Intermodal Shipping | Benefits for Today and Opportunities for the Future
ByJenny Vander Zanden
June 15, 2018
As shippers look for ways to navigate mounting transportation challenges, the adoption of intermodal shipping strategies continues to rise. On a month to month indicator, there have been year-over-year increases in intermodal adoption for 15 straight months, stretching back to February 2017.
Breakthrough clients surpass that trend. Collectively, shippers working with Breakthrough use intermodal to haul 25 percent of their miles. In 2018, one out of every 11 shipping containers on intermodal carries Breakthrough client freight.
What’s driving this change, and what do forward-thinking shippers see as the major advantages of shifting more miles to intermodal?
Surging Fuel Prices
The average market price of diesel was $2.195 in May 2017. It has jumped $0.75 a gallon to $2.945, which is a 34 percent year-over-year increase. That puts a substantial dent in many transportation budgets. Shippers are looking for ways to mitigate rising fuel prices, and intermodal proves to be a viable solution.
According to Class I railroad CSX, a train can move one ton of freight more than 450 miles on just one gallon of diesel fuel.
Overall, intermodal shipping represents 40 percent of energy costs compared to truckload. When fuel takes up 25 to 30 percent of your transportation budget, that’s a significant driver of cost-savings. Switching to intermodal also reduces fuel consumption as much as 50 percent, ultimately reducing transportation-related emissions, which supports sustainability initiatives.
Fuel, however, is only one piece of the puzzle. As Brooks Bentz, the president of the new Breakthrough®Supply Chain division explains, an intermodal strategy also helps shippers address concerns around rising freight rates and tight capacity, which are connected to the shortage of truck drivers as well as regulatory changes.
Supply Chain Advantages of Intermodal
“While fuel is certainly a big component, so is driver compensation,” Bentz says.
“As the price carriers pay truckers goes up, freight rates follow,” Bentz says. “When you couple rising fuel prices and truck driver compensation, intermodal becomes a more appealing and practical solution.”
In a market where capacity is tight, shippers are turning to intermodal for a solution without the driver limitations of traditional long-haul shipping. Rail requires less manpower to move more freight and it can be done using less fuel.
“Operating costs are significantly lower, especially when you’re using stack train economics,” Bentz explains. “You get excellent operational efficiency. And, today’s mechanized terminals represent a major change in productivity compared to the so-called ‘circus ramp’ systems of the past.”
Bentz believes some shippers have misconceptions around intermodal shipping. While it’s not the answer for everything, forward-thinking organizations are making intermodal a significant part of their supply chain strategies. In fact, one Breakthrough® client uses intermodal for 54 percent of their total miles in moving their products to market.
“People don’t understand it well enough, and they rely on anecdotes about damage or slowness,” Bentz says. “But, the Southern Transcon on BNSF can easily beat a truck going from LA to Chicago, particularly with the hours of service clause. The shift is going to come, but it will involve getting shippers to step outside the status quo and see the benefits.”
The Future of Intermodal Shipping
With any opportunity, there exist limitations and challenges. While the numbers show the intermodal market is growing, the current infrastructure limits the scope for which intermodal shipping can address capacity issues. The one obvious application railroads could head next to overcome this challenge is short haul shipping.
“One thing that gets overlooked is that the majority of truckload motor freight in the country moves less than 750 miles,” Bentz explains. “Historically, intermodal has been deemed most effective for distances of 1,000 miles and beyond. So, the rails have basically bypassed the short haul market where most of the freight is.”
There have been some attempts to break into the short haul market, but we have yet to see it become a permanent part of any railroad’s growth plan. Bentz says there were often disagreements in the past about investing in intermodal as opposed to coal and grain trains.
“That outlook has changed, and intermodal is now viewed as the industry’s growth engine,” he adds. “But, unless someone determines how to penetrate the short haul market, there isn’t much room for growth.”
If intermodal will be a bigger part of the transportation picture in coming years, shippers should plan for the future of their supply chains. Bentz says it’s wise to carefully consider where to build new facilities such as distribution centers.
“If you’re a shipper looking at your supply chain network and planning for the future, while you can’t uproot the entire network, you should consider the changing flow of freight,” he says. “I would think you’d want to be near major intermodal hubs that are gateways to multiple service options.”
Getting on Board with Intermodal
Whether your organization is already using intermodal shipping or you have yet to integrate it into your strategy, Breakthrough helps you tap into the full value, acting as a trusted advisor and ensuring you have transparency with true line-of-sight to cost.
Shippers experience savings on the first day of a Fuel Recovery program, while our team of experts continually identifies opportunities for savings, including when it makes sense to switch to intermodal. Read our article on how data makes the difference in an intermodal shipping strategy to find out more.
In addition to the transparency and accuracy that comes with a Fuel Recovery program, the Breakthrough Supply Chain team provides advice on network capabilities, so you can take advantage of intermodal benefits and enable them through transportation procurement events.
“You need to have capabilities to view your network from end-to-end, meaning all your product movements down to the SKU level,” says Bentz. “Our experts look at your supply chain holistically and optimize it by helping you choose the right way to move the product. Some days that will mean intermodal, other days truckload, or team drivers. But, you want the flexibility to be nimble and respond to changes in market demand and buying signals quickly.”
Otherwise, you risk losing out to competitors who beat you to the punch.