Placing Bets on Intermodal Rail

Talking with Rodney Kreunen, Wisconsin Railroad Commissioner-Emeritus, one wonders if he ever got the moniker “Rapid Rodney?”

The Madison-based ferroequinologist, which is a fancy term for railroad enthusiast, can quickly tick off the merits of intermodal rail when high-speed rail (between cities) and commuter rail have yet to be fully developed in Wisconsin.

Kreunen’s reasons for promoting this method of shipping are many. They include lower fuel costs, a shortage of long-distance truck drivers, and the economic security of stretching energy resources. Perhaps the most compelling justification is road congestion.

This may be a self-serving forecast, but the Norfolk Southern transportation company, which is pursuing the $2 billion Crescent Corridor intermodal initiative between New Jersey and Louisiana, predicts that trucks will account for 20% of traffic on many highways by 2012.

“We can’t expand the roads much more,” Kreunen agreed. “We’ve run into capacity limits with highways.”

Warren’s Wager

Intermodal simply refers to a method of shipping freight by two or more modes of transportation such as ship to rail or rail to truck. Goods are shipped in containers that are designed for all types of intermodal transport; the containers, which resemble a truck trailer, are lifted onto the flat cars of trains or trucks at railroad terminals.

Even Kreunen admits that intermodal is not glamorous, but he’s not alone in his evangelism. Esteemed investor Warren Buffet has invested $34 billion — not mere Monopoly money for his Berkshire Hathaway investment firm — to fully own Burlington Northern Santa Fe, the nation’s second largest railroad, which already hauls goods like food, cars, electronics, and appliances. Given intermodal’s purported advantages in efficiency, reduced carbon emissions, and reduced fuel consumption, he’s betting that shipping via rail will become even more commonplace than it is today.

Others already have a piece of that bet. Green Bay-based Schneider National provides nationwide intermodal coverage in the United States and portions of Canada, as well as service to Mexico’s prime industrial centers. In the cases of Canada and Mexico, intermodal improves freight security for cross-border shipments.

Steve Van Kirk, vice president of intermodal commercial management for Schneider National, said benefits like reduced fuel consumption and safer roads are among the reasons why intermodal service will grow in the years ahead. He also alluded to the shortage of long-haul truck drivers nationally, a situation he attributed to the fact that most people “don’t really have a desire to be a long-haul driver and not see their family for a couple of weeks.”

In addition, Van Kirk said more upward movement in the price of fuel, which is always a distinct possibility, would strengthen the intermodal value proposition.

“I think there is a lot of value to be offered by intermodal for shippers and I think for people all over the country who are driving on the nation’s roads and highways,” Van Kirk said. “To me, the value proposition for intermodal is pretty simple.”

According to Kreunen, there also is the real potential for intermodal rail to spur more economic development along existing routes, especially for manufacturers, and there is a security component. The intermodal containers are less vulnerable to theft.

It’s very unlikely that area manufacturers would build the containers, however. Stoughton Trailers once manufactured domestic intermodal transportation equipment; in fact, domestic intermodal containers and chassis comprised 40% of its business until China, with its stark labor cost advantages, started to make them two years ago (it has manufactured international containers for years).

Don Wahlin, CEO of Stoughton Trailers, said China can make domestic containers for about 30 cents an hour in U.S. equivalent labor costs, in large measure because they don’t offer any fringe benefits (their laborers work 10 hour days, six days a week). In contrast, Stoughton Trailer’s average labor cost was about $22 an hour, including benefits, when China entered the domestic market, and has since increased to about $26 an hour.

“They [the Chinese] can lay it into the west coast cheaper than we can buy the materials for it,” noted Wahlin, who said Stoughton Trailers would not get back in this business as long as such a cost differential exists. “We built a plant in Evansville just to build containers and chassis for the domestic market,” he added. “We built that in 1991 and it was very busy up until two years ago.

“There were three of us building the [domestic] intermodal containers: Wabash down in Lafayette, Ind., Stoughton Trailers, and Hyundai in Tijuana, Mexico. [There were] three of us, and in six months they put us all out of business, even Hyundai in Tijuana, Mexico, with [cheaper] Mexican labor. They can’t compete either.”

Making Tracks

Kreunen knows that acquiring new land for new railroad lines is a non-starter, but he doesn’t think it’s necessary. The key investments, best made in a public-private partnership by the railroads, the trucking companies, and government, would be for upgrading existing rail lines and for the construction of intermodal terminals. The terminals are railroad facilities where containers are “transloaded,” or transferred from the flat cars of one mode of transportation to another.

Jobs would be created at the terminals, and given his knowledge of Wisconsin rail routes, Kreunen thinks Portage, Wis. would be the perfect place for one (the Dane County Town of Windsor also would be a good terminal spot, he says). Kreunen also said local governments could engage in public-private partnerships with railroads to build the modern, high-tech versions of intermodal terminals.

Chicago, with its multiple rail terminals, has been and always will be a key railroad hub, so some of the pieces are already in place to make the Upper Midwest an intermodal proving ground, Kreunen noted.

Limited terminal capacity is the primary impediment to growth. “Intermodal will grow as fast as the railroads can expand their terminal capacity,” Wahlin said. “What’s restraining them right now is the terminal facilities don’t have the capacity to haul any more of the truckers’ freight. Today they do because there is no business out there. The economy stinks.

“In normal times, they reach their capacity at about nine to 10% of the truckers’ freight because of the limitations of their terminal facilities in the U.S. They just don’t have the capacity to handle any more.”

Track improvements typically associated with intermodal include straightening curves, adding signals, higher track elevation in selected areas, and adding miles of double tracks.

Donkeys + Elephants = Another Barrier

As for the politics of intermodal, there is no real sponsor yet in state government, Kreunen lamented, but he sees a real sweet spot for intermodal. Democrats favor commuter rail, which draws the ire of Republicans, and the same is true to a lesser extent with high-speed rail, but Kreunen believes that intermodal rail could have bipartisan support.

“I can’t see where there would be much political objection at all,” he said. “It’s not a matter of whether you should have it. You must have it.”

It couldn’t happen rapidly enough for Rodney Kreunen.

Relevant Link

Intermodal Association of North America (IANA), an industry trade association representing intermodal freight transportation companies.

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