By Theodore Prince - Tiger Cool Express Co-Founder and Chief Operating Officer
As originally published in the Journal of Commerce
“Laissez les bons temps rouler” is a Cajun expression meaning “Let the good times roll.” As the intermodal industry assembles in Long Beach, California, for the annual Intermodal Association of North America Intermodal Expo (Sept. 16 to 18), there is measurable evidence of the industry’s positive trends. For example, second quarter 2018 volume saw a 6.2 percent increase over the same quarter last year, and a 4 percent improvement over first quarter 2018. The first quarter was the best result in almost four years, and the most recent quarter was the highest volume quarter ever.
Signs of US intermodal’s renewed strength abound. Shippers find that they can no longer secure truck capacity at will; they might have to wait days (sometimes, if they are lucky) to have a load picked up. Rates obtained in previous bids may now be ignored by carriers who can find much more profitable moves. Moreover, truck transit times have increased because exceeding legal hours of service is no longer viable, as a result of the electronic logging device (ELD) mandate.
The robust strength of the US truckload market has extended to intermodal and the rising price tide has lifted all providers. However, some intermodal providers have announced that committed capacity has been exhausted, and shippers will need to accept the whims of the spot market. These signs of scarcity have alarmed those who have come to expect unconstrained growth.
More often than not, intermodal is no longer “truck plus 1.” Competing on a level service field, intermodal can now publish transit times that are the same — or even faster than — a legal, single-driver truck. Unfortunately, these published transit times are not always delivered consistently, so there are increasing concerns about intermodal service.
In George Orwell’s novel Animal Farm, the governing pigs declared, “All animals are equal, but some animals are more equal than others.” So is it also with intermodal train service. Premium, end-to-end trains frequently command priority and maintain high levels of service integrity. Other trains are not so fortunate.
Several reasons contribute to poor train service: network congestion, scheduled maintenance, adverse weather, and acts of nature. Additionally, they frequently feed on each other and cause disruption frequency to multiply and operational impact to escalate in magnitude.
Unfortunately, there are no publicly available metrics. Intermodal train speeds are not instructive. However, because this information exists, analysts focus on it. This is about as helpful as ancient fortune tellers studying the entrails of sacrificed animals. While train speeds — measured from departure to arrival — may be useful for bulk commodity unit trains, intermodal must be measured from origin in-gate to destination availability. Figure #1 depicts the sequential challenges an intermodal load needs to surmount to deliver on-time. Issues can include one of the following:
- A train can be on time, but the load wasn’t placed on the train as it should have been
- The load can be placed on an on-time train, but it wasn’t unloaded timely
- The load can be placed on an on-time train, but it fails to make a connection — or suffers some service mishap on a subsequent train. (Note: The subsequent train could be that of another railroad.)
Intermodal ramp capacity and performance
As the end points of train movement, intermodal ramps are the key nodes in the service network. Terminal service problems have been so severe this year that railroads have had to close the gates to overcome their accumulated service problems. This is a courageous act, but it can leave customers lacking solutions. Some problems were inevitable because railroads were expanding capacity. This is extremely challenging under the best of situations and very precarious under most.
When deconstructing ramp performance, one must consider the first point of possible failure to be the interface with transportation: are trains arriving and departing on time, with timely ramp placement and pulling? If not, the best made plans are quickly scuttled. Most terminals rely on a sophisticated choreography of trains arriving and departing. The dislocation of just one event can trigger a series of failures resembling cascading dominoes.
Figure #3 shows how a terminal handles a series of inbound and outbound moves. As soon as one interval is late, all subsequently planned activities are “pushed.” In some cases, additional capacity can be reclaimed, although it may be very expensive. The most frequent options are one of the following:
- Bring in extra ramp personnel
- Deploy more switching resources
- Leave it to the customers
These are subject to:
- The availability of reserve capacity
- Willingness to absorb additional expense
Additional ramp personnel can be brought in if they are available. This can be accomplished by incentivizing current employees by paying overtime for more hours, or it could require airlifting personnel from other locations. If the ramp is outsourced, the ramp contractor may be expected to spend more money — perhaps without any likelihood of reimbursement.
