intermodal notes

Intermodal Transportation and the North Texas Region Center for Logistics Education and Research University of North Texas

This whitepaper was made possible through a scholarship grant provided by the

Intermodal Association of North America

Authors: Terrance L. Pohlen, PhD, CTL Director, Center for Logistics Education and Research Student research assistants providing research and co-authoring this whitepaper: Curtis Pogue Regina Suwuh Jesse Dolan Mary Catherine Schoals Laura Catalina Quinones Rios

Intermodal Transportation and the North Texas Region

Intermodal transportation plays a key role in the economic development of the North Texas region and for the many companies distributing goods throughout North America. The ability to combine ocean, rail, and motor transportation has enabled the North Texas region to become a major logistics hub with the ability to efficiently and quickly source, transport, perform value-added services, and re-distribute goods throughout North America and the rest of the world. The ability to move goods inland quickly and efficiently from the West coast ports has allowed North Texas to become the single largest port not located on a border or a major coastline. In addition, the large volume of goods flowing through the region has contributed to many companies locating facilities in the metroplex. Senior supply chain executives understand how the region’s logistical capabilities can create and sustain a competitive advantage while simultaneously contributing to bottom-line performance. The region directly benefits from the economic effects through a resilient base of employment, less costly transportation and goods, the attraction of additional companies and industries to the area, and a lower cost of living.

This whitepaper explores intermodal transportation and its effect on the North Texas region. The objectives for this paper include:

• Defining intermodal transportation and how it differs from simply combining modes

• Identifying the advantages and disadvantages of using intermodal transportation • Reviewing the factors contributing to the steady growth in intermodal movements • Examining how intermodal systems have evolved in the United States • Understanding how the development of the standardized shipping container has

facilitated intermodal shipments and globalization • Recognizing the effects of intermodal transportation on the logistics operations

and economic development within the region

Intermodal Transportation The term intermodal transportation is sometimes confusing. Many individuals refer to intermodal transportation as another mode within the transportation system. Others define it simply as freight using more than one mode of transportation; however, intermodal transport involves more than using two modes. In this whitepaper, the definition used by the General Accountability Office will be used. Intermodal transportation can be defined as “. . .a system that connects the separate transportation

Intermodal Transportation and the North Texas Region 3

modes and allows passenger or freight to complete a journey using more than one mode.”1

Systems View of Intermodal Transportation Intermodal transportation is a system that combines two or more modes for moving passengers or freight. A systemic approach distinguishes intermodalism from simply combining two modes. For example, freight could be loaded onto a truck, transported to a rail terminal, unloaded from the truck, reloaded into a railcar, and then transported to another terminal where the freight is unloaded from the railcar and then loaded into a trailer for final movement to the destination by a motor carrier. Although this approach may be considered an intermodal movement, it lacks a systemic view to streamline handling, reduce time and cost, and improve performance. An intermodal movement would view transportation as a system combining the best features of multiple modes while attempting to reduce handling costs. For example, an intermodal movement (Figure 1) would have the shipper contract with a single provider for an integrated movement combining multiple modes. A motor carrier could load the freight into a trailer, or a container mounted on a chassis. The carrier would transport the freight to a rail terminal where the trailer or container would be lifted onto a specialized railcar. The rail carrier would transport the trailer or container to a terminal near the destination. The trailer or container would be lifted off the train, placed on a chassis if a container movement, and then transferred to a motor carrier for final movement to the consignee’s location. Although similar to the previous example, this approach involves less handling and paperwork but also requires a system capable of seamlessly transferring trailers or containers while linking information flows to synchronize the transportation modes involved in the movement.

Figure 1 Example of an Intermodal Movement

1 Siggerud, Katherine (2006), Director, Physical Infrastructure Issues, General Accounting Office, Testimony Before the Subcommittee on Highways, Transit and Pipelines Committee on Transportation and Infrastructure, House of Representatives, “Intermodal Transportation: Challenges to and Potential Strategies for Developing Improved Intermodal Capabilities,” GAO-06-855T, Washington D.C., June 15, p. 1.

4 Intermodal Transportation and the North Texas Region

Intermodal transportation integrates the use of two or more modes into a single movement. By combining modes, an intermodal shipment obtains the advantages and disadvantages of each mode used in the movement. For example, a rail – truck shipment would obtain the low cost of rail but would gain the accessibility of trucks. Due to the need to move shipments from origin to the final destination, trucks are common to most intermodal movements. Within the U.S., eighty percent of delivery locations can only be served by motor carriers. Deregulation made intermodal movements more prevalent by allowing carriers to offer a single “movement,” or one-stop shopping, on a single bill of lading to their customers. Major Intermodal Functions

Figure 2 Major Intermodal Functions

Four major functions (Figure 2) define an intermodal transport chain2. The functions include composition, connection, interchange, and decomposition. Composition is the process of assembling and consolidating inbound freight. Containers and trailers originating at different suppliers are drayed3 to intermodal hubs where they can be transferred to high capacity modes such as rail and maritime shipping. Trucks tend to play a major role in this process as they provide door-to-door service. In addition to the inbound dray, composition includes all of the logistics activities to prepare the shipment to include warehousing, fulfillment, packaging, loading the trailer or stuffing the container, and working with an intermodal marketing company (IMC) to coordinate the intermodal movement. Connection involves the transportation of the shipment by an intermodal freight train or containership. The transportation occurs between at least two terminals. In some instances, the transfer may cross international borders, such as shipments departing China bound for the United States. The connection derives its efficiencies through the

2 Rodrigue, J-P et al. (2009) The Geography of Transport Systems, Hofstra University, Department of Global Studies & Geography, http://people.hofstra.edu/geotrans 3 See drayage section later in this paper for definition


mode’s ability to achieve economies of scale such as through the use of intermodal unit trains or large container ships. Practices such as double stacking containers or the use of large post-Panamax containerships have further reduced the unit cost of moving a container or trailer. Interchange occurs at terminals such as maritime ports or inland intermodal hubs. To make intermodal transportation operate effectively, the terminals must provide the capability to efficiently transfer the containers or trailers from one mode to another. The use of standardized equipment, procedures and containers greatly facilitates this transfer. Information exchange across the supply chain plays a critical role to ensure the efficient scheduling of outbound transportation from the terminal and onward movement from being delayed. Decomposition occurs when the trailer or container is delivered to an intermodal hub near the final destination. The freight is drayed to a local or regional center. From this point, distribution to the final end user, typically a retailer or industrial consumer.

Advantages and Disadvantages of Intermodal Transport The development of intermodal transportation has produced substantial advantages that have greatly facilitated global trade; however, intermodal transportation does pose several disadvantages which greatly affect shipper acceptance and growth. Due to its multi-modal nature, intermodal transportation incurs both the advantages and disadvantages of not only containerized freight but also those associated with each mode involved in the freight movement. Advantages

The advantages of intermodal transportation include: standardized handling, flexibility, reduced travel time, lower cost, an alternative option for transporting goods, avoidance of chokepoints, reduces congestion, sustainability, security, and warehousing-in-transit. Standardized Handling Standardization of containers has permitted equipment to be designed anywhere in the world to support intermodal transportation. For example, shippers in remote locations such as Vietnam can load containers knowing equipment will be available throughout the intermodal supply chain to handle and transport the shipment. The containerized freight can be moved intact to customers virtually anywhere in the globe where containerships, container ports, and inland transportation capable of handling containers exist. Standardization makes possible reduced handling, cost, and transit time.


Flexibility Containers provide a flexible unit load device for transporting cargo and carry a wide range of items and commodities. Imported containers from China may contain apparel, consumer goods, machinery, automobile parts, furniture, and other finished goods. Exported containers may contain commodities such as cotton, scrap paper and cardboard, coal, lumber, and agricultural goods. Tanks can be inserted within a 40 by 8 by 8 foot frame to move liquids. Some containers are refrigerated (reefer containers) and move food and medicines. Reduced Travel Time Shippers obtain reduced travel times by combining modes. For example, a Pacific Ocean carrier, APL, used mini-land bridge shipments to compete with ocean carriers that offered all-water service from Asia to East coast ports through either the Panama or Suez Canals. The combination of ocean and rail enabled APL to offer reduced transit times from Asia to destinations located near East coast ports. The use of rail, although more expensive than water, across North America provides a shorter transit time than the all-water route through the Panama Canal. Lower Cost Intermodal service may provide a lower cost transportation alternative. The combination of rail and truck for distances over 700 miles will typically produce a 15 percent cost reduction in freight spend when compared to over-the-road trucking. The savings increase as the rail distance increases and the motor carrier portion of the move decreases. Elimination of the dray for either the pick-up or delivery enables intermodal to offer lower costs over shorter distances. For example, Norfolk Southern has been able to competitively price intermodal between Savannah and Atlanta, a distance under 300 miles. They are able to do so by loading containers from ships directly onto rail cars and eliminate the cost of the dray between the port and the railroad. Alternative Transportation Option Intermodal provides more transportation options to shippers. Single modes may be too slow or too expensive for the shipper; however, the combination of modes provides more options. For example, a Dallas-based shipper may have previously relied on over-the-road (OTR) trucking to move freight to New York. Intermodal can provide the additional options of truck-ocean-truck through the Ports of Houston and New York – New Jersey or truck-rail-truck from Dallas through an intermodal rail hub near the final destination.


Avoiding Chokepoints Intermodal shipments can by-pass or eliminate chokepoints in the transportation system. Containers loaded on to trains at ocean ports can bypass highway chokepoints by moving inland before clearing customs or being transferred to motor carriers. The Port of Los Angeles constructed the Alameda Corridor to enable intermodal trains to by-pass congestion near the port as well as reduce highway congestion created by drayage trucks. With the reduction of trucks, The Port of Los Angeles has been able to reduce emissions as well. Reduce Congestion By converting OTR trucking to rail, intermodal can reduce highway congestion. A single intermodal train can replace 200 trucks on the highway using one-fourth the fuel. For example, in the North Texas region six to eight trains arrive every day at the BNSF Alliance facility and another six to eight arrive every day at the Union Pacific facility in south Dallas. These trains take between two to three thousand trucks off local and surrounding highways. The ability of intermodal to reduce congestion is especially important near maritime ports. As container vessels increase in size, the number of trucks required to dray the containers dramatically increases. Maersk’s McKinney Moller would require a line of trucks 97 miles to haul its capacity of 18,000 TEUs.4 The Alameda Corridor enables intermodal rail to reduce congestion around the port by using rail to transport containers away from the port. The below-grade corridor also eliminated over 200 railroad crossings which greatly improved the traffic flow in the surrounding area. Sustainability Shippers have found intermodal to be an effective means to increase the sustainability of their supply chains. Rail and water use considerably less fuel than OTR trucking or air to transport goods. In addition, both rail and water carriers are examining the potential use of natural gas which would further reduce carbon emissions. Since drayage firms move containers out and back short distances from intermodal hubs, they represent ideal candidates for converting their truck fleets to natural gas as well. As sustainable supply chains increase in importance, more shippers will be attracted to this “added” benefit of intermodal transportation.

Intermodal transportation has received strong political support due to the fuel efficiencies associated with moving freight by water and rail. US freight railroads can move one ton of freight an average of 484 miles per gallon of fuel. This ton/gallon figure is up from 235 miles in 1980 reflecting the increased productivity and efficiency of the US rail systems since it was deregulated. Rail is approximately four times more fuel efficient than trucks. If 10% of the truck volume was converted to intermodal rail, the US would save approximately $1 billion of diesel fuel each year.

4 A twenty foot equivalent unit (TEU) is a common form of measuring container volumes. A 40 foot container would be equal to two TEUs.


