INTERMODAL MAKES DOLLARS AND SENSEAdopting an Intermodal Ground Shipping Strategy

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Intermodal, as you may already know, refers to moving cargo using two or more carriers or modes of transportation. What you might not know, however, is that intermodal (specifically rail intermodal, or rail-to-truck shipping) could be the answer for problems that shippers like you face, such as driver shortages, heightened government oversight, and shrinking supply chain margins.

What follows in this guide is an overview of the benefits of intermodal as well as the factors driving intermodal growth—factors that may drive you to consider an intermodal ground shipping strategy, too. But first, if you’re considering an intermodal ground shipping strategy, it may be a good idea to start by looking at the current state of railroads (and rail freight) in the United States. Rail, after all, is a pretty important part of the whole “rail-to-truck” model.

The State of Rail

Between 1981 and 2016, freight railroads spent more than $635 billion on the nation’s rail network. In 2017 alone, railroads were reported to spend about $60 million a day on improvements. Thanks to such improvements, the average rail shipper today can move nearly twice as much freight for the same price paid 30 years ago. And the rates are among the lowest in the industrial world. According to the Association of American Railroads, American rail rates are lower than rates in China, Germany and Japan. Still, there are some common misconceptions about rail that make some shippers wary of using this mode of transportation.

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Misconceptions About Rail, Debunked Intermodal is Too Slow – Intermodal is usually slower than OTR, but often the lower cost of shipping via rail and truck can be worth an extra day or two of transit time. Shippers who adjust their lead time to account for this extra time can take full advantage of intermodal cost savings.

Intermodal is Unreliable –A major concern among rail shippers in the past was the availability of equipment needed to satisfy a request. But thanks to massive investments and improvements, U.S. railroads and intermodal logistics providers today are much better equipped to fulfill requests for shipment without delay.

Intermodal is Rough –Intermodal freight was once more likely to be damaged en route to its destination due to the multiple “touch points” and transfers along the way compared to straight OTR shipping. Today’s intermodal network is much better equipped to handle freight with care. Modern flatcars, for example, are designed to sway and bounce less than models of the past, providing a smoother and safer ride.

Intermodal Performance: On-Time Deliveries Number of deliveries received on time/total deliveries

Intermodal Performance: Equipment Availability % of requests that can be satisfied with available equipment at the time of your request

Intermodal Performance: Freight Damage Damaged shipments per total shipments

2015 2016

83% 87%

2015 2016

77%83% 2015 2016

1.7% 1.2%

Source: 25th Annual Masters of Logistics

Source: 25th Annual Masters of Logistics

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Precision Railroading = Better Intermodal Performance

The concept of precision railroading was championed by the late Hunter Harrison, former Chief Executive Officer at CSX. The playbook, which Harrison deployed to revive the Illinois Central, Canadian National and Canadian Pacific railroads, looks to transform the traditional hub-and-spoke rail network into a lean, point-to-point system that prioritizes delivery of shipment from origin to destination as quickly as possible, regardless of whether trains are near-empty or full. According to The Economist,

In a white paper released by Canadian Pacific Railway, the North American railroad giant outlines some of the results it experienced after implementing the precision railroading model in 2011: • CP’s productivity increased

by 40 percent compared to 2012 using 700 fewer locomotives

• CP reduced terminal dwell (the time a train spends in any given terminal) by 19 percent

• CP’s network speed has improved by 40 percent

More than anything, precision railroading demonstrates the rail industry’s commitment to delivering freight as fast and efficiently as possible. That’s good news for shippers who already take advantage of intermodal ground transportation, and even more reason for straight OTR shippers to consider rail-to-truck.

“This went against the

prevailing trend of

adding more locomotives

and cars and leaving

their schedules flexible.

Operating fewer trains,

but on time, Mr. Harrison

showed, meant greater

efficiency and better

service for customers,

who know when their

shipments will arrive.”

40%

40%

19%

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Growth of Intermodal According to data in the most recent edition of the Intermodal Market Trends & Statistics Report by the Intermodal Association of North America (IANA), intermodal volumes turned in strong performances in 2017, up 4.7% overall compared to 2016. That represents the strongest growth in three years. And if the number of new intermodal hubs and terminal improvement projects is any indication, the trend is expected to continue. According to the American Association of Port Authorities (AAPA), ports and their private sector partners are reportedly investing $155 billion over the next five years (2018-2022) in terminal expansions and infrastructure investments. Some of these investments include:

• The Port of New Orleans – A new joint venturehas acquired the former Avondale shipyard,a 206-acre site with more than 7,900 feet ofdeep-water riverfront access and served by sixClass I railroads.

