It’s a widely accepted view today that shippers are emphasizing service over mode or cost. In fact, in a recent survey, shippers favored service over cost by a nearly 3-1 margin.

When selecting carriers, shippers are now looking less at how it gets there and at what cost but more at how reliable the service is. This trend coincides with, or some even say is due to, the intermodal industry’s higher levels of service and reliability and declining prices, compared to the trucking industry’s rising rates. While other transportation markets staggered in 2001, intermodal transportation slipped only slightly. In fact, intermodal traffic that includes rail was off just 1% compared to 2000, according to the Intermodal Association of North America (IANA). “The year 2000 was good economically with strong numbers, so to be down 1% from that is very good,” says Tom Malloy, business development vice president at IANA. “Overall, we’re seeing a more positive trend. Service has never been better in the past 20 years.” In comparison, he estimates that trucking volumes fell by double-digit percentages in 2001.

In a recent survey by the IANA, intermodal shippers valued service over cost in evaluating and choosing intermodal carriers by a nearly three-to-one margin. Tracking capabilities and on-time delivery were more highly prioritized than in previous studies. Shippers are focusing less on mode and more on reliability partly because of the strides the intermodal industry has taken to improve service, says Malloy. These steps, he says, include increasing average rail speeds and guaranteeing more service lanes. Intermodal now has an edge over the trucking industry, according to Philip Evers, assistant professor of logistics management at the University of Maryland. “Railroads have been trying to implement technology to improve their information sharing,” he says. “They have the financial strength to do that where a lot of trucking companies do not.” Evers also notes that shippers have long looked beyond price in selecting carriers. In a 1999 Maryland survey, intermodal shippers ranked price as the lowest of five priorities. Shipper-carrier communications topped the list, followed by customer service, transport times and consistent delivery.

Shippers will also turn increasingly to intermodal when fuel prices soar and trucking becomes more expensive, according to Michael Erenberg, operations vice president at Florida-based CSX Intermodal. “We have found the intermodal business to be picking up momentum as the year goes on and fuel prices are creeping back up,” he says. The trucking industry would be most affected by a mandatory fuel surcharge that Congress is contemplating, which would come into effect when diesel prices reach $1.15 per gallon and compensate the person or company paying for the fuel. The intermodal industry would not have to charge shippers as much because, according to IANA’s Malloy, one double-stacked train can transport 300 units and consumes only half the fuel as 300 trucks. Before fuel prices climb, shippers should take the initiative and switch to intermodal whenever appropriate, says Steve Sashihara, president and CEO of Princeton Consultants, a New Jersey-based consulting firm. They should be looking into what lanes and providers should shift to intermodal shipping and what should remain on trucks. He calls intermodal an inexpensive option but one that is “not really an alternative to truckload, but rather a hybrid that uses trucks at both ends.”

With its growing reputation, intermodal is attracting more industries such as the consumables market, electronics companies and clothing manufacturers. In spite of its recent popularity, the intermodal industry cannot rest on its laurels. Instability may lie ahead due to third-party providers consolidating and rail mergers of the past still continuing to hamper performance. According to Professor Evers’ research, the intermodal industry cannot afford to rely on customer loyalty. Shippers do not become attached to intermodal providers like they do to major trucking companies. “That suggests that intermodal companies can get business while they’re doing a good job, but as soon as their service slips, the shipper will move to trucks,” says Evers. “Intermodal has not been as well marketed as truckload, so I think there are some intermodal bargains in the right lanes.” The lack of marketing may be due to the fact that many third-party intermodal providers are trucking brokers as well and aim to promote both.

Steve Sashihara lists three musts for the intermodal industry: better information systems, less variability and finally, a more proactive approach to problem solving to make business dealings easier for customers.

Source: Shippers Say Service Beats Mode in Today’s Market
David Hannon
Purchasing, May 16, 2002
http://www.manufacturing.net/pur/index.asp?layout=articleWebzine&stt=000&articleid=CA215416&pubdate=5/16/2002