Security Containerization enabled intermodal freight to move more securely. The contents and owner [shipper] are not readily visible. The container greatly reduced access to the freight and resulting theft especially when compared to break-bulk shipments. The use of standardized equipment reduced damage due to fewer handlings, and articulated drop-center rail cars have produced a smoother ride and less damage during rail transport. Shippers sometimes request their containers be placed in the lower position on double-stack intermodal trains. These containers cannot be opened while in-transit offering greater security and precluding tampering with the contents. Containers can be further secured using smart-seal technology which can detect tampering with the container doors. Some shippers also employ GPS-tracking to maintain visibility of high-value cargo throughout the entire intermodal movement. Warehousing In-Transit Intermodal containers provide temporary storage for goods. Many companies use containers to temporarily store goods when confronting warehouse capacity issues, matching multiple shipments together for additional processing, or staging goods for holiday seasons. Although containers provide the capability for temporary storage, the container owners may seek to have these containers returned as rapidly as possible to be made available for revenue-generating movement. Ocean carriers have been attempting to keep their containers from moving inland. They can exert less control over the inland movement, and the containers may take more time to be returned. As a result, many arriving international containers are unloaded at maritime ports and reloaded into domestic containers for the inland movement. Disadvantages

Intermodal movements possess the disadvantages that are incurred with the use of containers and those associated with each of the modes used. The disadvantages include: reliability, cost, travel time, infrequent service, site constraints, infrastructure costs, losses, empty backhauls, and illicit trade. Reliability Intermodal continues to battle shipper perceptions of being an unreliable transportation option. Despite being a lower cost alternative to OTR trucking, many shippers will not use intermodal due to the perceived risk of their freight not arriving on time. Often, these perceptions are based on a previous experience with intermodal occurring several years ago. Intermodal providers argue service has greatly improved during the past several years. The railroads have invested tens of billions of dollars to upgrade their infrastructure to support intermodal movements as well as to open, or re-open, intermodal hubs. For


example, intermodal rail can deliver a container faster from the West coast than on OTR carrier unless the shipper is willing to pay a premium for team drivers. Although reliability has improved, the on-time rates do not match the performance of OTR trucking. Intermodal confronts the challenges of transfers between modes as well as port congestion. Labor strikes or slowdowns by longshoreman can have a major effect on service, and some companies have adopted a multiple port strategy to mitigate the potential risk of a strike. Port congestion can result in containers being stacked, handled multiple times, and delayed for outbound shipment. As the first quarter of 2014 demonstrated, adverse weather can have a significant effect on intermodal trains with delays reaching several days. Increased volumes of crude oil and agricultural products have also adversely affected intermodal service levels. Cost Cost represents both an advantage, as previously discussed, and a disadvantage. This paradox stems from the use of multiple modes. The combination of water-rail-truck for movements from West Coast to an inland location represents a higher transportation cost than an all water route, such as moving from China through the Panama Canal to ports along the Gulf or Atlantic coasts. Logistics managers should perform a total cost analysis when assessing an intermodal option. In addition to the change in transportation cost, they should consider the effect on other logistics costs such as warehousing, cycle stock, and safety stock. For example, a micro-bridge movement from the West coast to North Texas may be more expensive than an all-water movement through the Panama Canal to Houston. However, the intermodal movement from the West coast is seven to ten days faster. These faster, more frequent shipments can result in a significant reduction in warehousing and inventory carrying costs. These cost reductions may more than offset the higher cost of transportation. As a result, the shipper employing intermodal may obtain an overall lower cost despite paying more for transportation. The decision regarding whether to use intermodal should be based on total cost rather focusing only on transportation. Travel time Similar to the effect on cost, transit time can be both an advantage as well as a disadvantage. The combination of modes can result in longer travel times; for example, shifting freight from motor to rail will reduce the transportation cost but will increase transit times and average inventory levels. Depending on the combination of modes, transportation times may increase. Again, logistics managers must assess whether the trade-offs between cost and service yield a better solution.


Infrequent service Delivery frequency will be directly affect by the level of service provided by the least frequent mode. If an ocean carrier provides twice a week service, then the intermodal network cannot provide greater frequency—unless, large shipments are transported, staged at an intermediate location, and then delivered in more frequent but smaller shipments. Third party logistics providers often perform this service. Since intermodal is not designed for small frequent shipments, just-in-time deliveries on a multiple delivery per day schedule may not be well suited for intermodal. However, logistics managers can overcome this situation by staging inventory at an intermediate point in the supply chain. Site constraints Maritime ports and inland hubs may confront space constraints which will limit intermodal volumes. Ports such as Los Angeles are surrounded by expensive development, and expansion would most likely be cost prohibitive. Space represents a key challenge since container storage requires a large amount of real estate, and even more space is required to stage containers when loading or unloading a large containership. The situation is becoming more challenging as ocean carriers deploy larger and larger containerships. Space constraints can also occur at inland hubs. In areas such as Chicago, development has sprung up around intermodal hubs. To expand their capacity, the railroads have opened additional hubs in areas away from Chicago. These hubs are close enough to move freight into Chicago and can also serve the surrounding area. Infrastructure cost Upgrades or changes to existing infrastructure to improve intermodal operations can be extremely expensive. Port, rail and highway modifications are very costly. These costs are compounded in magnitude since these modifications often take place in densely populated areas or in remote, rugged locations such as when tunnel clearances are increased. One example of an urban area is Tower 51 in Fort Worth where the BNSF and Union Pacific railroads cross at grade. Multiple trains may have to wait several hours to pass through this crossing. Cost projections to eliminate this bottleneck are estimated to cost over $1 billion. Losses Another misperception is intermodal will result in greater loss and damage of goods. This misperception stems from the damage that resulted prior to the use of articulated deep well rail cars. Losses represent a small proportion of intermodal shipments, but they do sometimes occur. Over 500 containers fall overboard each year when containerships encounter rough seas.


Empty Backhauls The imbalance in international trade has resulted in many traffic lanes experiencing a large volume of empty backhauls. Some estimates project that as many as one out of five containers moved by ocean carriers are empty. These empty containers must be re-positioned to where demand exists for freight movement. One example of this situation is the container trade between China and the United States. Due to the high demand for goods manufactured in China, containers arrive full on the West coast. However, much lower demand exists for goods on the return trip. Rates reflect this situation. Container rates from China to the United States are approximately $1,300 per container. Rates for the return trip can be half this amount. The lower backhaul rate does allow low cost commodities such as cotton or scrap cardboard to be shipped in containers to China. Illicit Trade Illicit trade in drugs, human trafficking, or smuggling of other items has taken advantage of the containers used in intermodal transportation. Containers were originally designed to keep unauthorized individuals from knowing or accessing the contents. As a result, they also provide an effective means to transport smuggled goods past US Customs and Border Patrol (CBP). Inspection of a container can take three agents upwards of ten hours. Over 26,000 containers enter the US through over 400 ports every day. One hundred percent inspection is infeasible due to the lack of resources and the higher cost and transit time incurred by supply chains. Shippers have worked with US CBP by securing their supply chains and working to reduce or eliminate opportunities for the tampering of containers. They employ GPS and telematics to track the location and condition of the container throughout the entire movement. CBP has deployed scanning technology capable of viewing the contents of containers using gamma radiation technology at several major maritime ports.

Forms of Intermodal Transportation Intermodal movements can be classified in a variety of different ways. These forms of intermodal traffic are used to track different types of movement. The most common ways to classify intermodal movements are domestic versus international and container on flat car versus trailer on flat car. International versus Domestic Intermodal We typically associate intermodal transportation with international transportation (Figure 3). Goods are sourced overseas, stuffed into a container for movement, and then transported to a maritime port for movement by an ocean going vessel to an importing country. Standardized systems enable containers to be transported across the globe by multiple modes from origin to final destination without unpacking and repacking of the cargo while in-transit. The integrated system reduces time, cost, and damage.


Figure 3 International Intermodal Movement

International intermodal can also be defined as the transportation of goods in international 20, 40, or 45 foot shipping containers between the United States and another country. International intermodal uses smaller containers due to standardized equipment at ports and on ships. In addition, many international locations cannot accommodate the transport of longer containers due to the inability to make sharp turns in narrow streets or roads, especially in Europe. International volumes consist of both imported and exported container traffic passing through the nation’s ocean containership ports. Intermodal transportation also occurs in domestic transportation (Figure 4) where the origin and destination of the shipment is within the United States. Multiple modes and standardized unit load devices, such as trailers or containers, are used to transport the shipment. Most domestic movements involve the combination of truck and rail between origin and the final destination.

Figure 4 Example of Domestic Intermodal Movement


Domestic intermodal refers primarily to the shipments of 48 and 53 foot domestic containers or trailers with both the origin and destination within the United States. Domestic intermodal uses larger containers to reduce the number of truck movements and cost. Domestic volumes include container and trailer traffic picked up and delivered within North America for intermodal marketing companies and truckload carriers. LTL and small package carriers are also significant intermodal users. For example, UPS is the single largest customer of the North American railroads and makes extensive use of domestic intermodal. The volume of intermodal movements in the United States is almost evenly split between international and domestic (Figure 5). The domestic volumes include container and trailer movements. The proportion of international movements has recently decreased. An executive with a Class 1 railroad indicated that approximately one-third of the arriving international containers on the West coast ports are transloaded into domestic containers for inland transport by rail to intermodal hubs. The freight arriving at many US maritime ports is transloaded from 20 or 40 foot international containers to domestic 53 foot containers. Shippers and carriers practice transloading to reduce the number of inland container moves and their transportation cost. The conversion, or transloading, from international to domestic containers has caused what were previously international moves to be reclassified as domestic. .

2014 Total: 16,276,892 units

Trailers, 1,666,350 ,

10%

Domestic containers, 6,444,532 ,

40%

ISO containers Total,

8,166,010 , 50%

Figure 5 Comparison of 2014 Domestic versus International Intermodal Movements in the United States5

5 Compiled from the Intermodal Association of North America, Intermodal Market Trends and Statistics, used with permission of IANA.


Container on Flat Car (COFC) and Trailer on Flat Car (TOFC)

Figure 6 Forms of Intermodal Moves

Intermodal transportation takes three general forms (Figure 6). The first two, known as piggyback, consist of trailer on flat car (TOFC) or container on flat car (COFC) service. To achieve greater economies of scale, the railroads developed specialized rail cars capable of transporting standard containers stacked two high, or double container on flat car. These specialized rail cars have deep wells that permit the bottom container to sit between the rail car wheels rather than on top of a rail car bed. The lower position enables double stack service on routes with low tunnel clearances. Five of these specialized cars form a single unit.

Intermodal Equipment Intermodal transportation relies on standardized equipment (Figure 7). Many early efforts to establish intermodal transportation failed due to the inability to transport containers or trailers on other carriers’ equipment or other countries’ ports. The US Navy is credited with initially standardizing container dimensions. The Navy subsidized ship construction to ensure the readiness of a cargo fleet in time of war. To ensure military containerized cargo could be moved on any ship, the Navy insisted the ships be built to dimensions supporting standard container dimensions. These dimensions for international containers were set at 8 feet wide by 20 feet long for a twenty foot equivalent (TEU) container and 8 feet wide by 40 feet long for a forty foot equivalent (FEU) container (note a 40 foot container is equivalent to 2 TEUs). The height may vary, but most international containers are 8.5 feet high or 9.5 feet high if high cube. Adoption of these standards ensures pallets, containers, cranes, ships, railcars, truck chassis, etc. will be compatible, and containers can be moved anywhere in the world where supporting intermodal equipment exists. Standardization has resulted in faster handling with much fewer losses and at far lower costs than previous shipping practices. Marc Levinson, author of The Box credits the standardized intermodal shipping container as the principle driver for reducing international shipping costs and facilitating the expansion of global trade.


Figure 7 Examples of Standardized Intermodal Equipment

Intermodal container

At the “heart” of the intermodal system is the standard shipping container (Figure 8). Most containers are 8 feet wide by 8.5 feet tall and either 20 or 40 feet in length. Some 45 foot containers are used in international traffic. Longer 48 and 53 foot containers are used in domestic shipping within North America, US territories, and some other countries.

Figure 8 Intermodal Shipping Container (45 foot)

Standardized containers have provided several benefits. The containers make freight easier and faster to handle while reducing damage and loss. Containers provide portable warehouses and temporary storage while eliminating the need for port warehousing and additional protection while in-transit. Multiple modes can be used to transport containers due to standardized design and lock and pin devices located at each corner of the container. Reduced transit times are obtained through less handling


and streamlining transhipment from one mode to another. Containers provide a wide range of configurations providing flexible capabilities for shippers.

