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Rail News Home Shippers

May 2014



Rail News: Shippers

United Parcel Service handles a lot of freight at its large Louisville air hub — and more cargo is on the horizon



— by Jeff Stagl, Managing Editor

Just after 1 a.m. on March 25, jumbo cargo planes were landing at United Parcel Service's (UPS) massive Worldport complex next to Louisville International Airport at a rate of one per minute.

The jets taxied to an assigned spot on the tarmac or to one of 70 aircraft docks at the northern Kentucky air hub's small-package sorting facility. UPS crews then spent 20 minutes unloading the 15 to 30 containers of parcels and letters each plane brought to Worldport from one of 220-plus countries served by the hub.

Next, workers quickly rolled the containers into the sorting center using a system of more than 1.2 million casters and ball transfer units installed throughout the 5.2 million-square-foot facility, which is large enough to house 90 football fields.

Once removed from a container, most packages needed about 13 minutes to navigate through part of a 155-mile network that includes 33,500 conveyors, hundreds of tunnels and dozens of other pieces of equipment designed to quickly sort and consolidate the letters and small parcels based on their final destination.

Overall, about 1 million packages were sorted by 3 a.m., at which time most jets were reloaded with containers and began heading to numerous destinations, including points in Alaska, China and Germany.

Each day at Worldport, UPS relies on a dizzying symphony of automated wizardry stretching as far as the eye can see, sophisticated information technology systems and coordination among thousands of workers to sort 416,000 packages per hour. A busy, crucial nighttime sort typically is wrapped up in about four hours.

The bulk of UPS' package volume is collected during the day and sorted in the evening at smaller hubs worldwide, then air-freighted to arrive in Louisville around midnight. So, a flurry of activity is common at the hub in the wee hours.

National Geographic referred to the 7.2-mile-perimeter Worldport as "a one-of-a-kind technological wonder and the most efficient delivery system on the planet," primarily because the hub processes more than 2,000 packages every 17 seconds. The world's largest fully automated package-handling facility — which has more than doubled in size since 1999 — sorts an average of 1.6 million parcels and processes more than 130 jets daily.

In addition to the sorting hub, UPS operates a global operations center, operations planning and control center, freight facility and logistics facilities in Louisville, where the company is one of the largest employers, with an employment roll exceeding 20,000.

The 653,000-square-foot freight facility handles such cargo as manufacturing and health care products — and, at times, locomotives, race cars, movie sets and other unusual items. Operated by UPS Supply Chain Solutions, the adjacent logistics facilities handle and distribute health-care, high-tech, retail and other products, including pharmaceuticals, cell phones and laptop computers that are repaired on site and sent back to consumers.

The Rail Connection

Although the majority of the cargo handled at the freight facility and most parcels processed at Worldport are transported by air, and many of the products distributed at the logistics complex are trucked, rail plays a role in UPS' transportation strategy in Louisville. And since railroads' largest customer expects to continue increasing the volume of freight handled at the huge hub, that role could expand over time.

A CSX Intermodal Terminals Inc. facility near Worldport currently moves three containers of UPS' small packages each Thursday and five containers each Friday to Jacksonville, Fla., via intermodal train. The rail volume usually doubles during the peak season from September through December, though it can vary occasionally.

In the near and long terms, UPS' large presence and extensive operations in Louisville has the potential to generate more domestic cargo for CSX, says Dennis Reiner, senior account manager-UPS, who manages the Class I's UPS account.

"UPS has laid the foundation with the freight hub, which has attracted more companies to locate in Louisville," he says. "It brings with it more domestic freight opportunities for [us]."

In addition, if the railroad can demonstrate the consistent service UPS needs in other lanes, CSX might be able to transport more of the shipper's small packages to other destinations, says Reiner.

"It could be expedited premium freight to the Northeast or to Chicago," he says.

The Louisville terminal, which opened in early 2012, already has been expanded twice because of burgeoning business — primary lifts are on pace this year to increase 30 percent from 2013's 62,000-plus lifts, says Danielle White, the terminal's manager.

"UPS is one of our top priority customers in Louisville. We only get to handle [their freight] twice a week, but we ensure that we're flawless in execution, as we value their business greatly," says White.

Eye On Expansion

A second terminal expansion — completed in November 2013 — increased capacity by 60 percent, enabling crews to stack 495 containers (three by three) instead of the previous 306 maximum.

CSX also added 3,200 feet of processing track so workers can process loaded trains stretching 8,000 feet versus the prior 4,700-foot limit. In addition, a north chassis lot was built to store wheels and stack empty containers.

