Smaller railroads playing bigger role in intermodal

The big Class Is are by no means the only railroads providing critical links in the U.S. intermodal network. Class III short lines, as well as Class II regionals, play integral roles in the supply chain, and industry leaders tell AJOT that they see expanding opportunities in the era of ocean carrier mega-alliances and super-sized containerships. Michael Miller, chief commercial officer of Darien, Connecticut-based Genesee & Wyoming Inc., a New York Stock Exchange-listed company with 115 North American short line and regional railroads in its portfolio, is among those who are bullish. Miller pointed out that intermodal freight represents about 15 percent of G&W’s $2 billion in annual revenues, but, he said, that intermodal revenue currently comes primarily from United Kingdom and Australia subsidiaries.  G&W’s North American volumes defined as intermodal are quite small but growing dynamically, and those numbers do not include substantial terminal shuttle operations in Virginia and Georgia. G&W’s North American interests, which cover more than 13,000 track miles serving 41 states and four Canadian provinces, combined to transport 1,382 carloads of intermodal freight in 2016 – more than 12 times the 107-carload figure for 2015. Meanwhile, G&W’s Commonwealth Railway and Savannah Port Terminal Railroad handle more than 300,000 intermodal containers per year, according to Miller. “These two railroads are a vital part of the intermodal supply chain from the ports to their Class I connections,” Miller said. Based on G&W’s experience in the United Kingdom, Miller said, “Bigger containerships and mega-alliances will result in larger container volumes per vessel discharge, possibly fewer vessel calls and potentially network or port of call changes.  “These changes,” he continued, “will create more variability or lumpiness across the intermodal supply chain, so either ports will need to expand or additional inland terminals and container staging and storage facilities will need to be developed in order to maintain fluidity and provide buffers for constrained port capacity. “The need for additional buffer capacity such as inland ports and container yards does create more opportunity for us as these assets are not typically tied to existing Class I intermodal networks,” Miller said. “We continuously look for new solutions to capitalize on the growth of intermodal, such as developing inland port shuttles and niche intermodal terminals in underserved or high-cost truck markets.” For example, Miller noted G&W’s late 2016 purchase of the Providence & Worcester Railroad, serving a U.S. Customs-bonded intermodal terminal in Worcester, Massachusetts, and G&W’s acquisition in May of this year of the Heart of Georgia Railroad, which furnishes five-days-a-week direct service along 219 miles of track between the Port of Savannah and an inland intermodal terminal in Cordele, Georgia. Cordele Intermodal Services Inc.’s president and chief commercial officer, Jonathan Lafevers, said he sees that latter acquisition as “a good thing operationally,” citing looming electronic logs and other trucking industry concerns and commenting, “We’re going to have to be ready to be nimble.” All told, according to a June report from the Washington-based American Short Line and Regional Railroad Association, the short line and regional railroad industry encompasses 603 entities which combine to generate $4.64 billion in annual revenue, serving nearly 10,000 customers and moving 9.09 million carloads a year over 47,500 route miles in 49 states (operating in every state except Hawaii). The ASLRRA’s director of strategic communications, Amy Krouse, commented, “I think intermodal is very important to us because we’re the first mile and last mile in many cases. Short lines are really interested in intermodal, and I think the larger containerships will lead to more opportunities.” The ASLRRA’s president, Linda Bauer Darr, added, “Short lines provide a critical piece of the U.S. freight network, touching one in four cars in origin or destination. Intermodal provides another opportunity to service customers that require multiple modes to get their goods from point A to point B safely and efficiently.” The largest privately owned short line operator in the United States, Pittsburg, Kansas-based Watco Companies LLC, with 37 short line railroads operating on more than 5,000 miles of track, is actively pursuing intermodal opportunities, according to Marc Massoglia, Watco’s senior vice president of commercial. Massoglia, who is based in Jacksonville, Florida, where Watco’s Jacksonville Port Terminal Railroad serves Jacksonville Port Authority facilities, interchanging with Norfolk Southern and CSX Class I trains, said Watco does not yet have any traditional intermodal ramp operations, but that could soon change. “We’re trying to do it in the context where it could include activities such as stripping and stuffing and where you could do things like bulk distribution of grain from hopper cars,” he said, “Clearly, in order to make it work requires coordination with the shipping lines, the Class Is, the shippers and the people who’d be looking at the backhaul,” Massoglia said. “It’s a bit of a dance to get everyone to the table at one time.” That said, Watco is zeroing in on “a very tangible opportunity to create basically a new supply chain” in what Massoglia would describe only as somewhere in the southern part of Watco’s network. Chicago-based Iowa Pacific Holdings LLC, with a portfolio including 10 short lines, is yet to directly engage in the intermodal sector, according to its executive vice president for marketing, Steve Gregory, who cited significant initial investment costs related to intermodal terminal operations. “We don’t conduct any intermodal operations at all,” Gregory said. “It’s not for lack of trying. It’s not an easy business for small railroads.” A number of Class III rail operations that entail intermodal are not part of the major holding company portfolios, one example being Tradepoint Rail, part of the 3,100-acre Tradepoint Atlantic development emerging at Sparrows Point, Maryland. The short line offers 100 miles of track, providing direct access to CSX and Norfolk Southern via what is billed as the largest privately owned interchange yard on the East Coast. Among non-Class Is, the biggest player in the intermodal arena by most measures is Florida East Coast Railway, a Class II based in Jacksonville, Florida, where interchanges are made with CSX and Norfolk Southern.  FEC, which in July was acquired by Mexico City-based Grupo México Transportes, operates an exclusive 351-mile track along the Atlantic Coast of Florida and, according to FEC’s manager of communications and marketing, Beth Harrell, is “the premiere intermodal rail transportation provider for freight coming in and out of Florida.” “Due to our size and footprint, we are able to run multiple train departures each day, which often means we provide a higher level of service than larger Class Is,” Harrell said, pointing to a recent survey that showed FEC outranking Class Is in the intermodal rail category. FEC is benefiting in particular from the big-ship era through its operations at major South Florida ports. “Shippers or BCOs [beneficial cargo owners] dropping cargo in South Florida can move that cargo to an FEC train headed for Jacksonville and transfer to the national rail network to land in Atlanta or Charlotte more quickly than going directly into Savannah or Charleston,” Harrell said. Harrell noted FEC’s exclusive on-dock intermodal rail service at PortMiami, which serves mega-containerships thanks to its 50-foot channel and berth depths. There, she said, FEC “provides economic efficiencies for an ocean carrier by transitioning international freight into fewer domestic containers to quickly reach inland markets.” In addition, FEC in 2014 opened a state-of-industry, 43-acre intermodal container transfer facility adjacent to Broward County’s Port Everglades.  “Our investment in this facility,” Harrell said, “puts Florida East Coast Railway intermodal capacity at 450,000 lifts a year and enables us to build 9,000-foot unit trains for near immediate cargo movement throughout the Southeast, to and from Atlanta and Charlotte in two days, and Nashville and Memphis in three days.” With figures released in August by the Intermodal Association of North America showing the strongest growth in overall intermodal volumes in nearly three years, the supply chain’s reliance upon intermodal solutions is clearly on an upswing, and Class II and III railroads are well-poised to join their Class I counterparts in cashing in.