Figure 9 Standardized Corner Castings on Containers

Each of the eight corners of an international container have a standard corner casting (Figure 9). These castings permit compatible container cranes to use a frame with twist locks to quickly engage and move the container. In addition, devices can be inserted into these castings to lock several containers together when doubled stacked on a container crane or when stacked several high on an oceangoing containership. Container Cranes A common sight at major intermodal facilities is the container crane. Large maritime container ports may have several adjacent container cranes dockside along a wharf (Figure 10). Several container cranes may be operated at the same time to service a


vessel. Large container cranes at maritime ports often load and unload a ship at the same time. A large containership may be unloaded in several hours. Previous use of breakbulk ships would require several weeks to load and unload far less cargo at a much greater cost and with considerably more damage. These container cranes cost several million dollars to acquire, and West coast crane operators earn upwards of $100,000 per year.

Figure 10 Intermodal Container Cranes at a Maritime Port

Inland intermodal hubs also rely on container cranes. These cranes are considerably smaller than those at a maritime port. They often operate on wheeled units and can simultaneously straddle a double-stacked rail car and a truck trailer to facilitate transfer between modes (Figure 11). Other cranes may operate in the yard if containers are stacked to save space. Containers may be stacked several high in an intermodal yard or port. Unless a container is immediately loaded on an outbound truck or rail car, maritime ports generally need to stack containers due to a lack of space. Maritime ports generally confront significant space limitations. However, container stacking increases handling, time and cost within the port. In contrast, inland intermodal hubs tend to have more space and store containers on trailer chassis. This practice reduces handling and decreases time but requires considerably more space.


Figure 11 Container Crane Operating at Inland Intermodal Hub

Spreaders are used to connect the crane with the container. A spreader is a frame connected to the cables used by the crane to lift or lower containers. The frame can spread to adjust for different container sizes. The spreader has twisting locks that fit into the corner castings on the container. The locking devices are inserted into the corner castings and then twisted to lock into place. The container is then securely connected and can be lifted into place. After placement, the crane operator can reverse the process, release the container, and then move to the next container. Spreaders typically lift a single container at a time; however some spreaders can lift two 20 foot containers as a single unit. Large container cranes at maritime ports have the ability to simultaneously operate two spreaders—one for loading while the other is being used to unload a ship. Container ships Malcolm McLean is credited with the first use of ships outfitted to transport containers. He used cranes to stack containers on the deck of the Ideal-X, a converted tanker, to transport his early containers. As other carriers recognized the benefits, other ships were converted to container service.


Later, ships were specifically designed to transport containers and greatly increased the TEU capacity. These ships can stack containers in racks below deck (Figure 12). Containers are also stacked above deck and secured with locking devices at each corner. Containerships continue to increase in size with ships exceeding 22,000 TEU already planned to enter service. Ships exceeding 4,000 TEUs could no longer pass through the Panama Canal and are referred to as post-Panamax ships. The expansion of the Panama Canal will permit 12,000 TEU ships to pass through the locks. However, the ocean carriers are deploying larger and larger containerships due to the tremendous economies of scale. Larger ships employ more fuel efficient technologies and do not consume much more fuel than their predecessors. In addition, the crew size is approximately the same. The use of these larger ships results in a lower cost per container.

Ocean-going carriers have sought larger containerships to obtain increased economies of scale. Larger ships can carry a much larger number of containers with the same crew size and with slightly more fuel. However, potential drawbacks may include the time required to load and unload these ships. Few ports are also deep enough to accommodate these vessels, and these ports are already experiencing problems with congestion. Until ocean carriers remove many of their smaller ships from service, the industry faces a situation of over-capacity and depressed shipping rates. Many ocean carriers have been ordering and deploying larger and larger container vessels. Some of the largest containerships in operation have the capacity to carry over 18,000 TEUs with 22 containers across. These larger ships require ports with container cranes with sufficient reach and capacity. In addition, these ships can create considerable congestion at the wharf, in the container yard, and on surrounding highway and rail infrastructure. Larger container ships pose many logistical challenges. Ports must be sufficiently deep to accommodate these ships, have the capacity to off-load these vessels, and possess sufficient space to stage or store containers awaiting shipment. In addition, the surrounding area may experience traffic congestion due to the large number of trucks, or trains, required to move the containers to and from the port. An example of these larger ships is the McKinney Moller, an 18,000 TEU ship which entered service in 2013 and is owned by Maersk, a Danish carrier. The McKinney Moller is officially listed as having the capacity to carry 18,000 twenty foot equivalent unit containers, or TEUs. Moving from smaller container ships in the 4,000 TEU range to

Figure 12 Racks for Stacking Containers Below Deck


18,000 TEU ships reduces operating costs per container by 20 to 30 percent. Figure 13 provides a comparison of the ship’s size and also a description of its carrying capacity.

Figure 13 Description of the McKinney Moller

The calculation in the lower portion of Figure 14 illustrates the number of trucks required to off-load the equivalent of 18,000 TEUs from the Maersk McKinney Moller. If the ship was to completely off-load 18,000 TEUs, then a 97 mile line of trucks, parked nose to tail, would be required to move the off-loaded containers. As a result, several ports have implemented infrastructure projects to facilitate on-dock rail service to alleviate some of the highway congestion in the surrounding area.

Figure 14 McKinney Moller would require 97.16 miles of trucks to unload


Containership size will soon be defined relative to the Suez Canal and the Straits of Malacca (see Figure 15). As larger container ships enter service, the Suez Canal may also be too shallow to handle the largest containerships, or post-Suezmax vessels. Post Malacca-max ships are currently being designed. These ships will have their bottom keel 65 feet below the surface, be a quarter mile long and 190 feet wide. The Straits of Malacca does not have sufficient depth to handle these ships, and the ocean shipping companies will need to deploy the ships on strings [routes] where sufficient depths exist and where the origin and termination ports can accommodate such large vessels. These Post Malacca-max ships will carry over 18,000 TEUs with the transported merchandise valued in excess of $1B in merchandise.

Figure 15 Strait of Malacca

Intermodal Rail Cars The railroads have developed specialized rail cars to support intermodal transport. A container placed on a traditional flatcar has been replaced with the double stacking of containers in a drop center car. The drop center cars allow containers to ride much lower than atop a flat car and facilitate double-stack intermodal trains (Figure 16). Without the ability to lower the containers, trains would often be unable to pass through many tunnels. In many instances, the railroads had to increase tunnel clearances to accommodate double stack trains.


Figure 16 Doublestack Intermodal Train Source: Canadian Pacific

Double stack intermodal service has provided some unique benefits for shippers. Some shippers request their containers be placed in the deep well car with another container stacked on top. This configuration provides the benefit of increased security. The lower container cannot be opened until lifted out of the deep well car. Shippers using refrigerated containers, or reefers, also request the lower position. The container stacked on top provides shade and helps keep the refrigerated container cooler.

Figure 17 Example of Specialized TOFC Railcar Source: BNSF.com

Although some trailers may still be transported on a flat car, the railroads and rail car leading firms have designed cars for transporting trailers (Figure 17). These cars consist of little more than a frame with pads for the trailer wheels and the fifth wheel of the trailer. They may also operate as an articulated unit to reduce damage and weight. These rail cars eliminate unnecessary weight and permit more efficient trains. Cranes or forklifts are used to load or unload trailers from these railcars.


Intermodal Truck Chassis Containers are placed on a trailer chassis for transport to and from an intermodal facility. A chassis consists of a trailer frame capable of transporting a container and being hauled by a Class 8 tractor (Figure 18). The container is mounted on the chassis by using the corner castings on the container. Chassis are manufactured in multiple lengths to correspond with different size containers. US law requires that the length of the chassis match or exceed the length of the container being transported.

Figure 18 Intermodal Chassis

Chassis management has become a major challenge in intermodal transportation. Historically, the ocean carriers have provided chassis support. They had to have a stockpile of chassis equipment stockpiled at major intermodal hubs to support their customers. The empty chassis require parking space and posed a space issue at maritime ports. Stacking of chassis became a practice to overcome the space issue, but the chassis were often damaged. Ocean carriers did not share their chassis equipment resulting in low utilization. In addition, customers did not quickly turn-around the container and chassis further reducing utilization. Many ocean carriers are currently selling off their chassis equipment to chassis pool companies. The chassis pool companies are charging for their service as well as for any delays in returning the chassis. As a result, many intermodal users may experience higher costs but will experience greater availability of chassis for their use.


Evolution of Intermodal Transportation

Figure 19 Malcolm McLean and the First Container Being Loaded on the Ideal-X

The evolution of the modern intermodal transportation system actually began with a trucker. Malcolm McLean, a trucking executive, recognized the potential savings that could be achieved by shipping entire trailers rather than using breakbulk shipping (Figure 19). As he developed the concept, McLean separated the chassis from the shipping container to permit stacking. However, this practice required an integrated system to permit the seamless transfer of containers from one mode to another. McLean later purchased the Pan Atlantic Steamship Corporation and set about developing plans to offer containerized service along the Atlantic seaboard. He converted the main deck of a tanker ship to handle containers that could be carried on trucks and developed the cranes needed for loading and offloading the ships. His first containership, the Ideal X, sailed from Port Newark, NJ to Houston, TX on April 27, 1956 with 58 fully loaded containers. The Journal of Commerce quotes James K. McLean as stating: “We are convinced that we have found a way to combine the economy of water transportation with the speed and flexibility of overland shipment.” The key factor that set Malcom McLean apart from previous efforts to use intermodal transportation was his vision and ability to create an integrated system. Intermodal transportation is more than simply using two modes of transportation. An integrated and standardized system is required to seamlessly transfer freight from one mode to another. For example, McLean formed Sea-Land which provided intermodal service using ships and trucks capable of handling standardized containers. The company developed specialized cranes and “spreaders” for handling the containers. They eventually developed land-based container cranes as volumes increased. Vietnam War and Increased Acceptance of Containers McLean’s intermodal concept did not gain widespread acceptance until the Vietnam War. The US Army is responsible for military port operations. During the war, they encountered numerous logistical problems with unloading freight, understanding what


freight they had, and quickly moving the freight to the correct military unit. McLean assisted the Army in using containers to resolve their problems. The Vietnam War quickly demonstrated the efficiency of containers, and many competitors began offering container service. However, each company used containers of different dimensions based on compatibility with their existing equipment or their customers’ needs. Standardization of Containers The US Navy is credited with forcing the standardization of intermodal shipping containers. At that time, the Navy subsidized US shipbuilding to ensure sufficient sealift capability in time of war. The Navy wanted to ensure that any containers being transported on these ships could be easily transported. The results of their research resulted in the 20 and 40 standardized lengths still used in international intermodal transportation today. Land Bridges and Intermodal Development

Figure 20 Types of Land bridges

Intermodal transportation made possible the “land bridge” concept (Figure 20). Robert Neuschel, formerly with McKinnsey and Company and with the Transportation Center at Northwestern University, developed the concept of using rail carriers to transport goods between the Atlantic and Pacific oceans. Shippers moving goods between Asia and Europe benefit from the sea-rail-sea movement by reducing transit times and expensive passage through the Panama Canal.


Two other variations of the landbridge concept are frequently used. The “mini-bridge” combines sea and rail modes to move goods from one exterior port to another. A “micro-bridge” moves goods inland from an exterior port location. The use of landbridges fundamentally altered the flow of containers in the United States. Prior to the 1980s, trade from Asia moved through the Panama Canal and then along the Atlantic seaboard to reach major population areas. In 1984, APL used the landbridge concept to effectively compete with the all-water route through the Panama Canal. APL ships called on West coast ports, containers were transferred to rail carriers, and the railroads transported the containers to destinations along the East coast. The cost of the rail portion was reduced through the innovative practice of double stacking containers. The railroads were able to double their capacity without incurring a doubling of fuel or labor costs. Although the rail intermodal move was still more expensive than water, the reduction of ten or more days of transit time produced a significant reduction in inventory carrying cost and improvements in customer service. Implementation of the mini-land bridge concept resulted in a major shift of container volumes from the East to West coast ports. The Ports of Los Angeles and Long Beach continue to be the largest ports in the US and among the largest in the world. Phases of Intermodal Development Intermodal transportation appears to have passed through three stages.6 During the first stage (1960s), containerized freight was introduced to maritime shipping with inland service being performed largely by trucking. The second stage began in the mid-1980s and concentrated on the containerization of inland transport systems. The use of double stack trains to inland destinations or transcontinental movements characterized this phase. The third phase has focused on improving the overall efficiency of intermodal operations. These efficiencies have occurred through the increased velocity of container movements and handling and by reducing the number of container handlings. Deregulation and the Effect on Intermodal Transportation

The deregulation of the US transportation system in 1980 probably provided the biggest boost to the expansion of the intermodal concept. Deregulation opened the opportunity for transportation companies to offer integrated services. For example, deregulation opened the opportunity for transportation companies to own multiple transportation modes to include brokers and forwarders. Deregulation allowed shippers to contract with one provider and have one bill of lading, or contract, for their intermodal movement.

