Carrier Owned and Operated 3PL’s are One Method of Serving Intermodal Operations

Implications: In a year over year comparison, it is impossible to deny that intermodal shipments are down in 2008. As reported by the Association of American Railroads (AAR) total intermodal shipments are down 3.4% through February for both trailer and containerized traffic. And although one must review many factors (weather, supporting tanker capacity, import and export levels, etc.) when making a year over year comparison, it would be difficult to reject that the economy is the largest contributing factor to this years reductions. What does this mean for the future of intermodal and what is the impact on carriers that currently provide intermodal services?

Analysis:  In a past survey completed by Logistics Management Magazine, most shippers rated their Carrier relationship (65%) as more important than a 3PL relationship. After all, it ultimately comes down to both capacity and service and 3PL’s require low rates in order to support required margins. With that said, the diversification of service lines among the major carriers (Con-way, JB Hunt, Schneider, Swift Transportation, Werner Enterprises, etc) does appear to be the operational model which will best serve transportation in the future.  

Although there are other companies with similar models, I believe that Con-way provides the best operations model for future major carrier operations. Con-way consists of nonunion LTL services, nonunion TL services and most importantly an intelligently operated, talent laden 3PL (Menlo) that specializes in the integration of all functions across the supply chain. In many ways, Menlo serves as a planning arm and amalgamates supply functions, including other Con-way divisions. This provides consistent revenue streams, maintains an asset medium utilization model (Menlo is able to supply freight for Con-way company assets that otherwise would sit during soft markets) and monitors the injection of intermodal services and other 3PL service lines when appropriate. All the while, assuring its customers through relationships / partnerships or contractual agreements, a comfort level over capacity requirements now and when freight volumes return. These relationships / partnerships are further fostered through software integration and customers restricting the number of their carrier relationships. And although Customers must continue relationships with several carriers in order to maintain competitive rates and assure service levels; Con-way has Menlo, JB Hunt and Schneider have independent logistics operations, Werner has its Value Added Services Group and Swift Transportation has an intermodal and dedicated Group that can support most all transportation needs.  

What should carriers be doing about intermodal operations right now during these poor economic times? First, carriers must understand that intermodal will remain the fastest growing service line in the future. Admittedly, much of the future depends on infrastructure builds, on time service, possible tax credits and commitment by the railroads, but unless railroads develop at least a minimal number of truck assets, 3PL’s owned and operated by major carriers with quality railroad relationships (such as BNSF and JB Hunt) will continue to hold the advantage in this market.  

Today, carrier operated 3PL’s need to be educating their customers and soliciting (when the opportunity is available) market share from those carriers without 3PL operations. Railroads will focus on corridors exceeding 600 miles, the tipping point requiring drivers to take a 10 hour break and current carrier based 3PL’s should be targeting those customers where intermodal is a fit. Carriers with intermodal service lines need to be reducing cost while looking for new opportunities such as Port Rupert and the myriad of new intermodal yards that are currently under construction.

Remember: Even though there are plenty of transportation options today besides intermodal; capacity will tighten, intermodal on time service will continue to improve, fuel prices will remain high (One intermodal train equals approximately 300 trucks), Asian imports will pick up and your customers will learn about the financial and improving on time service aspects of intermodal from either you or someone else.  

Although tough during hard economic times to maintain non profitable divisions, intermodal is here to stay.