Intermodal Trends and Smart Bets for Shippers

Tuesday, April 3, 2018

MHI Solutions, which covers material handling and logistics, interviewed me for its current issue’s review of intermodal transportation trends. Many shippers used intermodal in the past, didn’t like it, and have been using truckload ever since. However, significant headwinds are now impacting truckload, such as the driver shortage. Truckload has not seen meaningful consolidation, so only a few companies are very large and profitable.

In contrast, the railroads largely stopped consolidating and became much more efficient. The Class I railroads are profitable and stable. They have invested in facilities and infrastructure, continuously improving their modes. As a result, intermodal has become much more attractive and that trend will continue over the next decade.

For a potential user of intermodal, the number one thing is to think differently about transportation. New, purpose‑built Transportation Management Systems, TMS’s, are low-cost and nimble at allowing load‑by‑load selection of the best mode, the best carrier, and the best conditions. Traffic and technology are starting to intersect. Rather than treating dispatch as a back-office function focused on negotiating better contracts, smart shippers are rethinking how they dispatch outbound and sometimes inbound.

For a shipper, the real smart bet is to be an intelligent buyer of freight transportation. You should use better systems, but you shouldn’t be expected to have to fund that yourself. Demand something that has all the intelligence built into it, keeps getting better, and is completely independent. You don’t have to rely on your ERP vendor.

We advise shippers to be more agile about moving freight. Make decisions load-by-load. Sometimes you’ll move your freight intermodally. Other times, you’ll move it over the road. Sometimes, use a team driver. Other times, single‑op. Sometimes, you’ll use LTL. Listen to your customer.

Next-generation TMS’s understand that part of the transportation manager’s job is to save money and part is to be robust. You need to sense when there are congestions or failures in the transportation network and understand how to route accordingly. Intermodal can be a very good substitute for a long‑haul truckload. Many supply chain executives’ idea of robustness is to have two or three core carriers in a lane—but those carriers are all traveling down the same highway, through the same weather. An intermodal option affords some robustness: “In some cases, for example over a weekend, or in some seasons when trucking is expensive and congested, we will use rail, while freight we have to move very quickly and precisely, we will load on trucks.”

When there are weather-related trucking delays, if you can get a truck at all, rates may double or triple because truckers are independent contractors--most have fewer than five trucks—and they can enact surge pricing. It is smart to have intermodal available load-by-load.

Many companies separate outbound and inbound transportation and have a batch and inventory problem in the middle and at both ends. To solve the whole problem, more data is necessary. Data helps improve forecasting and better batching and mode-selection decisions.

Consumers are being promised next‑day or same‑day delivery by Amazon and its competitors. Material handling must be less centralized and more distributed. That means more, smaller distribution centers, and lower inventory levels in much manufacturing. Nimbler inbound and outbound transportation improves material handling because it’s all part of the same system.

A purchaser of freight transportation should not be stuck placing large bets on long-term plays like the expansion of the Panama Canal. If you want to place those bets, go to Wall Street. But if you want to take advantage of shifts, then just be adroit, like we are as consumers.

My colleagues and I always welcome conversations about improving transportation. Email me to set up a call at your convenience. If you are a shipper looking for a next-generation TMS, consider our subsidiary,