6 Rodrigue, J-P et al. (2009) The Geography of Transport Systems, Hofstra University, Department of Global Studies & Geography, http://people.hofstra.edu/geotrans


Government Promotion of Intermodal Transportation Despite the importance and need for a transportation policy, no single unified statement of US national transportation policy exists. Instead, policy has evolved over time through statements contained in legislative acts or through funding and policies applied by federal and state agencies. These statements occur in the form of court decisions, laws, legislative appropriations, and rulings by the independent regulatory commissions. The lack of a clear statement of national transportation policy has produced a situation where there is not an integrated, systematic approach to managing transportation. Currently, each mode is promoted and managed separately. Although policy statements recognize the growing importance of intermodal transportation, funding has not been provided to promote its development or streamline intermodal operations. In a review of intermodal transportation, the US General Accountability Office (GAO) found: “Historically, federal transportation policy has generally focused on individual modes rather than intermodal connections between different modes. Federal transportation funding programs are overseen by different modal offices within the Department of Transportation—the Federal Aviation Administration, Federal Transit Administration, Federal Railroad Administration, and Federal Highway Administration. No specific federal funding programs have been established that target intermodal projects for either passengers or freight although a few federal programs offer flexibilities that would allow these types of projects.” “Significant challenges to the development of intermodal capabilities are the lack of specific national goals and funding programs. Federal funding is often tied to a single transportation mode; as a result it may be difficult to finance projects, such as intermodal projects, that do not have a source of dedicated funding. Federal legislation and federal planning guidance all emphasize the goal of establishing a system-wide, intermodal approach to addressing transportation needs. However, the reality of the federal funding structure—which directs most surface spending to highways and transit and is more oriented to passengers than freight—plays an important role in shaping local transportation investment choices.”7 Public-private partnerships (PPPs) have emerged as a means to promote intermodal transportation. A combination of private and public funding has been used on several projects to address infrastructure projects which otherwise would have gone unfunded. The investment of public capital in private projects, such as rail intermodal infrastructure, is justified based on reduction of truck traffic on highways, reduction of emissions, and economic development.

7 Source: Siggerud, Katherine (2006), Director, Physical Infrastructure Issues, General Accounting Office, Testimony Before the Subcommittee on Highways, Transit and Pipelines Committee on Transportation and Infrastructure, House of Representatives, “Intermodal Transportation: Challenges to and Potential Strategies for Developing Improved Intermodal Capabilities,” GAO-06-855T, Washington D.C., June 15, pp. 3 and 7.


Figure 21 Map of the Heartland Corridor, Source: Norfolk Southern

The Heartland Corridor is an example of a PPP focused on improving intermodal service (Figure 21). Norfolk Southern pursued a PPP since the return on investment was insufficient to justify their sole investment, but construction of the corridor would provide substantial benefits to the port, surrounding communities, and states through which the rail line passed. The public sector was also receptive since public funds alone would also have proven insufficient to support the project and due to the benefits that would accrue. Funding came from the Norfolk Southern, three states, and the Federal Highway administration. The project increased 28 tunnel clearances to permit double stack trains, increased the capacity of the rail lines to permit more trains and car volumes, shortened the rail journey from Norfolk to Chicago by 250 miles, and added several intermodal terminals along the route. The Norfolk Southern Railroad made the investments in the portions of the corridor which benefitted rail services while the public sector invested in those improvements where public benefit would occur such as the elimination of highway – rail crossings. By shifting freight from motor to rail, the region has benefitted through reduced highway congestion, less wear and tear on the highway infrastructure, less fuel consumption, and lower carbon emissions.

Intermodal Market Intermodal transportation was experiencing a compound average growth rate (CAGR) of 4.5 percent over the past three decades with volumes peaking in 2014. Rail volumes, including intermodal, fell in 2007, and many transportation experts believe this drop was a harbinger of the upcoming recession which began in 2008 (see Figure 22). As consumer demand fell in 2007 and 2008, so did the demand for intermodal transportation. Intermodal and all other forms of transportation have derived demand. The demand for transportation is derived from the demand for goods. Volumes started to climb once again in 2010 with domestic intermodal experiencing higher growth rates than international. Supporting this trend is the total container volumes moved by the


Ports of Los Angeles and Long Beach (LA/LB). The volume of TEUs lifted at these ports has not increased as rapidly as overall intermodal volumes.

Figure 22 Comparison of Domestic and International Intermodal Volumes in the United States8

The container volumes inbound to LA/LB are especially important to the North Texas region (Figure 23). North Texas serves as one of several inland ports supported by these ports. The overwhelming majority of international containers inbound to this region pass through these ports. These volumes provide a leading indicator for both transportation and consumer demand in the region, if not the United States. Intermodal rail car movements accounted for 46% of US rail traffic in 2014 (Figure 24). Intermodal volumes exceeded 50 percent among two Class 1 railroads: the BNSF and CSX. The proportion of intermodal moves is expected to increase as the railroads continue to invest in intermodal hubs and rail infrastructure and as more shippers convert truck to intermodal rail to overcome rising fuel costs, increased government regulation and a shortage of truck drivers.

8 Source: Center for Logistics Education and Research, compiled from the Intermodal Association of North America, Intermodal Market Trends and Statistics, used with permission of IANA.

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Figure 23 Inbound Loaded TEUs for Ports of Los Angeles and Long Beach

Figure 24 Proportion of Rail Car Movements in US 2014 (Total: 29,119,977)

Source: Weekly Railroad Traffic, Week 53, 2014, American Association of Railroads

Intermodal transportation represents a relatively small proportion of the total freight spend in the United States. Logistics expenditures on motor carriers were $657 billion

0100,000200,000300,000400,000500,000600,000700,000800,000900,000

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Chemicals, 1,562,440

Coal, 5,824,630

Agricultural (excl grain,

864,091

Forest Products, 582,897Grain,

1,062,005

Metallic Ores and Metals, 1,335,571

Motor Vehicles and Parts, 876,790

Nonmetallic Minerals, 1,855,735

Petroleum and Petroleum Products,

798,519Other, 414,157

Total Intermodal Units, 13,496,941


in 2013.9 The total spend on rail was $74 billion. Approximately 25 percent of rail revenues are intermodal-related or approximately $18.5 billion. Due to the difference in market size, Wolfe-Trahan estimates that just a two percent conversion of trucking to rail could increase the intermodal market by at least 20 percent. Intermodal currently represents the single largest source of revenue for the Class 1 railroads. In 2014, the Class 1 railroads earned $20.4 billion in revenue (Figure 25). Intermodal surpassed coal as the single largest source of rail revenue in 2003 and has been the leading source of revenue ever since. However, coal continues to be the single largest commodity moved by the railroads when measured in ton-miles.

RailroadIntermodal

Revenue2014 Total

Revenue $MKansas City Southern 396$ 2,577$ BNSF 7,048$ 22,714$ Canadian National 2,748$ 11,455$ CSX 1,790$ 12,669$ Canadian Pacific 1,375$ 6,464$ Norfolk Southern 2,562$ 11,624$ Union Pacific 4,489$ 22,560$ Total: 20,408$ 90,063$

Figure 25 Class 1 Intermodal Market Share by Revenue

9 Wilson, Rosalyn, CSCMP 25th Annual State of Logistics Report, National Press Club, Washington, D.C., June 17, 2014


BNSF UP NS CSX CP CN KSU2012 4,661,015 3,649,807 3,349,642 2,444,515 985,214 1,728,681 914,2002013 4,918,882 3,679,776 3,560,342 2,571,532 967,666 1,893,003 956,6002014 5,426,157 3,731,411 3,886,275 2,757,100 966,347 2,110,699 1,019,600

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Figure 26 Class 1 Intermodal Rail Car Volumes by Railroad

2007 2008 2009 2010 2011 2012 2013 2014Containers 11,722,676 11,380,401 10,272,664 11,964,417 12,621,619 13,331,191 14,051,049 14,824,345Trailers 2,713,893 2,578,839 1,723,455 1,765,488 1,778,955 1,609,459 1,567,704 1,642,580

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Figure 27 Annual Intermodal Rail Car Volumes 2008 - 201410

Intermodal volumes have been increasing for the past several years (Figures 26 and 27). Intermodal volumes fell at the end of 2008 due to the recession and remained low throughout 2009. Volumes began to increase in 2010 and have steadily grown reaching record levels in 2014. As will be discussed later in this paper, several factors are contributing to the steady growth in intermodal volumes. Both the Intermodal

10 Source: Center for Logistics Education and Research, compiled from the Intermodal Association of North America, Intermodal Market Trends and Statistics, used with permission of IANA.


Association of North America and the American Association of Railroads reported record volumes in 2014. Domestic intermodal volumes are driving these volumes due to shippers converting from truck to rail.

Figure 28 Comparison of Trailer, Domestic Container and International Container Volumes11

The volume of trailer on flatcar movements appears be decreasing. In 1990, trailers accounted for 56% of the intermodal market. However, they now account for only 10% (Figure 28). Many shippers are converting to 53 foot intermodal containers for domestic shipments. The railroads have incentivized the use of containers to double container on flatcar service and obtain greater efficiencies. Factors Shaping Intermodal Growth

Intermodal transportation is expected to continue growing in the United States and at a rate faster than gross domestic product. Several factors are contributing to this growth. These factors include greater acceptance of intermodal by trucking companies, truck to ail conversion, Class 1 railroad investment in intermodal facilities, driver shortage, and fuel prices.

11 Compiled from the Intermodal Association of North America, Intermodal Market Trends and Statistics, used with permission of IANA.

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Truck to Rail Conversion Many large truckload motor carriers have been entering the intermodal transportation segment. JB Hunt has been particularly aggressive in becoming an intermodal carrier (Figure 29). Intermodal transportation now accounts for over half of its gross revenues. Their traditional truckload business is now only 6% of their revenues and has steadily decreased since 2002. Intermodal provides larger margins and has a higher barrier for entry that has made intermodal attractive to these carriers.

Intermodal Focus for Trucking

• Intermodal accounted for over61% of JB Hunt’s 2014 gross revenues

• Intermodal fleet now contains over 58,962 pieces of company controlled trailing equipment—primarily 53 foot intermodal containers

Source: JB Hunt 2014 Fourth Quarter EarningsNumbers are in $ millions

$6.165B

JBI61%

DCS22%

JBT6%

ICS12%

Figure 29 JB Hunt Focus on Becoming an Intermodal Provider

The US Department of Transportation has indicated that a significant portion of the truckload market could be converted to rail (Figure 30). The range most likely for conversion is at distances over 500 miles where rail competes effectively with trucking. For example, the Union Pacific Railroad has identified 11 million potential conversions with an average length of haul of 550 miles that originate and terminate within 75 to 100 miles of an intermodal hub. They believe these loads could be converted since the distance is over 500 miles combined with a reasonable drayage distance.


Figure 30 Potential for Truck to Rail Conversion12

The truck to rail conversion has taken place as a result of several factors. These factors include fuel prices, labor, government regulation, capacity in the truckload industry, and improved intermodal rail service. A discussion of each of these factors follows. Fuel Prices Diesel fuel is currently one of the largest expenses for most trucking firms. Diesel prices have recently dropped but most analysts predict they will eventually return to levels between 3.50 and $4.00 per gallon (Figure 31). Due to wide swings in global supply, fuel prices will likely remain highly volatile and unpredictable. Intermodal rail consumes only 25 percent of the fuel required for the same truck movement, and much of this savings can be passed along to the shipper. Depending on fuel prices, the length of the drays, and the length of the intermodal rail movement, shippers often obtain a 15 percent reduction by converting to intermodal.

12 Federal Railroad Administration, National Rail Plan, September 2010


Forecast

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Source: Short-Term Energy Outlook, February 2015.

Crude oil price is composite refiner acquisition cost. Retail prices include state and federal taxes.

