FedEx Freight to Use Rail Intermodal for First Time, Shifting From Trucks

This story appears in the Jan. 31 print edition of Transport Topics.

FedEx Freight, the second-largest less-than-truckload carrier in the nation, said it plans to use rail intermodal service for the first time as part of new “economy” freight service, beginning Jan. 31.

The move could shift as much as 10% of FedEx Freight’s freight miles to rail from truck, the company said.

Industry executives and transportation analysts said the change in strategy by FedEx Freight reflects growing acceptance of intermodal by shippers and motor carriers as rail service quality and reliability have improved.

“There’s been a change in the intermodal product and the perception in the marketplace,” said Steven Branscum, group vice president of intermodal operations for BNSF Railway Co.

FedEx Freight President William Logue said the carrier now will market priority and economy freight service throughout the United States and will use all four of the largest U.S. railroads and Canadian National to move linehaul freight between its major hubs.

While most of the nation’s largest LTL carriers already use railroads for linehaul transportation, FedEx had scorned intermodal as too undependable.

But intermodal service has improved, said stock analyst Jason Seidl of Dahlman Rose & Co., who follows FedEx and the major railroads.

“Intermodal has changed a lot,” Seidl said. “The railroads have plowed billions of dollars into their networks, and Norfolk Southern is especially intermodal-centric. The railroads’ capital expenditure budgets didn’t go down during the recession; they kept spending.”

Many truck and rail intermodal carriers said they expect to capture significantly more freight from the nation’s highways as trucking companies grapple with higher fuel costs, driver shortages, increased government regulation and worsening traffic congestion.

BNSF’s largest intermodal shipper is J.B. Hunt Transport Services Inc., a company that once was one of the largest over-the-road truckload carriers but now derives most of its revenue and two-thirds of its profits from intermodal transportation.

J.B. Hunt signed a freight-sharing agreement with the former Burlington Northern Railway in 1989 and in 2010 surpassed 1 million intermodal loads for the first time.

“What started with a handshake has grown into a service that is unparalleled in size and scope,” said Paul Bergant, president of intermodal and chief marketing officer for J.B. Hunt.

Branscum said that 7 million to 8 million loads can be converted to intermodal from the highway along established longhaul routes from the West Coast to such destinations as Chicago, Memphis, Kansas City and Atlanta.

BNSF carried a total of 5 million intermodal shipments last year, and all railroads carried 13 million loads, according to data from the Intermodal Association of North America.

Schneider National Inc., the nation’s largest truckload carrier, offers a dedicated intermodal train service from Ohio to Kansas City and has been aggressively promoting intermodal service on traditional two-day truck routes, such as from Chicago to the Northeast and Florida.

“We see market opportunities,” said Steve Van Kirk, vice president of intermodal for Schneider.

Van Kirk said Schneider’s intermodal freight revenue grew 10% in the past year, while the trucking division has focused on becoming more profitable.

Some other truckload carriers that have expanded intermodal operations recently include U.S. Xpress Enterprises, NFI Industries and C.R. England Inc.

Mark Yeager, president of Hub Group Inc., an intermodal marketing company and the nation’s second-largest intermodal shipper, said a number of factors are contributing to the current growth of intermodal, including the rising cost of truck transportation and the expectation that carriers will face a shortage of drivers because of increased safety enforcement and new hours-of-service rules.

“Shippers are looking for lower-cost options,” Yeager said. “We’re converting road freight over shorter distances. The intermodal opportunity was 750 miles. Now, it is closer to 600 miles.”

Hub handled a record number of intermodal loads in the third quarter of 2010, but Yeager declined to specify the exact number for competitive reasons.

Chris Sultemeier, senior vice president of transportation for Wal-Mart Stores Inc., said his company will increase its use of intermodal transportation as long as service is “near equivalent” to trucks in terms of transit time and reliability.

“Intermodal needs to provide competitive network time and consistency,” Sultemeier said. “We expect a cost advantage.”

Although service levels have improved, Sultemeier said intermodal carriers need to address “choke points” in the system by improving the handoff of freight from one rail carrier to another and taking steps to reduce terminal congestion.

Michael McClellan, an intermodal executive at Norfolk Southern Corp., said his company is investing “a lot of money” in terminals and expanded rail lines.

The company has added intermodal ramps in Birmingham, Ala.; Harrisburg, Pa.; and Charlotte, N.C., and is raising the height of tunnels on a key rail route from Norfolk, Va., to Columbus, Ohio, to accommodate double-stacked containers.

“We’re connecting more dots” and creating “a much more robust intermodal network,” McClellan said.

The opening of the expanded Panama Canal in 2014 is also expected to increase the number of container shipments from Asia to ports along the Gulf Coast and the Eastern Seaboard.