Trading Trailers for Containers

Don Schneider has put more trucks on the road than just about anyone. Now he’s looking for opportunities to take them off.

The president of Schneider National of Green Bay, Wisc., says intermodal business at his truckload and logistics company will jump 20% this year, and that the fleet plans to expand its intermodal container pool from 750 to 2000 units.

“I see many more opportunities to take trucks off the road,” Schneider said during a keynote speech at the International Intermodal Expo in Atlanta last month. He added that long-haul truckers and logistics companies would be “crazy” not to be looking to do the same. Be “mode-neutral” when it comes to moving freight, he advised; offering both truck and rail service gives customers greater flexibility.

To be sure, intermodalism is on the upswing. Transport Canada, which monitors intermodal volumes over one-week increments and then draws year-to-year comparisons, said traffic tonnage increased by 7.2% in March compared to the same seven-day period last year. Year to date, the increase is 11%. And healthy intermodal volumes are important to the railroads: total rail traffic (carloadings of freight and intermodal traffic) was actually down 5.3% compared to the same period last year, and the year-to-date drop stands as 6.0%.

Service options are increasing, too. Canadian National and Canadian Pacific have forged operational and switching agreements that will allow intermodal hauls from Canada to Mexico (indeed, CN’s pending merger with Illinois Central will create the fifth largest rail network in North America). Both railroads see themselves as North American carriers-rightly so-and promise further steps to increase their scope and scale to become competitive with American railroads. But for all the enthusiasm about truck/rail transportation being on the fast track, several unresolved issues continue to cause red flags at the switching yard.

The first is capacity. The transfer of highway trailers and marine containers to and from railroads has been moving faster than a runaway train. More than eight million trailers and containers now move by rail in North America, a one-third increase since 1990 and almost three times the volume of 1980. Each trailer must reach or leave the rail yard by highway.

Existing intermodal connectors are struggling to keep up, and it’s not getting any easier. CSX and Norfolk Southern say their split of Conrail next month will bring roughly one million more trailers and containers to their tracks over the next three years. And most of it will centre around the Northeastern U.S., where there’s little land available to expand highways and terminals.

Growth has kept intermodal equipment manufacturers like HPA Monon, Mond, Manac, Great Dane, Stoughton, and Wabash awfully busy, but the intermodal fleet needs to be expanded on a rationalized basis in order to avoid inefficiencies and overcapacity. “If everybody builds their church for Easter Sunday,” says one equipment leasing executive, “then you’re going to have too many seats.”

That requires attention to a second, more difficult issue to resolve: equipment ownership and management.

Intermodal trailers have traditionally been available through the rail system via pooling arrangements similar to those used for railcars. The railroad using a specific trailer is responsible for that trailer until the shipment is unloaded and the trailer brought back to the rail yard and plunked back into the equipment pool. Railroads or independent companies such as leasing companies that actually own the equipment are paid a fee for its use.

The problem is that the pool system exacerbates existing natural lane imbalances. Railroads have historically priced their service with no incentive for two-way moves, relying on the piggy-back pools to provide equipment where needed. The end result is a system that has more equipment than it needs. Though most are used in dedicated loop services rather than floating for railroad to railroad, the domestic container population is getting large enough for the same kind of free-flowing pool.

But with the railroads pouring capital into new intermodal terminals and well cars designed to handle domestic containers, most no longer want to be a source of equipment. Some have turned to traditional sellers of intermodal services, independent intermodal marketing companies (IMCs), suggesting they buy the boxes and take responsibility for availability. Leasing and rental companies have become major players, as well.

Some truck fleets have bought and managed their own-Canadian Tire operates the largest private fleet of domestic containers in Canada. But smaller companies may not have the expertise, scope, and capital to own and manage intermodal equipment.

That creates another concern the rail and trucking industries-and now government-need to address: who is responsible for the roadworthiness of the containers, chassis, and trailers used in intermodal service. The issue has been on the back burner for years, but last month, the U.S. Federal Highway Administration decided to press forward with a request for comments on a proposal that would make the equipment provider assure that the chassis and load meet safety and weight requirements for on-highway travel.

The draft rule would change the Uniform Intermodal Interchange and Facilities Access Agreement, a binding compact signed by thousands of companies involved in intermodal transportation. New language being proposed would strengthen U.S. inspection standards and hold providers of intermodal containers, chassis, and trailers liable for equipment break-downs.

Intermodal carriers also are lobbying to add a clause that would require compensation from providers for losses due to defective equipment. That would include the cost of on-road repairs, out-of-service penalties, and delays due to breakdowns.

Of course, if all that equipment spends its time sitting in congested terminals and on clogged highways, the issue of who’s responsible for upkeep may get shifted to the back burner in a hurry.