Figure 31 Department of Energy Projections for Diesel Fuel Prices

Labor The trucking industry continues to confront a shortage of drivers. The American Trucking Association estimates the shortage to be approximately 25,000 drivers with a projected shortage of 239,000 by 2022 (Figure 32). The demand for drivers combined with downward pressure on carrier margins has caused the driver turnover rate to climb to near record levels (Figure 33). Large for-hire carriers have turn-over rates above 90 percent. Less-than-truckload (LTL) and private carriers have turn-over rates in the teens. These carriers benefit from more predictable routes and a network which generally enable the drivers to return and spend more time at home.

Figure 32 Driver Shortage Projections Source: ATA, Truck Driver Shortage Update


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Figure 33 Driver Turnover Rates

Source: Quarterly ATA Driver Turnover Reports

Regulation Federal safety regulations have negatively affected driver productivity and reduced carrier capacity. The hours of service (HOS) regulations which took effect in 2013 reduced the available drive time from 82 to 70 hours per week by eliminating one 34-hour restart.13 Since most drivers are paid per mile, the loss of 12 hours driving time per week had a devastating effect on many drivers’ income. The HOS rule changed and the loss of income is causing drivers to exit the profession. As the construction industry recovers, even more drivers exited as trucking often competes for the same labor pool. The new HOS rules further affected drivers in two key areas. First, drivers were required to take a 30-minute break during the first eight hours of driving. The break requirement forced drivers to take breaks whether they require one or not. They also had to find a place to park, and the time spent searching, pulling into a parking area, and then getting back on the highway further reduced driver productivity. Second, the new restart provisions required two consecutive nights of rest overlapping the 1AM to 5AM time period. To meet this requirement many drivers were forced to operate during peak traffic periods. The result was drivers were less productive, capacity was further reduced, and highway congestion increased. These provisions were suspended by the FMCSA as required by the Consolidated and Further Continuing Appropriations Act, 2015, enacted December 16, 2014. The FMCSA

13 Federal Motor Carrier Safety Administration, “Hours of Service,” www.fmcsa.dot.gov/regulations/ hours of service, accessed June 28, 2014


suspendsedthe requirements regarding the restart of a driver’s 60- or 70-hour limit that drivers were required to comply with beginning July 1, 2013. This suspension will continue through September 15, 2015 or until the Secretary of Transportation provides a report on this provision. Implementation of the Compliance, Safety, Accountability (CSA) program by the Federal Motor Carrier Safety Administration (FMCSA) has further reduced motor carrier capacity. Despite deficiencies in the scoring mechanism, shippers and brokers have used the CSA scores as part of their carrier selection process. Carriers and drivers with low scores have been forced to exit the industry. Capacity The first quarter of 2014 demonstrated the precarious balance between supply and demand in the motor carrier industry. Rates remained high until the drop in fuel prices at the end of 2014. Although carriers have begun to increase capacity, a growing economy and driver shortage will like cause rates to increase in the future (Figure 34).

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Figure 34 DAT Spot Market Rates14

Carriers have not adjusted capacity [size of their fleets] in response to increased demand and anticipated growth in the economy. Current margins will not generate sufficient return-on-investment to justify the acquisition of additional capacity. Even if

14 Compiled from weekly releases from www.dat.com


capacity were added, carriers would unlikely be able to obtain the drivers to fill these tractors. Rail Service Intermodal rail has provided a transportation option for shippers concerned with or experiencing a capacity shortage in the motor carrier industry. Rail carriers have been able to provide competitive service at a lower cost due to the large investments previously made in rail infrastructure. Rail carriers are investing over $10 billion per year to enhance their networks by double-tracking key intermodal routes, raising tunnel clearances to open double stack trains to more regions, and opening or re-opening intermodal hubs to accommodate the growth in intermodal volumes. Potential issues may affect future rail service. The growth in intermodal volumes will require a sustained investment in intermodal hubs, locomotives and rail cars. The railroads are experiencing a shortage of locomotives, and increased movements of crude oil by rail will further strain rail capacity. Federal emission standards may affect future locomotive production and reduce capacity as manufacturers attempt to meet standards. Conversion to natural gas has the potential to negatively affect intermodal rail volumes. Lower natural gas prices will enable motor carriers to compete more effectively with rail over longer distances. Most OTR trucking companies have not shifted to natural gas in large numbers. This shift may accelerate if diesel prices increase or if the cost of natural gas tractors decreases. Intermodal Intermediaries Intermodal adds additional complexity to an already complicated and diverse transportation network. To assist shippers and carriers, several intermediaries specializing in intermodal transportation have emerged. This section of the paper describes several intermediaries playing important roles in integrating and facilitating the intermodal system. These intermediaries include: intermodal marketing companies, brokers, non-vessel owning common carriers (NVOCCs), drayage firms, transload operations, and foreign trade zones (FTZs). Intermodal Marketing Companies (IMCs) An intermodal marketing company, or IMC, is a third-party intermediary that arranges for the movement of its customers’ intermodal freight in containers and trailers. The IMC’s customer is typically the end-user such as Wal-Mart or Home Depot. The IMC also maintains contracts with the railroads to provide for the long-haul transportation of the shipment and drayage companies to arrange for the local pickup and delivery of the same shipment. In addition to negotiating rail and drayage rates on behalf of its customers, an IMC tracks shipments in transit, consolidates billing, and handles claims for its freight loss or damage on behalf of its customers.


The IMCs reduce the marketing and other transactions the railroads would have to perform to attract intermodal freight. As a result, the railroads prefer to do business with only IMCs or very large intermodal customers such as UPS, JB Hunt or the large ocean shipping lines. Smaller shippers approaching the railroads about transporting intermodal shipments will be referred to an IMC. The large trucking companies perform intermodal marketing company, or IMC, activities in addition to moving their intermodal containers and trailers by rail. JB Hunt, which is a trucking company, is also the largest IMC in the United States (Figure 35). Companies such as the Hub Group and Pacer International may own containers, but they are not also considered to be motor carriers. The overall IMC market is about $10 billion in size.

Rank Company 2013 2012 % Change1 J.B. Hunt Intermodal $3,456,000 S3,071,000 12.52 Hub Group 2,150,786 2,042,286 5.33 Pacer International Inc. 759,100 1,179,600 -35.64 Swift Transportation 350,093 333,938 4.85 California Cartage Co. 318,000 311,000 2.36 Evans Network of Cos. 310,000 275,000 12.77 Bridge Terminal Transport 218,244 207,347 5.38 IMC Companies 202,404 177,650 13.99 RoadOne Intermodal Logistic 175,000 175,000 0.010 Quality Distribution Inc. 140,638 130,576 7.711 Universal Truckload Services 131,400 120,381 9.212 TransX 95,951 74,790 28.313 Marten Transport 92,513 71,324 29.714 Landstar System 73,820 73,932 -0.215 Dart Intermodal 43,620 52,400 -16.816 Celadon Trucking Services 37,960 23,145 64.0

Total $8,555,529 $8,319,369 2.8

Figure 35 IMC Market Share (note: does not include privately held firms such as Schneider National)15

Brokers Transportation brokers, such as NT Logistics, have entered the intermodal market as a means to provide additional value to their clients. Although most are non-asset based, some brokers such as CH Robinson have invested in containers to provide more rail carrier options. Through their relationships, brokers obtain intermodal services for their clients. They can purchase intermodal transport at “wholesale”, sell at “retail”, and use the margin to cover the cost of providing the service and earn a profit. Intermodal provides an option for brokers to reduce their clients’ transportation costs while providing nearly the same level of service. As intermodal networks expand, railroads

15 Transport Topics, Top For Hire Carriers


market to the broker community as a means to access a wider range of shippers and to fill existing intermodal capacity. Two options exist for brokers to handle intermodal shipments: door-to-door and ramp-to-ramp. For door-to-door, brokers can work directly with the railroads, through IMCs, or trucking companies with intermodal operations. With door-to-door, the broker obtains a single quote and does not arrange the inbound or outbound drayage. Ramp-to-ramp differs in the broker deals with the rail carrier and arranges the dray portions of the movement. These moves require more sophisticated information systems for the broker to coordinate, price, and pay for three separate moves. In addition, the broker must develop a network of dray firms both on the pick-up and delivery sides of the intermodal move. The choice between these options depends on whether the broker has the ability to arrange the dray and how the margins work. Shippers are now asking their brokers to quote both all truck as well as intermodal. Brokers capable of making the investment in systems and a network of providers can achieve a competitive advantage by being responsive to shipper requests. Brokers can create considerable value for shippers, especially mid-tier shippers lacking sufficient in-house logistics expertise, without the ability to leverage their transportation spend, or possessing sufficient information systems. In addition, brokers are often in a better position to better assess whether intermodal presents a viable option based on the traffic lane, carriers involved, pricing, length of haul, and the length of the dray. International Freight Forwarders International freight forwarders perform functions similar to brokers. They operate as an agent for the cargo owner to manage the transportation of the freight from origin to final destination. They maintain relationships with carriers and other intermediaries. They maintain contracts with carriers for cargo pick-up, transfer to a ship or plane, port and mode transfer, and final delivery. They often assist the shipper in preparing the documentation required for import or export. Some forwarders may own pick-up or delivery terminals and provide local pick-up and delivery service. Forwarders do not issue a bill of lading, or contract of carriage, for the ocean portion of the shipment. As a result, the forwarder isn’t liable for damage for the ocean movement or where it has contracted for transportation. The forwarder’s liabilities extend over possible errors on their part like incorrect or incomplete documentation.16 Non-Vessel Operating Common Carrier (NVOCC) An NVOCC is an ocean carrier which does not own or operate vessels. They are often referred to as non-vessel owning common carriers, or outside the United States as non-vessel owning carriers. In some respects, they operate similar to a forwarder or a

16 “Difference Between Freight Forwarder and NVOCC,” http://www.differencebetween.net/business/difference-between-freight-forwarder-and-nvocc/, accessed June 27, 2014


http://www.differencebetween.net/business/difference-between-freight-forwarder-and-nvocc/

domestic less-than-truckload company. They accept less than container load (LCL) shipments and consolidate them into full containers. NVOCCs may own or lease the containers. They contract with ocean carriers for container slots aboard containerships. The NVOCC issues the bill of lading [contract for carriage] and is liable for damage. NVOCCs may operate a network of terminals and pick-up and delivery networks to support container moves. They may also contract with other transportation agents, such as drayage firms, to serve areas where they may not have a terminal. Three important differences between a forwarder and an NVOCC include:17

1. An NVOCC acts as a carrier while a forwarder does not; 2. An NVOCC issues a bill of lading, and a forwarder does not; 3. An NVOCC is responsible for damage whereas a forwarder is not.

Drayage

Figure 36 Drayage of Containers

The motor carrier portion of the intermodal movement is frequently referred to as drayage. Trucks typically move the containers a short distance to and from seaports or inland ports to the final destination (Figure 36). Many trucking firms have specialized in the drayage industry; however, larger carriers such as JB Hunt have entered this industry and move their own containers. In the past, drayage companies were relatively small, and the industry was very fragmented. More recently, consolidation has been taking place with larger drayage firms purchasing smaller companies to offer nationwide service. Due to the short distances and the picking up and dropping off of containers, drayage services are relatively expensive. Drayage usually does not occur more than 250 miles from an intermodal hub due to the expense.

17 “Difference Between Freight Forwarder and NVOCC,” http://www.differencebetween.net/business/difference-between-freight-forwarder-and-nvocc/, accessed June 27, 2014


http://www.differencebetween.net/business/difference-between-freight-forwarder-and-nvocc/

Transloading Transloading has greatly facilitated the development of inland ports. Transloading concerns the transshipment of loads from truck to rail and vice-versa (Figure 37). It is done to exploit the respective advantages of trucking and rail, namely avoid long distance trucking.

Figure 37 Transloading--Conversion of Containers to Trailers

A producer relying on long distance trucking to service a set of customers is facing many difficulties. The most significant one is the likeliness of empty travel for return trips in addition to the requirement of having a large fleet of trucks to insure a service frequency. By relying on transloading, the producer can ship its freight to a nearby rail terminal where truckloads are transshipped into trainloads. The larger loads are then shipped to a rail terminal in close proximity, say within 150 to 200 miles, of a group of customers. A vast array of value added activities has also emerged at transloading facilities depending on the type of commodities, such as storage, blending, packaging, consolidated invoicing, combined product shipments, bar-coding and labeling. Transloading has increased in popularity for another reason. Most international shipping containers have a 40 foot length. Motor carriers can operate 53 foot trailers in all 50 states. As a result, the use of 40 foot containers decreases motor carrier productivity and increases costs. Many shippers use transloading as a means to reduce the costs associated with motor carriers. The contents of four 40 foot containers can be unloaded and loaded back into only three 53 foot trailers. Transloading eliminates the need to use one drayage truck to move goods to their final destination. This process also allows shippers to take advantage of intermodal rail and further reduce their overall transportation costs.


