finding ways to move more loads between Los Angeles and Chicago or Toronto and Calgary. Following are seven examples of how large roads are preparing lanes for today's and tomorrow's volume growth.

BNSF: Taking on the Transcon

The 2,200-mile Transcontinental or Transcon line between L.A. and Chicago handles two-thirds of BNSF Railway Co.'s intermodal traffic. Through mid-September, the lane's volume was up about 10 percent — traffic growth the Class I could handle because the line is almost completely double-tracked. By year's end, only 51 miles of the Transcon will be single-tracked.

Instead of track capacity, BNSF officials are focusing on expanding on-dock facilities at the Transcon's western end and building logistics parks along the lane's eastern end. The Class I continues to expand three on-dock facilities near the ports of L.A. and Long Beach, and develop a near-dock Southern California International Gateway — scheduled to open by 2010 — four miles north of the ports.

But there's only so much land available around L.A. for intermodal development. To meet long-term needs, the city and state of California need to re-think port policies, says BNSF Group Vice President-Consumer Products Steve Branscum.

"There are no plans to develop new ports away from major metropolitan areas," he says.

BNSF execs were thinking long term several years ago when they developed logistics parks on the Transcon in Chicago and Alliance, Texas. Featuring intermodal hubs, freight distribution and warehouse buildings, and motor vehicle distribution centers, the logistic facilities are located near growing industrial parks, says Branscum.

BNSF currently is doubling the size of an existing Memphis, Tenn., terminal to create a logistics park and developing a new park in Gardner, Kan., that might open by 2009.

To free up capacity at existing Transcon terminals, the railroad changed its equipment storage policy last year, reducing free time from two days to one and tripling storage charges.

"It cut our inventory 30 to 40 percent," says Branscum.

BNSF also recently began operating international container trains with only 40-foot freight cars and domestic container trains with 53-foot cars to match standard equipment sizes.

"We can accommodate 20 percent more freight without using more trains," says Branscum.

CN: Higher Degree of Difficulty

Five years ago, Canadian National Railway Co. execs wanted to divert more domestic intermodal traffic from trucks along the 2,200-mile Calgary, Alberta-to-Toronto corridor. But first, the railroad had to reduce its four-day service to three days to compete with truckers.

CN began operating trains seven days a week instead of five, eliminated an intermediate terminal handling in Winnipeg, Manitoba, changed crew scheduling and sped up locomotive fueling to cut transit time by 24 hours.

Since 2001, the Class I's revenue in the corridor has gone up 19.3 percent at a compound annual growth rate (CAGR), traffic has risen 12 percent CAGR and CN's marketshare percentage has shot into the 90s.

"Truckers didn't think we could do it in three days and be reliable," says VP of Intermodal Excellence (IMX) Paul Waite. "Our international business is like a tsunami that keeps coming, but this is a lane where the degree of difficulty is higher."

One hurdle was convincing shippers the railroad could move trains between Toronto and Calgary in 63 hours. Four years ago, CN execs approached a Wal-Mart distribution center in Calgary and convinced the shipper the railroad could provide reliable door-to-door service.

"Now, they move much more freight by rail than truck," says Waite.

To keep traffic flowing, CN schedules freight via reservation to spread traffic over seven days and use up all available capacity, says Waite. The railroad also operates longer trains (10,000 feet vs. 6,000 feet) because CN earlier this year extended 20 sidings between Vancouver, British Columbia, and Winnipeg.

CN has not only scored truck diversions in the lane but steadily boosted profits, says Waite. Creating IMX in 2002 to change CN's intermodal model helped, he adds.

"By using reservations and spreading traffic over seven days, we need fewer cars, crews and locomotives," says Waite. "We also saved $110 million because we didn't need to expand the Toronto terminal, which now has enough capacity for the next 10 years. That's huge."

CPR: Asian Influence

Canadian Pacific Railway moves international and domestic intermodal traffic along its Vancouver-to-Moose Jaw, Saskatchewan corridor. But international volume has skyrocketed in the lane the past three years as Asian imports poured into the Port of Vancouver.