Contractors are increasingly seeing margins squeezed by the pincer of railroad’s sourcing process (which drives down rates) and a tight labor market (which drives up labor costs). Ironically, the recent trend of co-locating greenfield intermodal ramps within logistics parks has created alternative (indoor) employment for potential (outside) ramp workers. When the warehouse is offering full benefits and above-minimum wage rates, it may be almost impossible for the ramp operator to attract qualified employees.
Another response to overcoming train delay is to deploy more switching resources. While this is outsourced in some cases, it is predominantly provided by the railroad’s transportation department. Given the focus on cost (and operating ratio) reduction, many railroad personnel are reluctant to spend this extra money from their local budget, although resulting network diseconomies will cost much more.
Railroads could run shorter trains — which would allow trains to arrive, unload, reload, and depart without additional switching. But no railroads seem to have adopted such a path even if a temporary imposition could generate immediate relief. Once again, intermodal service is sacrificed for transportation’s cost savings.
The terminal management challenge is complicated because (at four of six Class 1 railroads) intermodal operations do not fall under the commercial umbrella; they are part of operations. In today’s operating ratio-focused culture, balanced decision making focused on (qualitative) customer requirements may be replaced by a more (quantitative) focus on controlling costs — regardless of the service impact.
-While no railroad would ever consider outsourcing the operations of a major classification yard, railroads think nothing of doing the same with major intermodal facilities. Problems are exacerbated when long-time contractors with essential domain expertise are replaced to achieve modest savings (which will doubtless be consumed during the first network problem).
-Although extensive functional and geographical experience is required to reach officer level rail operational positions, such experience is not always required to do so in intermodal. If domain expertise and institutional memory are essential for the former, why are they not required for the latter? Like many aspects of railroading, intermodal is complicated, and it is not always intuitive. Why, then, is subject matter expertise not prized; and why are railroads not building their intermodal leadership as thoughtfully as they built the rest of their operating team?
Service to the customer
Increasingly, service problems are left to the customer to solve (and pay for). The capacity challenges described above are not unique to railroad networks and terminals; they are persistent through the US supply chain. A delayed load may have severe repercussions. Delivery appointments are frequently made days ahead of time. Changing them may not be easy. Figure #4 indicates how a delay of just hours can result in a four-day delivery delay when the customer has no “next-day” appointments available.
Part of this challenge is ELD-related. Customers are feeling increased pressure to quickly load and unload over-the-road drivers. Several reasons stand out.
-While there may be trouble getting a load picked up, truckers’ service is viewed as more reliable and time-definite. Ironically, intermodal’s promotion of “drop and hook” handling — instead of traditional live loading — may have the unintended consequence of conveying a less draconian dock delay approach.
-Once a trucker departs origin, the delivery appointment is usually met, so rescheduling is not necessary. The same is not always true of intermodal.
As in any asset-based, network-operating business, delay in delivery can cascade to subsequent plans. Figure #5 demonstrates how this permeates a network. Assets planned for a street-turn that encounter a delivery problem will be unable to make the planned pickup. This will require a change in that load’s planned delivery. This will slow down asset velocity, with overall network health deteriorating. The same problem can occur when railroads prioritize loaded movement. When empties are not loaded out properly, the same subsequent pickup shortage occurs.
While appointments are universally difficult to change, the closer to the planned event a request is made, the harder it is to reschedule. In Figure #2, the need for a rescheduled appointment is realized two to three days before delivery, whereas in Figures #4 and #5 the appointment may be missed before the customer is aware of the need for rescheduling. While there are always exceptions, the further in advance the need for appointment changes can be detected and rescheduled, the easier rescheduling will be — and the more shippers can mitigate a customer’s unhappiness.