• The Carolina Connector – The North CarolinaDepartment of Transportation plans to investmore than $118 million for site developmentand roadway construction of the 330-acre CSXintermodal terminal in Edgecombe County.

• Crete Intermodal Terminal – The proposedCSX terminal in Crete, Ill., will feature sevenzero-emissions electric cranes, eight 6,000-foot processing tracks, two 6,500-foot supporttracks and an annual processing capacity of500,000 lifts.

• Pittsburgh Intermodal Terminal – Late 2017,CSX began operations at its new intermodalrail terminal in McKees Rocks, Penn., a 70-acresite that will connect Pittsburgh to more than40 markets across North America.

• Mason Mega Rail Terminal – The Georgia PortsAuthority recently broke ground on its$126.7 million intermodal expansion at thePort of Savannah. When complete, the GardenCity Terminal will have a total of 180,000 feetof rail, 18 working tracks and the capability ofbuilding 10,000-foot unit trains on terminal.

• Port of Oakland – The Port of Oaklandoversees the Oakland seaport, OaklandInternational Airport and 20 miles ofwaterfront. The Port envisions morethan $600 million worth of infrastructureinvestments, including a new 283,000-square-foot refrigerated distribution center that isestimated to handle up to 37,000 20-footcontainers of cargo annually.

Intermodal Terminal GrowthComparison of acreage with intermodal transportation ports.

Pittsburgh IntermodalTerminal: 70

The Port of New Orleans: 206The Carolina Connector: 330 Crete Intermodal Terminal: 350

Mason Mega Rail Terminal: 1,200

Port of Oakland: 1,300

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Intermodal Growth Drivers If you aren’t currently taking advantage of intermodal, you may be looking for reasons why you should. A compelling case for intermodal can be made if you consider the factors responsible for the recent rise in intermodal shipping. If you consider why other shippers are increasingly using intermodal, you may discover a reason to take advantage of intermodal, too.

Driver Shortage/ ELD Mandate

Trucks moved 11.5 billion tons of goods, or 63.8 percent of total freight shipments, in 2015. That figure is projected to climb to 16.5 billion tons by 2045, an estimated 43 percent increase. There’s just one problem: too few drivers. As reported by USA Today, the trucking industry projects a shortage of more than 100,000 drivers by 2022.

“The shortage of drivers is having ripple effects throughout the transportation industry,” according to the Wall Street Journal, “squeezing carriers with smaller truck fleets and boosting the use of rail freight.” The drivers who are operating are constrained by new Electronic Logging Device (ELD) mandates. These rules could force some carriers out of the market and cut the number of hours that drivers are available to move freight—constraints that are expected to push more shippers toward intermodal.

Zipline Logistics conducted a survey

Zipline Logistics conducted a survey of more than 100 truck drivers to learn about the impact of recent ELD mandates. The results show that most carriers have had to reduce the number of miles they can drive, and 95 percent report they are struggling to make deliveries on time under the new mandate. As a result, 71 percent say per mile rates have increased to make up for lost revenue. Rail, with its competitive rates and predictable delivery schedules, is one answer to the shipping constraints and challenges posed by the ELD mandate.

95%

71%

Fewer Drivers: The trucking industry projects a shortage of more than 100,000 drivers by 2022

106,245

15,000

2012 2019 2022

Source: ELD Mandate Impacts, March 2018

Source: Freight Facts & Figures 2017

Struggling to make deliveries on time under the new mandate.

Say per mile rates have increased to make up for lost revenue.

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Increasing Congestion

The U.S. Department of Transportation, in cooperation with private industry, measures the speed and travel-time reliability of more than 500,000 trucks on 25 freight-significant corridors in the United States on an annual basis. According to recent figures, increases in truck and passenger vehicle traffic are forecast to expand areas of recurring peak-period congestion to 35 percent of the NHS by 2045, creating stop-and-go conditions on 55,800 miles of NHS routes, almost eight times more

than that of 2012. In 2015, the trucking industry experienced close to one million hours of delay on the NHS as a result of traffic congestion, equal to more than $63.4 billion in added industry operational costs.

The congestion problem in the United States can also be demonstrated by analyzing average truck speeds. Between 2012 and 2015, average truck speeds decreased in nearly all major metropolitan area interstates.