Since the terminal consistently operates at about 90 percent to 100 percent of capacity — and sometimes exceeds available space — an additional expansion is needed, says White.

"We are in the initial brainstorming phases of looking at the next option to continue growing and expanding the terminal," she says.

Due to the size and scope of businesses operating in Louisville and nearby Elizabethtown, and the number of customers UPS serves in the area, CSX's ongoing terminal expansion opens many potential new windows and transportation solutions, says Ken Buenker, UPS' vice president of corporate transportation services.

"We are continually looking at network opportunities, so when any of the rail providers expands their service lanes, it's part of our planning and analysis cycle to review new schedules and lanes that we may not have had access to prior to a [terminal] expansion," he says.

However, UPS isn't planning many other conversions to rail in Louisville or other cities until the rail networks are more fluid, says Buenker.

Rail congestion caused by severe winter weather and burgeoning crude-oil traffic has frustrated many rail shippers of late, including a number of grain shippers.

For UPS, it's all about being a "solutions company" that delivers value and offers "smart" transportation options for customers, says Buenker.

But the benefits of a mode shift in a mixed-modal approach many times can be wiped out after one week if a carrier performs poorly, he says.

"A split between modes protects required minimum stock levels, but takes advantage of the benefits of rail service," says Buenker. "I think there are a few new territories that are opportunities for the railroads, yet there is some exposure, as well."

As customers seek to manage transportation costs, they expect the same performance level from a mode they shifted to as was provided by the mode they shifted away from, he says.

And more often than not, transit speed is not necessarily the issue, Buenker adds.

"The reliability of the service is what many people build their inventory-flow patterns around, and if there is a high level of performance to availability commitments, that creates more opportunity," he says.

Heavy Freight Flows

As UPS Supply Chain Solutions aims to attract more business to the logistics facilities near Worldport, CSX may have an opportunity to tap into some of it, says CSX's Reiner. A variety of freight could be moved inbound by rail to Louisville.

For the past several years, UPS Supply Chain Solutions has continued to capture air-freight, small package and less-than-truckload cargo that can be managed and distributed from its logistics facilities.

In mid-2013, the company opened its 10th logistics facility in Louisville, where a UPS Supply Chain Solutions complex first was established in 1996. Totaling more than 3.5 million square feet, the Louisville complex is the company's largest cluster of logistics facilities.

Among the hundreds of logistics services UPS provides at the facilities: storing artificially engineered human skin in subzero freezers and shipping it out for surgical procedures; storing and distributing insulin pumps, which requires a staff of on-site pharmacists; storing and distributing flu vaccines; storing and programming cell phones for Sprint, and then shipping them and a host of phone accessories to individuals or retail outlets; performing light assembly of cameras; and storing and distributing auto parts for multiple luxury brands.

The Sprint business takes up 350,000 square feet of an 830,000-square-foot multi-tenant building not far from the Louisville airport. UPS Supply Chain Solutions began the forward distribution business for the cell-phone service provider in 2007.

UPS Supply Chain Solutions' campuses traditionally are located close to UPS hubs, says Buenker.

Other logistics facilities are located in such cities as Baltimore, Chicago (Bensenville, Bridgeview and Elk Grove Village, Ill.), Dallas, Denver, Houston, Indianapolis, Memphis, Miami, Milwaukee (Oak Creek, Wis.), Los Angeles (Ontario, Calif.), Orlando, Philadelphia, San Diego and Seattle.

A Win-Win-Win

When customers seek to tap UPS Supply Chain Solutions' services and UPS' network relationships to gain sustainability benefits or generate an economic return, they many times also desire transportation reliability that's comparable with their current mode of choice, says Buenker. There are many "win-win-win solutions" for UPS, its customers and carriers that lead to lower costs, improved service and better-utilization results, he says.

"While many of our customers engage in their own transportation solutions directly with carriers, the benefit of any expansion in a market that is part of our hub network creates logistics clusters that draw those efficiencies for many transportation modes," says Buenker.

And rail is often a mode in play due to its efficiencies — benefits that could send more UPS-generated freight in rail's direction if the shipper's reliability needs are met.

Generally, UPS relies on rail to meet its service commitments when there is a "very high likelihood" that rail transit times meet stringent performance requirements, says Buenker.

"We are always looking at network efficiencies and are often involved in conversation with the railroads on expansion plans, as well as educating customers on some of [rail's] potential," he says.



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