The Port Community
Southwest Intermodal: Can intermodal incentives show the way?

By Bill DiBenedetto

Incentives are part of a port strategy to get intermodal shipments back on track, or at least to hang on to their share of the intermodal market.

The advent of super-slow steaming and its inevitable impact on cargo arrivals and shipper inventory replenishment schedules makes fast intermodal services from the West Coast to inland destinations more important than ever.

In January, BNSF Railway implemented service improvements that cut scheduled trip times for 60 percent of its premium domestic intermodal traffic, a move it said would save shippers up to half a day on their long hauls.

As carriers continue to raise rates aggressively, a crucial ploy for ports in Southern California, Tacoma and elsewhere is to lure more intermodal business through rate incentives.

Are incentives working? That’s difficult to pinpoint; it’s probably safe to say they aren’t hurting. But incentives probably won’t contribute very much to significant volume growth, which is what ports desperately need after a 22 percent slide in imports since 2006. For that to happen, a sustained economic surge needs to occur, and there are mixed reviews on that point. Some expect a slow recovery, but a report from the National Retail Federation in early February predicted that imports might be much better than expected during the first half of this year at Los Angeles and Long Beach. The NRF said imports could jump as much 28 percent over the 2009 half-year results at the two ports, when imports crashed up and down the coast.

“The purpose behind these incentives is to at least improve if not retain cargo,” said John Doherty, chief executive of the Alameda Corridor Transportation Authority.

“We have not seen an appreciable increase in intermodal traffic,” he said, “but on the other hand, it’s hard to say how worse-off things might be without the incentives.”

In February, Long Beach harbor commissioners approved an extension of an intermodal incentive program. The program’s wharfage fee discount of 10 percent to terminal operators was set to expire on April 30, but was extended until Dec. 31.
“The aim of this action is enable the port to maintain its share of the greatly reduced volume of international trade by helping terminal operators to maintain a competitive cost structure to sustain current business levels,” said Donald B. Snyder, the port’s director of trade relations in a memo on the incentive program extension.

The stakes are particularly crucial for Long Beach because about one-half of its cargo is intermodal, moving by rail to inland destinations or from inland origins outside of California. This is known as discretionary cargo because carriers and shippers can choose between various entry points, so competition is great.

“Reduced market share translates into reduced revenue for the port and its tenants,” Snyder said, adding that the extra eight months for the program translates into about $5.8 million in intermodal incentives to attract market share.

The stakes are also high for ACTA. Doherty said ACTA’s recent one-level bond downgrade was due to low port volumes, but increased volumes depend more on economic growth than incentive programs.

“It’s possible that incentives could bring back a point or two of market share to West Coast ports,” Doherty said. But ultimately the decision on intermodal or all-water services using slow steaming is a decision the shipper makes.

“They have to look at the increased inventory costs of slow steaming and weigh that against the cost of transportation,” he said. A lot also depends on what is in the box, he added. “I’m sure we’ll see more and more of these incentives,” Doherty said. But the “bigger issue is the economic recovery.”

In that atmosphere, incentives play a fairly small role.

In This Issue

Up Front

News, Trends & Analysis
News

Trade Tools: Missing money

Capitol Watch: Focus on job creation

Supply Chain
Chris Steele: Why you might be buying industrial real estate soon

Compliance Corner: Use the Web for denied party lists

Tech Trends: From open source to terminal visibility

Product Review: Trucking drayage and chassis management software

Gateway Glance
New England

Southern California

Cover Story
Spaced Out: Shippers face shortages of vessel space and containers –
along with rising rates

The Port Community
Bumpy Ride: Rebuilding PNW containerized exports

Southwest Intermodal: Can intermodal incentives show the way?

The Shipping Environment
Engaging in the community, slow steaming, and new green products

Oceans are making waves

Commentary
David Bennett: Real signs of trouble

Casualties
The Big Texas spill leads off this month’s rundown

Final Say
Top 25 TIGER projects