Foreign Trade Zones Many shippers route their containers through intermodal hubs located in a foreign trade zone (FTZ) to take advantage of their unique capabilities An FTZ is an area within the United States, in or near a U.S. Customs port of entry, where foreign and domestic merchandise is considered to be outside the country, or at least, outside of U.S. Customs territory. Certain types of merchandise can be imported into an FTZ without going through formal Customs entry procedures or paying import duties. Customs duties and excise taxes are due only at the time of transfer from the FTZ for U.S. consumption. If the merchandise never enters the U.S. (for example exported from the FTZ to a location outside the U.S., then no duties or taxes are paid on those items.18 Foreign trade zones provide several benefits including:19

• Deferral of Duties. Customs duties are paid only when and if merchandise is transferred from within the FTZ into U.S. Customs and Border Protection territory. Shippers can store the merchandise in the FTZ until needed or a sale has occurred. The duty can then be paid as the merchandise is withdrawn.

• Reduction of Duties. Shippers may sometimes be able to reduce the duty paid on their merchandise by processing it through an FTZ. In some instances, the conversion of an unfinished product(s) into a finished product within the FTZ may result in a lower duty rate being applied to the finished good.

• Elimination of Duties. Shippers re-exporting merchandise can eliminate paying duty by conducting their operations within the FTZ. The use of an FTZ eliminates the requirement to file for a duty drawback.

• Labor, Overhead and Profit. Companies conducting production operations in an FTZ have the ability to reduce the costs of processing or fabrication, general expenses and profit in the duty calculation.

• Taxes. Shippers can avoid state and local ad valorem taxes by storing imported merchandise, or merchandise produced in the US for export, in an FTZ.

• Quotas. Quota restrictions do not apply to merchandise admitted to an FTZ. However, quotas will apply when the merchandise leaves the FTZ and enters the U.S.

18 National Association of Foreign Trade Zones, “Foreign Trade Zones Explained,” http://www.naftz.org/issues/foreign-trade-zones-explained/, accessed June 29, 2014 19 National Association of Foreign Trade Zones, “Benefits of Foreign Trade Zones,” http://www.naftz.org/issues/the-benefits-of-foreign-trade-zones/, accessed June 29, 2014


Foreign trade zones can provide a significant advantage in the form of cost savings. US customs charges a process fee of .21 percent for all merchandise entering the United States with a minimum of 25 dollars or maximum of 485 dollars per entry. Firms located in a FTZ can achieve considerable savings through the weekly entry program.20 Customs allows these firms to process multiple shipments under one entry per week. They just need to project what will be shipped and provide a summary of the actual shipment when paying the processing fee. A comparison between a non-FTZ and a FTZ-user can demonstrate the magnitude of the potential savings. Assume a large shipper making ten shipments per week with $230,952. The non-FTZ user would pay $485 per shipment on each of the ten shipments. Over the course of a year, the non-FTZ user would pay a total of $252,000. However, the FTZ user would pay the fee only once per week. Over the course of a year, the FTZ user would pay $485 each week, or $25,200. The annual savings would be $226,980. For larger shippers, the decision to locate in an FTZ can provide considerable savings. As a result, many large international shippers choose locations that offer an FTZ.

Inland Ports and Intermodal Hubs The use of intermodal transportation, containers, and land bridges has resulted in the concept of an “inland port.” An inland port is a specialized logistics hub developed to support the efficient interchange between modes and the onward movement of freight. These locations are typically built around an intermodal rail hub or inland barge terminal that is linked to a major maritime port with regular inbound transportation services.21 Inland ports are part of a highly integrated transportation network to efficiently access to inland consumption points and handle inbound and outbound traffic from the region. To support this high volume of freight traffic, a large number of logistical activities are typically concentrated within an inland port including distribution centers, foreign trade zones, transload facilities, public and bonded warehousing, drayage, motor carrier terminals, postponement and other value-added services. Inland Port: Key Attributes Inland ports share several key attributes. They offer low inland rates usually by intermodal rail. The inland port offers the ability to transfer from one mode to another. This transfer requires considerable space for the storage and staging of containers. Infrastructure is required to support the follow-on domestic movement to the final destination. To accommodate international shipping, these facilities usually offer FTZs and provide customs clearance. Due to the large investment and collaboration with government organizations, inland ports usually are a private-public partnership.

20 Foreign Trade Zone Resource Center, “Why Companies Use Foreign Trade Zones,” http://www.foreign-trade-zone.com/benefits.htm, accessed June 29, 2014. 21 Source: Rodrigue, J-P et al. (2009) The Geography of Transport Systems, Hofstra University, Department of Global Studies & Geography, http://people.hofstra.edu/geotrans


http://www.foreign-trade-zone.com/benefits.htm

http://www.foreign-trade-zone.com/benefits.htm

Figure 38 Inland Port Connections22

Location of Inland Ports The location of inland ports is highly dependent on transportation access and proximity to major consumption points (Figure 38). Inland ports require connection to a major maritime port, and typically an intermodal rail hub or inland water terminal is the connection. To facilitate the transfer to other modes, highway connections or outbound domestic rail must be present. Air freight connections enable some inland hubs to take advantage of postponement and customization strategies for high value goods and to provide next or same-day delivery throughout North America. Close proximity to major metropolitan areas is also required to reduce expensive “last mile” deliveries to retailers or the end-user (Figure 39). Infrastructure Requirements An inland port requires an extensive investment infrastructure. The development of intermodal rail facilities have ranged between $68 and $370 million depending on the region and number of planned container lifts.23 Infrastructure is driven by the required capability to receive large volumes of containers, simultaneously accommodate multiple inbound and outbound container trains, temporarily stage tens of thousands of containers, and transfer to outbound containers. For example, the BNSF intermodal facility in AllianceTexas receives twelve to sixteen double stack intermodal trains daily.24

22 Jones Lang LaSalle, “Growing US Exports Will Drive Inland Ports,” Summer 2012 23 Stifel Transportation Research, “How Far Can Intermodal Grow? Conference Call Featuring Jason Kuehn, June 25, 2014. 24 Hillwood A Perot Company, “Alliance Global Logistics Hub,” http://www.alliancetexas.com/Portals/0/ PDF/Alliance_Global_Logistics_Hub_Brochure.pdf, accessed June 28, 2014


Each double stack train averages about 200 containers. The combined inbound and outbound daily flow would require 4,800 truck moves each day. To accommodate the transfer, inland ports require significant investments in rail sidings, container cranes, hostlers and container handling equipment, switching locomotives, intermodal rail cars, intermodal truck chassis, and sufficient space to stage the containers. To manage the flow, sophisticated information technology as well as security is required.

Figure 39 Inland Port Flow

Effect on Economic Development Inland ports often serve as a catalyst for economic activity. Shipper position their DCs close to these inland ports to have access to the low-cost inbound flow of product and to shorten the outbound trucking segment. Third-party logistics providers may offer similar logistics services as well as value-added assembly or product customization. Manufacturers are frequently attracted to inland port locations to obtain increased transportation access and the density of supplier and customer distribution centers in the area. The concentration of distribution and manufacturing activity creates employment opportunities for the surrounding community, and these positions tend to be relatively resilient to changes in the economy. Railroads and Intermodal Hubs/Inland Ports The railroads have invested heavily in developing their intermodal network. The Western railroads directly compete with ocean shipping that can move through the Panama Canal, and they have developed intermodal routes that can deliver freight faster and more reliably than a longer water route. In addition to improving their infrastructure to provide faster and more dependable service, the railroads have constructed intermodal hubs or inland ports. These intermodal hubs are major collection or dispersal points for containers and trailers. For example, the Dallas – Fort Worth area has five intermodal hubs (Figure 41). International containers arriving from the west coast are unloaded in the area and


drayed to their final destination. Also, domestic shipments arrive and depart from Dallas-Fort Worth to other major markets in North America.

Figure 40 Intermodal Hubs in the North Texas Region25

Union Pacific Railroad The Union Pacific Railroad provides intermodal service to the western United States and the North Texas region (Figure 42). Intermodal accounted for 20% of revenues, or approximately $4 billion. The Union Pacific moved 3,812,795 container rail cars and 214,925 intermodal trailers in 2014.26

Figure 41 Union Pacific Intermodal Network27

25 State of Texas, Office of the Governor, Economic Development and Tourism Business Research, Texas Logistics Hub of the Americas 2013, page 7 26 Union Pacific Corporation, Weekly Carloads and Intermodal Traffic Report, Week 53, 2014. 27 Union Pacific Railroad, “Intermodal Facilities Map,” https://www.uprr.com/customers/intermodal/intmap/index.shtml, accessed June 29, 2014


Figure 42 Union Pacific Intermodal Facility Near Wilmer, Texas28

The Union Pacific operates a state-of-the-art 360 acre intermodal facility (Figure 43) constructed at a cost of $100 million and located in the International Inland Port of Dallas (IIPOD). The facility has a capacity of 360,000 container lifts per year. The containers arriving at the Union Pacific yard in South Dallas come primarily from the West coast; however, container service has been provided from the Port of Houston on a limited basis. The Union Pacific intermodal hub anchors the IIPOD and has generated economic expansion in the South Dallas area. The Union Pacific also operates a domestic intermodal yard in Mesquite that provides domestic container and trailer on flatcar service within the United States and North America. The Dallas and Mesquite facilities are two of the ten largest Union Pacific intermodal facilities and lifted 310,000 and 238,000 containers respectively in 2013. BNSF Railroad The BNSF is the largest intermodal rail carrier in the world. In 2014, the BNSF moved 4,352,274 container rail cars and 637,254 trailers.29 Intermodal represented 47.9 percent of the rail cars moving on BNSF in 2014. Intermodal constitutes the bulk of revenue generated in BNSF’s Consumer Products Division which had revenues of $7 billion in 2014.30 Overall, intermodal represents 32.47 percent of BNSF’s rail revenue.

28 Union Pacific Corporation, “Intermodal Facilities Maps, Dallas – Mesquite, TX,” https://www.uprr.com/customers/intermodal/intmap/dallasup.shtml, accessed June 29, 2014 29 BNSF Railway, “Weekly Intermodal and Carload Units Report Week 53,” Week Ending January 3, 2015. 30 BNSF, 2015 10K, page 9.


Figure 43 BNSF Intermodal Network31

Figure 44 BNSF Intermodal Facility at AllianceTexas32

31 BNSF, “Intermodal Map,” http://www.bnsf.com/customers/pdf/maps/intermodal-map-large.pdf, accessed June 29, 2014 32 Source: Hillwood Properties


The BNSF Alliance intermodal facility anchors North America’s model inland port, the Alliance Global Logistics Hub in North Fort Worth, Texas (Figure 44). The facility has the capability to lift over one million containers per year. This facility currently lifts over 600,000 containers per year. International containers arrive mostly from the West Coast; however, the facility also handles domestic containers which account for approximately 60 percent of the volume.33 Twelve to sixteen intermodal trains arrive at the facility daily.34 Many companies such as JC Penney have located at AllianceTexas due to the ability to access intermodal transportation at this facility. The intermodal facility supports an auto processing facility. In addition to the intermodal facility, BNSF also operates a manifest rail yard at the same location. Kansas City Southern Railway The Kansas City Southern Railway (KCS) is one of three Class 1 railroads providing intermodal service to the North Texas region (Figure 45). In 2014, the KCS moved 1,019,600 intermodal carloads or 44.8 percent of the total units moved. Revenues from intermodal operations were $395.8 million or 15.9 percent of total revenue from rail operations.35 The KCS currently operates an intermodal hub in Dallas, however, groundbreaking for a new facility recently took place in Wylie, TX. The current Dallas facility has a planned annual capacity of 168,000 container lifts per year, but actual volumes have regularly exceeded capacity. The new facility will be comprised of two 5,000 foot intermodal tracks, 1,500 parking spaces, and a state-of-the-art information systems including biometric driver identification. The Wylie facility will have a capacity of 264,000 container lifts per year.

