Looking Anew at Rail

Tuesday Morning, an “off-price” retailer with over 850 stores, has been able to transition 20% of its inbound freight to a rail/truck intermodal mix, according to Logistics Management. The goods typically travel from Asia to the ports of LA and Long Beach. From there they travel over 1,400 miles to the company’s one distribution center, which is located outside of Dallas.

At first glance, there doesn’t seem much that is newsworthy about this story.  Over the past several years that I have been working on freight sustainability, I’ve heard hundreds of times that rail starts to become competitive with trucking for trips over 500 miles.  So, for trips nearly three times that length, it should be a slam-dunk, right?

It is, of course, more complicated. There are a lot of important variables for the logistics managers to consider, such as reliability. As the article makes clear, class one railroads need to overcome multi-decade long perception of subpar service levels. Most companies, of course, put a premium on certainty when it comes to their supply chain. The railroads have made significant strides in service, including such innovations as running non-stop “sprint” trains between high-volume destinations.

As a result of the improved focus on service, the industry now has their clients saying things like, “rail carriers are just as dependable as truckload these days. It’s a different service standard, of course. But once you get calibrated with that service standard, it’s been my experience the rails are very dependable,” as the Tuesday Morning logistics manager noted.

Intermodal can be a very successful freight sustainability strategy. Rail emits six times less carbon per ton mile than trucks. An intermodal mixture of rail and truck, enables companies to take advantage of the cost and carbon benefits of rail for the bulk of the trip while still getting the flexibility of trucks at the beginning and end of the journey.

The cost savings are nothing to sneeze at either. The transportation logistics manager at Tuesday Morning noted that they were “significant.” The CEO of a logistics service provider noted in a recent Journal of Commerce article that intermodal could provide “10 to 20 percent savings and sometimes more.”

Many factors point towards a greater role for intermodal freight over the coming years, including sustained high diesel costs, sustainability goals, truck driver shortages, tight carrier capacity and road congestion. Despite these converging factors, intermodal traffic has had an uneven ride of the past several years.  As noted in the Journal of Commerce, intermodal loads have gone from 12.3 million in 2006 to 11.3 million in 2011.

A sure sign to shippers that it is time to look a new at intermodal solutions can be found by looking at the actions of the nation’s leading trucking companies. They are betting big on intermodal.

A partnership between Averitt Express and Union Pacific enabled Tuesday Morning to take its first steps into intermodal. Intermodal accounts for about a third of revenues for trucking giant Schneider National. Just last month the company announced a multi-year agreement with CSX. J.B. Hunt has developed a nation-wide intermodal network through partnerships with BNSF and Norfolk Southern.

Ultimately, what is most news worthy in the Tuesday Morning story is the fact that it is still news when large or mid-size shippers take the plunge and give intermodal rail a chance. Time and again, we hear how companies such as The Container Store, Kohl’s, Welch’s,  or Walmart, are successfully sending more of their freight via rail. Yet, each case has the same story line about the need for rail to prove itself as reliable. At what point do companies look at the clear success of others and say, “yes” to rail?

If you company isn’t using rail, maybe it’s time to consider it.  For those that already have a toe in the water, maybe it’s time to make a bigger commitment.