"Growth went from 4 to 5 percent to 25 to 30 percent, and we were caught off guard," says VP of Intermodal John McBoyle. "We had to decide if growth was a one-shot wonder, but we felt it was here to stay and we needed to expand capacity."

Last year, CPR spent $160 million to expand capacity in western Canada. The railroad extended more than 20 sidings and installed double track between Calgary and the port; Moose Jaw and Calgary; and Edmonton, Alberta, and Calgary.

"Now, we have capacity in place to accommodate growth for the next five to 10 years," says McBoyle.

A car program has been a boon to capacity, too. In 2004, CPR launched MaxStax under which the railroad began converting its intermodal fleet to high-capacity, double-stack cars to increase productivity by 16 percent.

"We can manage the number of cars on a train and use more double-stack cars," says McBoyle.

The Class I's productivity will get another boost in the fourth quarter when CPR takes delivery of 80 new locomotives, many of which will be used for intermodal service, says McBoyle.

For now, the railroad is rolling out a redesigned intermodal operating system to improve pricing/billing and shipment tracking functions.

With updated information technology systems and expanded capacity, CPR expects to be better positioned to handle international traffic, which likely won't be slowing any time soon.

"We've heard from customers who have aggressive plans to increase the percentage of goods coming from Asia," says McBoyle.

CSXI: Top of the 'Triangle'

Running 800 miles between Chicago and Albany, N.Y., the top leg of CSX Intermodal's "Iron Triangle" is all double-tracked, and features two terminals in the Windy City and three in the bustling New York/New Jersey market.

So, capacity isn't a concern for now. Finding ways to speed growing international and domestic traffic along the lane — as well as the triangle's Chicago-to-South Florida and Albany-to-South Florida legs — is.

"Over-the-road operators come to us to move their freight on the lane because of [truck industry] problems," says CSXI Assistant VP-Terminal and Network Operations Bill Clement.

To meet demand, CSXI is trying to make its container-on-flat-car (COFC) fleet more compatible with today's container-dominated traffic mix.

"Our mix is 86 percent COFC, but we have 72 percent of our COFC cars available," says Clement. "We're trying to put more TOFC cars in storage."

CSXI also is implementing wireless radio frequency (RF) systems at its Chicago and Kearny, N.J., terminals to manage inventory. The RF systems are installed on lift and other equipment to input container and trailer locations in real time.

"When a train came to a ramp, we used to take inventory and input all the data manually," says Clement. "Now, a worker can find a box in four minutes instead of 15 minutes."

Next year, CSXI plans to begin testing an optical character recognition system at terminal gates to determine if the technology speeds up the truck entry/depart process.

The company also will finish rolling out a chassis pool program, which CSXI created last year to accommodate all international containers. Chassis previously arrived at terminals in various sizes, making it difficult for workers to match chassis to containers and maintain equipment variety.

KCS: An International Appeal

As owner of the former TFM S.A. de C.V. the past 18 months, Kansas City Southern has spent part of that time trying to establish an international intermodal corridor between Lazaro Cardenas, Mexico, and Jackson, Miss.

With Kansas City Southern de México S.A. de C.V. (KCSM) south of the U.S. border, the Kansas City Southern Railway Co. (KCSR) north of it and a speedy border-crossing process in between, KCS officials believe the corridor can serve a number of major consumer markets.

"There isn't just freight going all the way from Lazaro Cardenas to Atlanta, there's freight going from A to B, and B to C, and C to D, and there are key markets along the way," says Ted Prince, who joined KCS last month as VP of sales and marketing-intermodal and international business unit. "We have the shortest route from Lazaro Cardenas to the U.S., good transit times, and efficiencies between KCSM and KCSR. And we're adding capacity in Mexico and the U.S."

KCS currently is analyzing potential sites in Mexico for up to three terminals.

"We're talking to customers to understand where their business is going and the drayage impacts," says Prince.