These customer costs are not notional. Many customers (or their customers) have imposed financial service penalties for failure to deliver on time. These can quickly rise to $500 (or even more) for a single incident. In some cases, the amounts can be mitigated by advance notice. A pickup failure may be far enough in the future to reschedule without serious impact; however, late deliveries will usually incur the maximum penalty.
This may drive counter-productive behavior. To minimize the likelihood of penalty, carriers may opt to push delivery appointments further in the future. When on-time transit occurs, dwell increases.
Better communication between railroads and their customers could overcome this problem. Railroads have been asking customers to declare “deliver by” dates to allow the most service sensitive loads to move before those with later delivery dates. To succeed, railroads must build trust by demonstrating that they can really meet these dates. Unfortunately, receivers may not have as much control over their inbound supply chains as they would like shippers to believe. They frequently seek deliveries today on a load originally scheduled to be delivered next week. This promotes the use of just-in-case rather than just-in-time inbound logistical planning.
The detention dwell dilemma
Terminal service problems frequently track congestion arising from extended dwell, giving rise to a vicious cycle.
-When outbound loads (or empties) can’t be loaded then there may be insufficient space to unload — or chassis to unload to.
-When inbound loads can’t be unloaded then there are no empty cars to load outbound units.
Social science describes the “tragedy of the commons” as a situation where individual users in a shared-resource system act to secure their own self-interest and engage in behavior contrary to the common good of all users. Intermodal providers consuming scarce parking resources deplete that resource — and spoil the operation for all. In some cases, this arises from pure selfishness (or customers with special storage deals); however, there is some evidence of ignorance. (Even today there are asset-owner shippers that don’t know where their equipment is — or whether it belongs where it is currently located.)
Railroads have implemented rail storage plans designed to improve terminal velocity. Although these are viewed as price gouging by some, most terminals would be happy to never bill — having avoided dwell congestion.
Figure #6 highlights the dilemma resulting when additional dwell is driven by service failure. Whereas the railroad views the load as overstaying its allotted free time, the customer views this additional dwell as the result of the railroad failing to perform the prescribed service. Short of getting the receiver to adjust the appointment, the only other alternative is to double-dray the load to an interim location until time for delivery. Not only does this increase cost to the customer, it is not necessarily practical, given current drayage capacity constraints. Finally, many draymen (and their insurance carriers) do not want to store loads and incur claim exposure. (Take special notice: In this example, it is less expensive to pay the rail storage.)
Fail to plan — plan to fail
It is very rare for an intermodal terminal to fall into severe failure overnight. Rather, shippers typically see a death spiral as problems escalate. Sometimes failures may be confined to a single terminal; however, once a major terminal starts to fail, problems inevitably permeate the network (or even the nation) like waves in a ripple tank.
To recover, the terminal needs a plan and time frame to work out of the problem. This is where planning and communication is essential. Specifically, when are the necessary resources going to be in place (e.g., parking, personnel, chassis, snow removal, switch crews, etc.) and in what order will units be handled and made available? In other words, what inventory method will be applied: first-in-first out; last-in-first out; or the dreaded first-in-last-out? In some cases, the answer seems to change by the hour.
This year, not only have there been problems, but often railroads have been unable to reliably communicate plans, if any exist, to address these problems. Frequently, they have then been unable to deliver on their plan. It would be beneficial to all stakeholders — internal and external — if plans could be real-time, granular, time-definite, and transparent.
Many of these service challenges converge in drayage — where the intermodal rubber meets the road literally. Although ELDs have helped increase demand for intermodal, they have also reduced the capacity of the ingredient that makes intermodal “look like truck.” Figure #7 demonstrates the impact of ELDs. A year ago, a drayman might have taken work that may — or may not — have been capable of being legally handled under hours of service. In that case, the drayman may have been willing to start the move “on the clock” and finish “off the clock.” (This was not unique to drayage.)
The result is that many moves that were accomplished by one drayman in one day now take two days. This requires even more draymen to handle the same level of traffic. Figure #8 shows the economic impact. The driver now wants to make the same amount of daily compensation in eight hours that it previously took 14 hours to accomplish. Given drayage capacity in many markets, supply and demand have enabled this to be achieved.