33 The contents of many domestic containers may be international freight transloaded at a maritime port. 34 Source: Hillwood Properties, “Alliance Global Logistics Hub” 35 Kansas City Southern Corporation, 2014 Annual Report.


Figure 45 Kansas City Southern Railway Network36

Inland Ports in the North Texas Region The Dallas-Fort Worth area has benefitted from the presence of two major inland ports and five intermodal hubs. The Alliance Global Logistics Hub located between Fort Worth and Denton along interstate 35W is considered to be the premier inland port in the world. The International Inland Port of Dallas (IIPOD) is also rapidly emerging as a major distribution hub in the region and North America. Alliance Global Logistics Hub

The Alliance Global Logistics Hub is located within the 17,000 acre AllianceTexas development. Several features make this logistics hub unique among inland ports across the globe. First, two Class 1 railroads provide service to this location. The BNSF Alliance Intermodal Facility anchors the inland hub. With over 600,000 lifts annually and a capacity of 1,000,000 lifts, this inland port rivals the volume of container lifts of several U.S. maritime ports. Twelve to sixteen double-stack intermodal trains

36 Kansas City Southern Corporation, 2013 Annual Report, p. 21.


arrive and depart daily and provide regular access throughout the US and to the West Coast. The Union Pacific Railroad provides manifest rail service along the eastern portion of the logistics hub. Second, the Alliance Global Logistics Hub is home to Alliance Fort Worth Airport, the world’s first 100 percent industrial airport which provides air cargo, corporate and military aviation services. The airport supports the Southwest FedEx Regional Sort Hub. Third, Foreign Trade Zone #196 encompasses 9,600 acres of the inland port, and this FTZ has been the number one general purpose FTZ in the United States for four years (2006-2008, 2010). Fourth, the logistics hub has onsite US Customs and Border Protection staff and an on-site centralized examination station. Fifth, the inland port is adjacent to Interstate 35W with direct access to the Dallas – Fort Worth metroplex and connections to Interstates 20, 30, and 45. Sixth, twenty-two third party logistics firms and freight forwarders are located within the logistics hub. The Alliance Global Logistics Hub represents an $8 billion investment in development of an inland port and related infrastructure and supporting facilities. This investment has generated an economic impact exceeding $55 billion. Access to intermodal transportation and logistics activities within the inland port has resulted in the development of 34 million square feet of development and attracted a total of 303 corporate residents and 61 Fortune 500 companies, and created employment for more than 40,000 people. Examples of firms with distribution-related operations at this location include: Amazon.com, Wal-Mart.com, Kraft, Martin Brower, LG Electronics, Nestle, Ford, General Mills, Behr Paint, UPS, JC Penney, Lego, Grainger, Bridgestone Firestone, Genco ATC, DynCorp, FedEx, UPS, BNSF, DB Schenker, DSC Logistics, Exel, Ryder, Trans-Trade, Bell Helicopter, General Motors, Amerisource Bergen, Cardinal Health, McKesson, Callaway Golf, Coca-Cola, Lego, Michaels, Hyundai, Volkswagen Audi, Nokia Siemens, Williamson-Dickie, and Texas Instruments. The economic impact of the Alliance Global Logistics Hub extends beyond logistical activities. Fidelity Investments, TD Auto Finance, and Deloitte University have located in areas within the AllianceTexas development. Residential development has occurred to support the workforce and local population including upscale homes and 3,500 multifamily residential units under construction or planned. To support the workforce required to support operations in the inland port, The AllianceTexas development includes a 500 acre community retail center with retail anchors including Belk, Best Buy, JC Penney, Hobby Lobby, Sam Moon, Petsmart, and Cinemark. Medical facilities have followed this growth with a 262,000 square foot Texas Health Resources Harris Methodist Hospital, a 29,000 square foot Parkway Surgical and Cardiovascular Hospital, and a 10,500 square foot ER at AllianceTexas.

International Inland Port of Dallas The IIPOD in South Dallas represents one of the nation’s newest logistics hubs. The IIPOD is a public-private partnership and is a coordinated effort partnering communities and developers. The IIPOD is planned to serve as a catalyst for investment, job growth and development of sustainable communities in South Dallas County.


Figure 46 Map of International Inland Port of Dallas37

The impact area for IIPOD encompasses more than 7,000 acres and six municipalities, including Dallas County (Figure 46). More than 12 million square feet of industrial real estate space has been built or is currently under construction with just over 10 million square feet leased.

37 City of Dallas, Office of Economic Development, http://www.dallas-ecodev.org/redevelopment/iipod/, accessed June 29, 2014


Figure 47 Companies in the IIPOD area38

The location and intermodal capabilities associated with IIPOD have attracted several companies to the region (Figure 47). Among these companies include Ace Hardware, American Standard, BMW, Home Depot, Kohl’s, L’Oreal, Mars Pet Foods, Owens Corning, Quaker Oats, Unilever, and Whirlpool

Intermodal Transportation and the North Texas Region The North Texas region has historically served as a major logistics hub, and the presence of five intermodal facilities has enabled the region to become one of the world’s major global logistics hubs. The region is currently the largest inland port in the United States not located on a border or major waterway. Over $77 billion cleared the DFW customs district in 2014 (Figure 48). The region has over 730 million square feet in industrial space and ranks third after Chicago and Los Angeles in terms of distribution space. Intermodal transportation plays a key role in making North Texas a major trade center.

38 City of Dallas, Office of Economic Development, http://www.dallas-ecodev.org/redevelopment/iipod/, accessed June 29, 2014


The North Texas region possesses the major attributes required to be a global logistics hub. Yossi Sheffi in his book Logistics Clusters identifies these attributes and recognized North Texas as one of the world’s global logistics clusters. The following paragraphs describe how North Texas fulfills each of these attributes.

Country Imports Exports TotalChina 27,264,278,139.00$ 1,352,260,473.00$ 28,616,538,612.00$ Korea, South 5,280,276,652.00$ 3,681,017,254.00$ 8,961,293,906.00$ Canada 4,972,157,829.00$ 136,590,481.00$ 5,108,748,310.00$ Japan 2,717,938,101.00$ 1,599,468,493.00$ 4,317,406,594.00$ Malaysia 2,143,260,693.00$ 886,135,762.00$ 3,029,396,455.00$ United Kingdom 1,699,764,232.00$ 379,453,742.00$ 2,079,217,974.00$ Germany 856,722,256.00$ 962,922,276.00$ 1,819,644,532.00$ Taiwan 1,528,906,957.00$ 67,229.00$ 1,528,974,186.00$ France 1,034,779,395.00$ 366,143,276.00$ 1,400,922,671.00$ Thailand 1,377,279,029.00$ 6,431,302.00$ 1,383,710,331.00$ Mexico 777,904,375.00$ 566,619,845.00$ 1,344,524,220.00$ Netherlands 455,812,650.00$ 760,194,742.00$ 1,216,007,392.00$ Philippines 212,083,150.00$ 761,864,295.00$ 973,947,445.00$ India 636,719,132.00$ 243,403,256.00$ 880,122,388.00$ Belgium 138,337,671.00$ 713,610,404.00$ 851,948,075.00$ Uruguay 2,385,707.00$ 799,390,102.00$ 801,775,809.00$ Israel 746,390,027.00$ 41,275,199.00$ 787,665,226.00$ Vietnam 748,933,808.00$ 821,484.00$ 749,755,292.00$ Hong Kong 141,980,055.00$ 568,056,796.00$ 710,036,851.00$ Switzerland 639,777,170.00$ 24,994,140.00$ 664,771,310.00$ World Total 56,758,498,521.00$ 20,613,827,336.00$ 77,372,325,857.00$

Figure 48 DFW 2014 Imports/Exports by Country

Strategic Location The North Texas region has historically held a strategic position from a logistics perspective. Dallas initially became a trade post because the location provided a good place to ford the Trinity River. The Republic of Texas proposed two highways which would converge nearby. Later, the key to Dallas’ economic expansion was when the city secured and became a crossroad for the Houston and Texas Central Railroad and the Texas and Pacific Railroad. The combination of a strategic location and rail transportation enabled abundant regional agricultural products to be accumulated at this location for transport to manufacturing plants in the North and East.39 Fort Worth’s strategic location was first recognized by the US Army with the construction of an outpost fort. The area later became a center for trade and a terminating point for the Butterfield Stage Coach line. Cattle drives along the Chisholm Trail increased the

39 Texas State Historical Association, “Dallas, Texas,” http://www.tshaonline.org/handbook/online/articles/hdd01, accessed, June 27, 2014


importance of Fort Worth as a center for trade. The local citizens recognized the importance of transportation and were successful in initially attracting the Texas and Pacific Railroad and later several additional rail lines. As meat packing plants located in Fort Worth to take advantage of cattle moving along the Chisolm Trail and rail transportation, Fort Worth became a livestock shipping center and its future growth was closely linked to this industry.40 The continued development of logistics capabilities in Dallas, Fort Worth, and the surrounding area has led to the region becoming one of the major logistics hubs in North America, if not the world. The area currently ranks as the sixth largest economy in the United States (Figure 49)41 based on gross metropolitan product—larger than many states and entire countries. Extensive development of transportation infrastructure and logistics capabilities have supported this growth.

2008 2009 2010 2011 2012 2013*U.S. metropolitan areas 13,269,057 12,994,636 13,461,662 13,953,082 14,606,938 15,079,920 .......New York-Newark-Jersey City, NY-NJ-PA 1,282,104 1,291,817 1,338,889 1,373,748 1,435,294 1,471,170 1Los Angeles-Long Beach-Anaheim, CA 780,046 748,002 757,003 775,823 805,437 826,826 2Chicago-Naperville-Elgin, IL-IN-WI 528,852 518,897 534,001 550,817 575,828 590,248 3Houston-The Woodlands-Sugar Land, TX 417,335 375,438 402,383 447,911 489,186 517,367 4Washington-Arlington-Alexandria, DC-VA-MD-WV 411,023 417,664 435,995 449,440 460,012 463,925 5Dallas-Fort Worth-Arlington, TX 377,321 355,667 377,216 404,175 432,356 447,574 6San Francisco-Oakland-Hayward, CA 343,156 327,531 334,610 347,758 378,188 388,272 7Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 344,292 346,536 354,528 362,802 375,652 383,401 8Boston-Cambridge-Newton, MA-NH 317,076 315,377 331,168 343,045 358,837 370,769 9Atlanta-Sandy Springs-Roswell, GA 278,250 272,865 277,282 284,644 296,300 307,233 10Seattle-Tacoma-Bellevue, WA 241,874 240,074 247,902 256,107 273,632 284,967 11Miami-Fort Lauderdale-West Palm Beach, FL 264,076 247,947 250,720 255,779 269,554 281,076 12Minneapolis-St. Paul-Bloomington, MN-WI 196,547 192,686 200,702 211,326 219,706 227,793 13Detroit-Warren-Dearborn, MI 203,304 187,124 199,528 208,600 218,227 224,726 14Phoenix-Mesa-Scottsdale, AZ 193,233 179,998 183,248 192,242 203,531 209,523 15San Diego-Carlsbad, CA 176,616 173,564 175,201 182,676 190,940 197,886 16

Current-Dollar Gross Domestic Product (GDP) by Metropolitan AreaMillions of dollars 2013

Rank*

Figure 49 Gross Metropolitan Product by Region

The North Texas region has extensive transportation infrastructure to support trade. Three Class 1 railroads serve the area and operate five intermodal facilities (see Figure 41) providing international and domestic service.42 These intermodal hubs are instrumental for the region to serve as an inland port for maritime ports along the West coast. The region has an extensive highway network including Interstates 20, 30, 35E, 35W, and 45. Multiple airports are located in the area with DFW serving as an economic engine for the entire region. DFW airport ranks third in passenger traffic and eleventh in air freight (Figure 50). American Airlines is headquartered at DFW. Love Field provides passenger and cargo service throughout the US and Caribbean. Southwest Airlines has its headquarters at Love Field. Alliance Fort Worth (AFW) airport is the country’s first airport designed to support industrial operations. FedEx has

40 City of Fort Worth, Texas, “Fort Worth History,” http://fortworthtexas.gov/government/info/default.aspx?id=3252, accessed June 27, 2014 41 US Department of Commerce, Bureau of Economic Analysis, http://www.bea.gov/newsreleases/regional/gdp_metro/gdp_metro_newsrelease.htm 42 Office of the Governor of Texas (2012), Texas Logistics Hub of the Americas


a major sort facility at AFW, and several carriers provide charter freight services from this location.

