Purchase or perish

Nov. 7, 2005
Business has been good lately for major railroads in the U.S. Despite setbacks and rerouting necessary in reaction to the spate of Gulf Coast hurricanes

Business has been good lately for major railroads in the U.S. Despite setbacks and rerouting necessary in reaction to the spate of Gulf Coast hurricanes this fall, overall railcar loadings for Class I rail have been up. In particular, intermodal shipments — representing a bit more than a quarter of all rail shipments — continue to be robust. However, there are changes underway that shippers need to be aware of in the way that intermodal equipment is owned and managed.

The North American Container System (NACS) (www.nacsfirst.com) was designed to facilitate the free interchange of domestic containers between member railroads without restrictions. Created in 1996 as shipping and management needs have changed, so has the enthusiasm for NACS, which is now in decline.

One reason for this shift is a move toward privatization of intermodal equipment. Leading this move is the Burlington Northern Santa Fe (BNSF) (www.bnsf.com), as other railroads stand on the sidelines, waiting to see the effects of its moves on the marketplace.

In April BNSF announced its plan to phase out of the management of the railcontrolled trailer pool," explains BNSF spokesperson Suann Lundsberg. " Basically over the last five years the intermodal marketplace has changed. More and more door-to-door intermodal providers are bringing their own equipment to the market. One of the reasons this is happening is because private equipment drives better service and a better product. It has higher equipment utilization and better turn times at our facilities which, in the end, provides a better intermodal service to our shipper."

Service providers are moving to acquire intermodal chassis and containers to take advantage of what they see as an opportunity. Based on its perceptions of market trends, General Freight Services Inc. (www.gfreight.com) — historically a non-asset-based provider — is now investing in a fleet of 53-foot units.

General Freight has begun leasing several hundred 53-foot rail trailers from the Vermont Railway. The perception is that non-asset-based intermodal marketing companies (IMCs) will either have to secure their own equipment or get out of the business.

"It protects the integrity of our existing accounts by insuring that our key shippers have a year-round equipment source," claims Greg Sebolt, the company's executive vice president. "We now have a steady stream of balanced equipment to offer domestic and international shippers."

Marc Barenberg, vice president of Trac Lease Inc. (www.interpool.com), looks at the changing market conditions and suspects shippers, truckload carriers and current non-asset based third-party suppliers are going to have to move toward having their own fleets. That presents a real opportunity for his company, part of Interpool Inc., with its chassis fleet of 208,000 units and container fleet of 808,000 twenty-foot equivalent units (TEUs).

Carriers have begun to acquire assets to fill intermodal needs as privatization of equipment becomes more of a reality. In August, Swift Intermodal (www. swifttrans.com) and BNSF announced the transition of 3,800 leased 53-foot containers from the railroad to the carrier.

Another truckload carrier, Schneider National (www.schneider.com), has been using its own private intermodal equipment since it got into the business a dozen years ago. Bill Matheson, Schneider's vice president and general manager of intermodal services, feels that non-asset IMCs will be vulnerable as equipment privatization becomes more of a reality.

Privatization, notes Matheson, "is a trend that's been emerging over the last several years. The eventual beneficial owner — the shipper — is the one that ultimately determines how freight gets moved. We believe they value those that own boxes and have control of the assets."

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