Atlanta, GA61 | 59

Miami, FL60 | 59

Chicago, IL55 | 53

Detroit, MI57 | 56

Dallas, TX60 | 59

Phoenix, AZ60 | 60

Los Angeles, CA49 | 48

San Francisco, CA47 | 48

Seattle, WA54 | 54

Washington, DC56 | 56

New York, NY55 | 54

Boston, MA57 | 55

Houston, TX59 | 58

Average Truck Speed 2012 | 2015

Source: Bureau of Transportation Statistics

As America’s roadways become increasingly more congested, shippers are expected to rely moreheavily on rail-to-truck to bypass some of the bottlenecks that can seriously delays.

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Sustainability/Fuel Efficiency

Companies can gain a competitive advantage by improving the environmental sustainability of their products and/or processes and marketing their efforts to consumers. According to the EPA Center for Corporate Climate Leadership, in 2017, 16 percent of Americans surveyed made a purchasing choice based on environmental or social performance of a company (up from 6 percent in 2014). A recent Unilever study found an even greater opportunity: 33 percent of consumers are now buying from brands based on their social and environmental impact. And best of all, a 2015 Nielsen survey found that 66 percent of respondents would pay more for a product or service if the company was committed to positive social and environmental change, up from 50 percent in 2013. How you ship products is one way to demonstrate your stance on the environment and connect with consumers who are becoming increasingly aware (and concerned) about how their purchasing decisions impact their communities and the world.

According to the Environmental Defense Fund (EDF), trucking is more than six times more carbon-intensive than rail. Trains can now move one ton of cargo approximately 484 miles on just one gallon of fuel (up from 396 miles in 2000). The environmental impact of adopting an intermodal shipping strategy is so significant, in fact, that if just 10 percent of the freight that moves by the largest trucks (Class 7/Class 8) moved by rail instead, greenhouse gas emissions would fall by approximately 17 million tons—equivalent to removing around 3.2 million cars from U.S. highways for a year, or planting 400 million trees.

The CSX Carbon Calculator allows you to see the amount of CO2 savings possible by moving goods via rail instead of truck. For example, moving 5,000 tons of electronics between Columbus, OH and Chicago, IL (approximately 365 rail miles) can reduce CO2 emissions by approximately 222 tons compared to shipping by truck—the equivalent of 43 acres of pine forests absorbing carbon for one year.

Margins/Savings

Intermodal ground transportation can also have a positive impact on your bottom line. Rail is best for CPG manufacturers and suppliers with long transits (over 1,000 miles) and high volumes that are looking for cost savings, more reliability or environmentally friendly alternatives to trucking. According to CSX research, shippers realize cost savings of 10 to 40 percent when shifting freight from OTR to intermodal.

In one example, as reported by the EDF, Ocean Spray reduced its fuel consumption by 68 percent and reduced costs by $200 per load by utilizing rail freight instead of trucking products from New Jersey to Florida. In another example, a Zipline Logistics’ customer that ships frozen product was experiencing large rate fluctuations for a 2,000-mile lane from Southern California to the Midwest. When rates officially jumped past $4,000 they decided a new solution was imperative. Zipline Logistics consulted that they should consider transferring a few shipments to rail. Hesitant at first, due to the nuanced nature of the cold chain, our team helped them overcome concerns by showcasing serious rate reductions. By using rail, the customer not only avoided the trucking rate increase but found additional savings, for a reduction of nearly $600 per shipment, and experienced no service-level changes.

17,000,000TONS

66 percent would pay more for a product or service if the company was committed to positive social and environmental change, up from 50 percent in 2013

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Need Help Adopting Intermodal? A 3PL Can Help

3PLs take the complexity out of intermodal shipping. They can shift lanes or carriers with ease to ensure your freight is delivered as fast as possible. A knowledgeable 3PL partner can also ensure pricing remains competitive, so you can always take advantage of the best rates to realize maximum savings in your ground supply chain. Intermodal rates can get complicated once secondary modes and storage fees are incorporated. Fortunately, 3PLs can bundle costs into a singular price, taking the complexity out of the equation.

If you want to take advantage of savings opportunities hidden in your supply chain, contact Zipline Logistics today. Our intermodal specialists can help you identify opportunities to transfer from truck to rail, and ensure that intermodal is the most cost-effective solution. We have relationships with all major rail lines and can provide customers with competitive pricing for rail moves across the country. And thanks to automated shipment updates and our cutting-edge freight visibility tool, our customers have 24/7 real-time visibility to the location and status of their orders.

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