World Ranking

NAM Ranking City

State/ Province Country Apt

Total cargo 2013

Total cargo 2012 % Change

2 1 Memphis TN TN USA Memphis Int'l Apt 4,137,801 4,015,997 3%6 2 Anchorage AK AK USA Ted Stevens Anchorage Int'l Apt * 2,421,145 2,463,696 -2%7 3 Louisville KY KY USA Louisville Int'l Apt 2,216,079 2,168,365 2%

11 4 Miami FL FL USA Miami Int'l Apt 1,945,012 1,929,889 1%14 5 Los Angeles CA CA USA Los Angeles Int'l Apt 1,747,284 1,780,998 -2%19 6 New York NY NY USA John F. Kennedy Int'l Apt 1,295,473 1,285,737 1%21 7 Chicago IL IL USA O'Hare Int'l Apt 1,228,791 1,254,183 -2%22 8 Indianapolis IN IN USA Indianapolis Int'l Apt 991,307 922,414 7%33 9 Newark NJ NJ USA Newark Liberty Int'l Apt 652,559 748,284 -13%37 10 Atlanta GA GA USA Hartsfield-Jackson Atlanta Int'l Apt 616,365 655,123 -6%39 11 Dallas/Fort Worth TX TX USA Dallas/Ft Worth Int'l Apt 591,639 602,658 -2%40 12 Cincinnati OH KY USA Cincinnati/Northern Kentucky Int'l Apt 590,630 538,674 10%44 13 Oakland CA CA USA Oakland Int'l Apt 484,092 481,280 1%49 14 Houston TX TX USA George Bush Intercontinental Apt 426,805 438,375 -3%50 15 Ontario CA CA USA LA/Ontario Int'l Apt 417,790 412,661 1%52 16 Toronto ON ON Canada Toronto Pearson Int'l Apt 414,263 417,022 -1%53 17 Honolulu HI USA Honolulu Int'l Apt 412,807 412,270 0%56 18 Philadelphia PA PA USA Philadelphia Int'l Apt 380,068 388,930 -2%61 19 San Francisco CA CA USA San Francisco Int'l Apt 363,793 380,791 -4%72 20 Seattle WA WA USA Seattle-Tacoma Int'l Apt 292,709 283,610 3%

Figure 50 DFW Air Cargo Volume (tons)43

The flow of goods through the area has made the region a major distribution center. For example, over 60 Fortune 500 companies have located in the Global Logistics Hub at AllianceTexas. The region has over 710 million square feet of industrial space which ranks third in the United States (Figure 51).44

Figure 51 US Industrial Real Estate Markets

Geography The North Texas region offers a central location for supporting logistics operations. The distance from the West coast makes intermodal an attractive option. Intermodal is both

43 Airports International Council—North America, http://www.aci-na.org/content/airport-traffic-reports accessed October 19, 2014 44 CBRE, US Industrial Marketview, Q4 2014


http://www.aci-na.org/content/airport-traffic-reports

http://www.aci-na.org/content/airport-traffic-reports

less expensive and faster than single-driver OTR trucking. Goods arriving from the West coast can be distributed to 85% of the US population within a two-day or less drive time (Figure 52). With the exceptions of the extreme Northeast or Northwest, distribution centers co-located near the region’s intermodal hubs can reasonably serve the continental US.

Figure 52 Truck Drive Time from North Texas

The region’s geographic location provides an advantageous position for companies importing or exporting goods to Mexico, the United States’ third largest trading partner. Interstate 35 serves as a major highway in the NAFTA corridor, and a large amount of NAFTA trade passes through the area. Goods imported from Mexico can be stored, merged in-transit, or have value-added or customization performed in the area before redistribution throughout North America. The region has similar benefits when importing or exporting to Latin and South America through DFW airport and the Port of Houston. A unique feature of the region is that sufficient room exists for substantial growth. The AllianceTexas industrial development is only 40 percent built out and additional open space is available to the north along I-35W and I-35. This area has benefitted from the close proximity to the BNSF intermodal hub which has additional space and capacity to grow. The South Dallas area has only begun to be tapped as a major site for industrial development with considerable space available adjacent to the Union Pacific intermodal hub and interstates 35, 45 and 20. DFW and AFW airports likewise possess considerable space to support continued development well into the future. The region’s weather further facilitates trade. North Texas is close enough to the Gulf to facilitate trade with South America or through the Panama Canal, but the area is far enough away to greatly diminish the possibility of hurricane damage. With few exceptions, transportation and distribution operations are not impeded by weather conditions.


Proximity to Major Consumption Area The logistics activities located in the North Texas region benefit from being adjacent or close to several major consumption areas. The region has the sixth largest metropolitan area in terms of GMP (see Figure 49) but is within a few hours of Houston-Galveston, the fifth largest metropolitan area. Several of the fastest growing cites in the country are within the region or close by including Houston (#2), San Antonio (#4) Austin (#6), Dallas (#10), and Fort Worth (#14).45 Other major areas within a relatively short distance are Oklahoma City, Tulsa, and Shreveport. High Density of Freight Volumes High volumes of freight moving into and out of an area ensure lower rates and improved market accessibility. In terms of freight tonnage moved, North Texas ranks sixth (Figure 53). For example, approximately 50 air carriers call on DFW airport which has allowed 250 air freight forwarders in the region to have access to the destinations served by these carriers. Freight can often be moved in the “belly” of these aircraft. With the high frequency of flights, high priority cargo can, in many instances, have same-day delivery. Intermodal rail arrives six to eight times per day at the BNSF and Union Pacific facilities from the West coast. Several thousand trucks pick-up or deliver these containers on a daily basis. These large numbers of carriers generate not only greater accessibility to other markets, they also stimulate competition and lower rates. For consumers in the region, these volumes translate into ample availability of goods, a wide array of brands and product offerings, lower prices, and a lower cost-of-living. For shippers, the situation is very similar. The availability of carriers and accessibility to domestic and international markets makes the region very attractive for locating distribution operations. Shippers prefer to locate their distribution operations in high volume areas to have access to a larger number of carriers, frequent service, lower rates, and the ability to access more shipping points.

45 Pushnick-Masti, Rami and Jesse J. Holland (2014), “Census: Texas has 3 of 5 Fastest Growing Cities,” Colin County Business Press, No. 318, June 2014, p. 14.


Figure 53 Freight Tonnage Moved by Metropolitan Area46

Major Trade Lanes The North Texas region straddles several major trade lanes (Figures 54 and 55). The western Class 1 railroads major rail arteries pass through the region. Rail lines supporting domestic and international intermodal, manifest freight, and NAFTA trade flow through Dallas and Fort Worth. Trade from Mexico and Canada pass along the I-35 corridor. Truck traffic passes east – west along Interstate 20 and north – south along Interstates 35 and 45. Trade moving by international water reaches the area from the Far East via maritime ports on the West coast and intermodal rail. Other international freight flows into the region through the Port of Houston. AFW airport serves the air cargo lane to and from Anchorage, AK and onto the Far East. DFW airport serves many global trade routes to major population centers on six continents (Figure 56).

46 The United States Conference of Mayors and Global Insight, US Metro Economies, Lexington, MA, July 2012.


Figure 54 Major Trade Lanes Spanning the North Texas Region47

Figure 55 Major Truck Routes on the National Highway System48

47 Hillwood Properties, “Alliance Global Logistics Hub,” p. 4. 48 Federal Highway Administration, Freight Facts and Figures, January 2014, page 38.


Figure 56 Major Import/Export Lanes Serviced by DFW Airport

Late Stage Customization Major distribution hubs, such as North Texas, provide excellent locations for late stage customization of consumer products. Unfinished goods can be moved close to major consumption areas using less expensive intermodal rail. These products can be located with other components sourced from Mexico which are needed to produce the finished product. Storage in an unfinished state results in lower risk and inventory carrying cost for the manufacturer. When an order is received, the components can be quickly assembled, customized, or have other value added services performed before delivery to the end-user. Since the area is located on several major trade lanes with a large number of carriers offering a high frequency of service, the finished goods can be quickly transported and delivered to the final destination. The foreign trade zones (FTZs) in the area further reduce the cost of late stage customization. While in the FTZ, duties are deferred until entry into the US. In some instances, duty may not be charged depending on the processes and combination of products occurring within the FTZ. Companies in an FTZ can further reduce the material processing fee charged by CBP through the weekly entry program.


Attraction of other Industries to the Region Logistics clusters such as the inland ports in North Texas provide the infrastructure and transportation capabilities required by many industries. The density of transportation providers ensures the availability of transport services and competitive rates. A large number of carriers across multiple modes provide access to a wide range of suppliers and customers across the globe. The presence of air, motor, and intermodal rail combined with distribution facilities provide the frequency and speed to support just-in-time manufacturing, cross-docking, or other value-adding services. The North Texas region has attracted several industries such as electronics, telecommunications, medical devices, aerospace, and automotive. More recently, Amazon has located two large fulfillment centers in Coppell and in AllianceTexas. These industries have largely located here due to the availability and frequency of transportation offered by several modes. Employment Transportation and logistics industries provide stable and resilient employment for North Texas. Logistics activities often cannot be off-shored due to their very nature or to achieve the lowest landed cost. For example, postponement and customization operations often must be located near end-markets to keep transportation costs low and service levels high. Some activities such as the physical movement of goods cannot be off-shored, and for food and other essentials, transportation must occur regardless of the state of the economy. The development of logistics hubs can result in a region replacing manufacturing jobs lost to off-shoring with logistics jobs. The positions created by logistics increase employment opportunities in a region and provide a pathway to the middle class. In the case of the rail industry, rail employees in Texas average over $100,000 in total compensation including benefits. Although not entirely recession-proof, employment in transportation and logistics tends to be more resilient during periods of economic downturns than other industries. Education Logistics industries are labor intensive and require well-trained and educated individuals at multiple levels. The North Texas region continues to successfully attract distribution operations to the area because of the many skilled distribution workers in the region and the presence of higher education institutions offering logistics and supply chain management programs. The Dallas County, Tarrant County, and North Central Texas Community College Districts offer logistics programs. Some programs are focused on providing skilled workers and certifications for specific distribution functions; for example, one program trains and certifies individuals in forklift and distribution operations. These institutions also offer associate degree programs with several specializing in logistics to support supervisory or technical positions.


The North Texas region can boast of two undergraduate programs which are ranked in the top 25 in North America. Texas Christian University and the University of North Texas graduate students with a near perfect placement rate upon graduation. Students graduating from these programs are highly recruited within the region and by companies throughout North America. The University of North Texas has incorporated a strong intermodal focus in the logistics curriculum and is recognized as one of four scholarship schools by the Intermodal Association of North America. Graduates from the University of North Texas automatically qualify for the professional certification in transportation and logistics (CTL) offered by the American Society of Transportation and Logistics (AST&L).

Summary Intermodal transportation has experienced tremendous growth since Malcolm McLean initiated service with the Ideal X. The ability to obtain the lower costs of water transport with the accessibility of motor carriers quickly made intermodal transportation a competitive force. Many factors contributed to the growth of intermodalism including decreased transit times and reduced damage and handling. Standardized containers and handling equipment produced many of the benefits associated with intermodal transportation. The reduction in transit times and handling facilitated the expansion of global trade which further accelerated the acceptance and growth of intermodalism. The connectivity made possible through intermodal transportation has transformed North Texas from a regional distribution center to a global logistics hub. North Texas has become the nation’s largest inland port [not on a border or coastline] with over 1.2 million container or trailer lifts per year, $77 billion of international trade clearing customs in the region, the third largest industrial market with over 730 million square feet of distribution space, two inland ports with the Alliance Global Logistics Hub considered to be the premier facility in the world, three major airports with DFW among the nation’s and globe’s largest, and the sixth largest economy in the U.S. The trade flowing through North Texas has attracted logistics providers such as BNSF, the single largest intermodal provider in the world, but also the distribution operations for hundreds of companies including many on the Fortune 500. The concentration of economic activity combined with the capability of intermodal hubs to generate employment opportunities has led to North Texas becoming one of the fastest growing regions in the country. Intermodal transportation continues to be the economic engine propelling the North Texas economy forward.