One thing KCS execs are stressing to customers: a U.S./Mexico border crossing at Laredo, Texas, isn't slow and problematic.

"We have daily service across the border and our own customs broker," says Prince. "By the end of the year, we're going to post our customs clearance and transit times on the Web so customers can see our performance."

KCS officials expect KCSR's southeastern transit times to get a boost from the Meridian Speedway L.L.C. joint venture forged earlier this year with NS. KCS contributed the 320-mile Meridian, Miss.-to-Shreveport, La., line to the joint venture and NS agreed to spend $300 million during the next four years on capital improvements, such as building double track and installing Centralized Traffic Control systems.

NS: Into the Heartland

Last month, Norfolk Southern Corp. and the states of Ohio, West Virginia and Virginia entered into an agreement with the Federal Highway Administration to release $95 million in federal funding for the Heartland Corridor. Now, the public-private partners can begin creating a 670-mile double-stack container route between Columbus, Ohio, and Hampton Roads, Va., as soon as second-quarter 2007.

To be completed by 2009's end, the corridor will be 300 miles shorter than an existing Columbus-to-Norfolk, Va., intermodal route, enabling NS to shave one day off transit times while operating double-stack trains.

"The Port of Norfolk's growth has been erupting the past decade," says NS VP of Automotive and Intermodal Marketing Mike McClellan. "The Heartland route will help us move that freight inland to Chicago, Cleveland, Detroit, Cincinnati and Columbus."

Proposed for decades but delayed until funding agreements were reached, the $251 million Heartland Corridor project calls for reconstructing and re-boring 28 tunnels to raise clearances, removing overhead obstructions, such as electrical wires, and upgrading bridges ($150 million); and building intermodal terminals in Columbus (the Rickenbacker hub), Roanoke, Va., and Prichard, W.Va. ($101 million).

The states of Ohio and Virginia are providing $30.4 million and $22.3 million, respectively, for the project. West Virginia's and NS' contributions hadn't been determined as of press time.

"This is a once-a-decade project that has broad-based support," says McClellan. "We could not do the project without a public-private partnership."

After construction is complete, NS plans to operate six trains daily along the corridor instead of four.

"But the idea is to get more productivity out of the trains you have and not have more train starts," says McClellan. "It's more about balancing capacity, taking traffic from busy lines to a part of the railroad that can better accommodate the business."

UP: Hedging Bet on Sunset

During 2006's first half, intermodal traffic on Union Pacific Railroad's 760-mile Sunset Route was up about 15 percent compared with first-half 2005.

Good thing UP continues to spend hundreds of millions of dollars to double-track the L.A.-to-El Paso, Texas, lane. By year's end, half the Sunset Route will be double-tracked.

After building 52 miles of double track in New Mexico in 2006, the railroad will construct at least 70 miles along the Sunset next year because UP's 2007 capital spending budget will increase 15 percent, says Vice President and General Manager of Intermodal John Kaiser.

But double track alone won't meet the Sunset's capacity needs.

"If you have nowhere to pick up or unload freight, the additional track isn't as good as hoped," says Kaiser.

To that end, UP is building and expanding terminals along the route, as well as three lines that feed off the Sunset from El Paso to Chicago; Dallas and Memphis; and San Antonio, Houston and New Orleans. The railroad expanded L.A. and Memphis terminals the past few years, opened a new Dallas facility last year and plans to complete a new San Antonio terminal in 2007.

UP also is making better use of the Sunset's existing capacity, says Kaiser. Last year, the railroad introduced an online gate reservation system on the West Coast to help control traffic flow at high-demand ramps and fill trains on lower-volume days, such as Sundays and Mondays.

In addition, UP is using Global Positioning System-equipped cranes at several terminals so workers can quickly locate containers in bad weather; installing fingerprint recognition systems at various locations to enable truck drivers to complete the gate entrance/departure process in about 40 seconds instead of four minutes; and operating point-to-point intermodal trains, such as from L.A. to San Antonio.

"Before, we were like an airline, making stops along the way, which added time," says Kaiser.



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