Features

Intermodal Rail on the Move:
What to Expect from Intermodal Rail in 2009 and Beyond

Intermodal business for the nation’s railroads is down and not expected to rebound until the economic picture brightens for the United States and its trade partners.
That’s the chief challenge facing carriers for the near term, says Tom White, a spokesman for the Association of American Railroads (AAR), based in Washington.

Staggers Act Poses Big Threat
For the longer term, the railroads face a continual fight to retain the deregulatory environment ushered in by the 1980 Staggers Act, White adds.

“The biggest threat [on the legislative/regulatory front] is attempts by some shippers to impose some new regulations,” White says. While the Staggers Act has remained intact, opponents have been trying for 25 years to overturn it, “so, of course, they will try again,” with a new Congress convening this year.

Those opponents — primarily chemical, utility, and grain companies whose goods move in conventional rail cars — “think that under a regulated system, they would pay lower rates,” he says. “They say that the people who should pay more are the intermodal shippers — mostly trucking companies, third-party logistics providers, and steamship lines.”

With inflation taken into account, rail rates have actually come down, he says, while revenues have risen to the point of paying for railroads’ capital costs.

Future Expansions
Also on the railroads’ legislative agenda, is getting Washington to approve a tax incentive for equipment fleet expansions. “When the economy picks up, [capacity] is going to become a problem,” he says, adding that rail cargo traffic is expected to double over the next 25 years.

White and officials with the major railroads said the economic downturn has temporarily reduced pressure on capital investment needs, but the carriers aren’t delaying fleet expansions or facility improvements.

Burlington Northern Santa Fe (BNSF) Railway has completed all but 40 miles of a double-tracking project between Los Angeles and Chicago, and they recently finished triple-tracking its line over Cajon Pass, in southern California, White says. Union Pacific Railroad is double-tracking its route between Los Angeles and El Paso.

The rail carriers have jointly invested in an equipment testing facility at Pueblo, Colo., he says. “They test for safety, efficiency, aerodynamics, wear and tear of various alloys — all sorts of things.”

“With the economy and how it impacts the freight market, there’s little challenge on the infrastructure right now,” says Steve Branscum, vice president of intermodal at BNSF. He adds, “With growth in mind, we’re on a pretty aggressive program to build up our infrastructure — our core routes, our facilities for equipment interchange, and our rail cars and locomotives. The big challenge on infrastructure is keeping shippers and the whole transportation industry focused on long-term needs. We’re just going through a business downturn … but the economy will rebound, and business will pick up, which will bring stress on the infrastructure.”

BNSF, he says, “is slowing but not eliminating infrastructure investment.”

Domestic Volumes Rising
The drop in intermodal volume has been on the international side; domestic volumes have reportedly continued rising.

According to Gary Sease, CSX Corp. spokesman, slowed consumer purchasing in the United States caused retailers to pare their import volumes. “The international part was impacted by the slowdown in the global economy.”

Through November, the total year-to-date volume was 2.5 percent less than that for the comparable period in 2007, says Thomas J. Malloy, a vice president of the Intermodal Association of North America (IANA).

“Volume from the steamship lines was down anywhere from 5 to 15 percent, depending on the individual line and the trade lane, which is why we’ve been seeing more vessel consolidation and reductions in port calls,” Malloy says. “Domestic volumes were the bright spot; they were up 3.4 percent from 2007.”

“Despite the crummy economy, domestic (intermodal) business is still growing, because our product is still very competitive, service-wise,” says Jim Bolander, assistant vice president of intermodal marketing at Norfolk Southern Railroad.

Bolander, Branscum, and Malloy all pointed to last summer’s sharp rise in fuel costs as a major contributor to the increase in domestic intermodal traffic.

White says that while total intermodal volume dipped in both 2007 and 2008, the latter year was the industry’s third-busiest ever.