Interesting read, most is re-hash of what is/has been going on, but some interesting tidbits.  Also short haul intermodal lane note as well on the eastern side (I wondered aloud in a post last week or so about short haul opportunities.)  LK I did a poor job editing properly in regards to paragraphs, etc.  Please look past that if it's a pet peave of yours.      :)

Martin Dixon reports.

We are trying to find green shoots but see only 'mould,’ lamented an industry analyst speaking at the North American Rail Shippers Association (NARS) annual meeting held in Chicago in May.  His comment summed up sentiment among most railroad and intermodal operators on the continent.  Figures for intermodal traffic make for grim reading. According to data published by the Association of American Railroads (AAR), North America’s intermodal rail volumes for the first 24 weeks of 2009 were down 17% on the corresponding period last year.  The biggest drain on intermodal traffic has been the depressed international liner business. Indeed, domestic movements have remained relatively buoyant.  According to the Intermodal Association of North America (IANA), combined US and Canadian domestic container traffic was stable (up 1%) in Q1 09 (see table). In contrast, international container traffic declined by 23%.  This was on the back of a fallow 2008 when intermodal traffic fell by 3%, led by a 7% drop in international cargo. Domestic containers again showed some traction, rising by 7%. This was at the expense of trailers, which were down 4% to 2.1 million units (see table). Trailer volumes have been in decline for several years as the container has become the preferred modal choice. Partly, this is because of its stacking capabilities which provide obvious cost advantages, ie, its use on doublestack trains.  Where speed off the rails is important, trailers have the advantage. This is why express carriers, such as UPS, keep the trailer as their choice of intermodal equipment.  The slump in trailer traffic meant that total intermodal domestic traffic fell by more than 7% in Q1 09. It was the largest drop since IANA started reporting on quarterly data in 1998.  Meanwhile, the collapse in world trade has resulted in a rapid deterioration in international traffic. After a challenging 2008, the rate of decline doubled in Q1 09 compared with Q4 08.  Joni Casey, president and ceo of IANA, told CI that international movements of containers on rails was down 25% in May compared to a year earlier. It was the 27th consecutive month of decline.  According to the executive, the slump in auto trade had impacted both international and domestic business while the US’ housing crash had severely affected domestic volumes.  At the AAR, John Grey, its senior vice president for policy and economics, said that the domestic intermodal product had become very competitive with trucks. ‘Following the impact of higher fuel prices from last year, a large number of shippers have sustained the switch to intermodal.’  Nonetheless, profits have nosedived across the continent’s rail and intermodal sectors.  Norfolk Southern (NS) and Burlington Northern Santa Fe (BNSF) posted profit falls of 39% and 35% respectively for Q1 09, with each blaming tumbling cargo volumes, particularly in their international intermodal business divisions. BNSF’s international sales were down 25% and NS’s total intermodal traffic was 25% lower than in the same period of 2008.  ‘Freight demand is as low as I have ever seen it,’ commented Steve Branscum, group vice president of consumer products for BNSF.  ‘The economic downturn is more pronounced and lasting longer than anyone expected.’  Elsewhere, intermodal marketing companies (IMCs) saw their Q1 09 volumes fall 11%, this following a 10% drop in Q4 08.  The Pacer group, for instance, notched up a net loss of USD177 million in the first quarter of this year. Given their limited exposure to international traffic, volumes have been less impacted by the collapse in shipping volumes.  Despite falling cargo volumes, railroad companies have been continuing with their ambitious capital investment programmes to improve network coverage and service quality.  Doug Rubin, senior economist with the marine consultancy company Moffatt & Nichol, said that the major railroads are each investing in excess of USD1 billion a year in creating new capacity.  BNSF, the largest US intermodal operator, has undertaken a number of capacity upgrades since 1997,  including building additional track on its Southern Transcon route from Los Angeles to Chicago; expanding sidings on the Northern Transcon Line between the Pacific northwest and Chicago; and modernising/increasing intermodal facilities in the Chicago, Los Angeles and Memphis areas. ‘We have continued to invest in our long term infrastructure improvement projects through the recession,’ said Branscum. ‘However drawing board projects have been pushed back given that volumes have fallen back to 2003/04 levels.  Meanwhile, NS is spending USD150 million on upgrading its Heartland Corridor between Norfolk and Chicago, which it claims will reduce travel time by one day when completed next year.  It is also close to completing improvements to the Meridian Speedway with Kansas City Southern (KCS) between Dallas and Louisiana. In addition, the railroad is spending USD100 million to boost capacity on the Patriot Corridor, which connects Boston with Birmingham, New York, with short-line operator Pan Am.  Finally, NS is seeking federal funding to support its ambitious USD3 billion Crescent Corridor upgrade, connecting New Orleans with the north east of the US. This track runs parallel to the congested I81 and I75 highways.  ‘There’s dirt turning on all these projects,’ said Jeff Heller, assistant vice president international marketing at NS. ‘Whilst we await federal funding to support the vast bulk of the Crescent Corridor upgrades, we are already going ahead with terminal upgrades and small bits of double-tracking.’  Last year CSX Transportation launched a public/private initiative to create a more efficient rail route linking the mid-Atlantic region of the US and the Mid-West.  The USD700 million project will upgrade tracks, equipment and facilities and provide clearance for double-stack trains.  Some bottlenecks are outside the control of railroad companies, the most significant being around Chicago where rail freight, passenger rail and highways converge. Train speeds are reduced to such a crawl that operators are forced to dray containers between US east coast (USEC) and US west coast (USWC) networks.  The USD2.56 billion Chicago Region Environmental and Transport Efficiency programme (CREATE) is a multi-agency initiative to plan and construct critical projects to deal with this situation. Started in 2007 with federal funding support, five projects have been completed, four are under construction and a further 22 have preliminary engineering work completed.  The work includes new roadway overpasses/underpasses at locations where auto and pedestrian traffic currently cross railroad tracks at grade level; new rail overpasses/underpasses to separate passenger (commuter) and freight train tracks; viaduct improvements; grade crossing safety enhancements; and extensive upgrades to tracks, switches and signalling systems.  ‘The benefit to intermodal users is that reduced congestion may negate the need to dray containers across Chicago from western railroads (BNSF and Union Pacific Railroad) to eastern carriers (CSX and NS),’ said Mike Payette, assistant vice president of government affairs at Union Pacific Railroad. He has responsibility for the advocacy aspect of the CREATE programme.  CREATE seeks to focus rail traffic on five rail corridors and improve train speeds and reduce delays. Currently train speeds range from 5mph to 12mph and delays can be as long as 122 hours, depending on the line.  Payette says that once the programme is completed in 2015, average speeds will have been raised to between 13mph and 22mph while line delays will have been reduced to between five and 23 hours, depending on the corridor.  Despite these benefits, obtaining funding has been challenging. Payette explained: ‘The programme needs USD1.3 billion from 2010 to 2015 and to date has received just USD216 million.  CREATE is waiting for the Illinois State governor to sign off USD320 million and is seeking USD500 million from the Obama Stimulus Bill. It also plans to ask for  USD700 million from the next Federal Transportation Bill.’  High levels of investment right across the North American network appear to have paid off, as railroads boast ever-improving service quality and expanded network coverage.  BNSF claims that it has managed to cut average train moves by 12 hours in Q1 09, compared with the previous year. ‘We are using the current environment [slower trading volumes] as an opportunity to enhance our services and move into new geographies,’ commented Branscum. ‘We have shortened core transit times and launched 16 new services. Transit times have become very truck-equivalent.’  Despite these improvements, the Hub Group – a leading US-based IMC – recently confirmed that it was shifting most of its traffic to rival Union Pacific Railroad.  ‘They have made some tremendous investments in physical plant and their service levels are extraordinary now,’ commented Dave Yeager, chairman and ceo of the company. ‘Their transit times are very competitive with BNSF. For example, from southern California to the south east they are a day faster and they are equal to their rival on routes from California into Chicago and the USEC. A lot of their investment has really paid off.’  Statistics provide some support to the industry’s service improvement claims, with IANA noting that the weighted average intermodal train speed improved 11% to 33.3mph in Q1 09, compared ith a year earlier.  However some of this progress may not be down to railroadinvestment alone. Tony Hatch of ABH Consulting speaking at the NARS conference in May, suggested that lower volumes had been a major contributor to the improvements.  Either way, the impact has been to make intermodal rail services more competitive and increasingly attractive over shorter distances.  The railroads are seizing the initiative.  NS, for instance, is developing a number of USEC shorter haul services to compete with trucks. These include:

• New York to Harrisburg, Pennsylvania

• Norfolk to Charlotte

• Savannah to Charlotte

‘The hardest thing for us to compete with is trucks in a short haul market,’ remarked Heller, ‘but we think that there is big demand out there. If we can keep the service predictable we can compete.’  Moffatt & Nichol’s Rubin reckons that this kind of traffic represents intermodal’s best growth opportunity. ‘Growth in intermodal will be in the medium-distance traffic lanes where trucking becomes more expensive,’  he said.  USEC operators have also seen some benefits accruing from increasing all-water container imports. This may have reduced hauls out of the Mid-West from USWC ports but it has increased volumes heading the other way.  The IANA believes that its statistics show this shift. Of international boxes destined to the north east, south east and/or Mid-West, IANA claims that the eastern-origin share grew to 38% by the end of Q1 09.  Recent investment by USEC ports in ondock rail infrastructure has facilitated some of this growth.  Looking further ahead, North America’s intermodal rail industry remains confident that it is well-positioned to take advantage of any upturn in trade. Rising fuel costs and environmental issues are driving freight off the highways onto rail.  ‘Energy costs are a major factor, not just in terms of fuel costs, but also taking into account the wider impact on shippers’ supply chain networks,’ remarked Grey. ‘Ultimately this will benefit intermodal.’  As the industry waits patiently for the economy to turn around the outlook appears more promising than first impressions may suggest.

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