Since drayage is now scheduled and committed many days in the future, changes to appointments are very disruptive. Drayage capacity that was available for today (when it was dispatched last week) may not be available for a rescheduled delivery in two days. Appointment scheduling now becomes the latest of customer availability and drayage capacity.
The 'Easter Sunday' dilemma
The North American rail intermodal network has been a success model for the rest of the world. Its growth over the past 30 to 40 years has been achieved through numerous initiatives, but the industry’s willingness to plan and invest for growth has been a fundamental component. Rather than refuse to build “the church for Easter Sunday,” intermodal’s continued investment enabled
this year’s peak to become the future’s base volume.
Many railroads have advanced by planning future investment to this year to accommodate unexpected growth. However, expanding parking and bringing in more chassis is a marginal improvement; significant, additional terminal capacity is needed to keep growing.
Major greenfield sites can take five to 10 years (or longer) to achieve. What are the plans? The answer is a complex web of expectations and financial planning. But today’s opportunities are breathtaking. Will the industry find the way to stabilize service and realize the value proposition available?
While some solutions lie far in the future, there are several initiatives that could improve service overnight. Most involve better communication between railroads and customers.
-Publicly provide intermodal service statistics that are measured on box availability versus service plan. Ideally, differentiate between terminal problems and train connection failures.
-Publicly provide key performance indicators on major intermodal facilities such as car spot, parking slot, and lift device productivity; lifts-per-man hour; average dwell; load failure; and service plan compliance. After 50 years of objections, marine terminals have finally started doing this.
-Complement “deliver-by” adoption with publicizing day-of-the-week and time-of-the-day volumes to identify relatively slack periods.
-Report grounding by individual unit in real time. Although this technology has been available for more than 25 years, some Class 1 railroads still haven’t fully implemented it. This would eliminate the dual problems of draymen arriving to pick up loads reported grounded that are not available and draymen not coming for loads that have been grounded — but not yet reported as
-Develop dynamic updating of the time at which a unit is expected to be available. This will eliminate uncertainty, confusion, and ill will. And, once such a capability is developed, automatically push it to the customer by electronic data interchange. Don’t restrict availability to your proprietary webpage. After the fact, measure how accurate shipping predictions were (e.g., frequency and magnitude of change) and adjust for future moves.
-Seek to integrate predictive analytics when an intermodal move involves more than one railroad. Interline Service Management has been discussed for 35 years. It’s time to bring it into daily practice.
-Improve the process for communicating during periods of service duress. This may require railroads to tear down internal institutional barriers between sales, customer service, intermodal operations, and transportation. Make sure that external communications (e.g., webpages and emails) are comprehensive and accurate.
-Track customer service metrics (e.g., time to pick up the phone, percent dropped calls; time to close trouble tickets; magnitude of problems.) If shippers don’t want to make them public, they
should at least share them with their customers.
-Benchmark storage policies with service. Don’t penalize customers for railroad service failures. Measure adoption and success rates with “deliver-by” initiatives.
-Formalize customer feedback to find solutions that can deliver immediate positive improvement.
-Include draymen in a similar effort. Encourage phone app adoption and publish adoption by ramp and dray carrier.
-Ignore the urge to “shoot the messenger.” The stakeholder speaking up is only articulating what many others are silently thinking. (Take special notice: Except for one Class 1 railroad, most railroads have done well on this.)
Like politics, almost all intermodal service failures are local. The frequency, impact, and duration can vary widely. The intermodal industry has grown through the concerted efforts of many people, and it has faced its share of difficulties. What is different this time is that intermodal is increasingly in the mainstream of transportation, when the entire supply chain is struggling to
overcome a capacity-constrained US trucking market.
This may be the industry’s greatest opportunity for transformational growth in 40 years. Shippers all benefit from intermodal’s growth. Hopefully, the good times will continue to roll. Enjoy the Expo.