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Agforce Vice President Andy Tuley’s 2019 Intermodal Outlook

Precision in an Imprecise Market

2018 was a big year for precision railroading, and that’s an understatement. Some might go so far to say it was a “make or break” year, and I would have to agree – as long as those people also agreed that by December 31, 2018, we could conclude precision railroading probably checked all the boxes on the “make” side of the equation. Of course, that growth did not necessarily come easy for any of us.

According to the Association of American Railroads, intermodal volume rose 5.5 percent in 2018 alone. At Agforce, we experienced that growth firsthand with our partners. By the end of the year, it had become clear that precision railroading is well positioned to go mainstream in 2019, but not without a few growing pains. Thanks in large part to a confluence of factors that included precision railroading and tight trucking capacity, CSX, for example, struggled with delays and the resultant frustrated shippers on the precision railroading side.

Thankfully, CSX adjusted to the “new normal” quickly, modifying and improving service to accommodate pared-down service routes and closed ramp facilities. The use of the word “quickly,” by the way, is highly relative. It did not take CSX long by railroad standards to make some high-impact, significant changes, but to our customers, it felt like an eternity. We were relieved in October 2018, when we started seeing glimmers of the positive angles of precision railroading strategy emerge not just for CSX, but for our intermodal partners as well.

Accept it: Precision Railroading is Here to Stay

The shifts and evolutions that came in 2018 created an intense need for not just data, but the best data and the best analytics to go with it. Agforce brought both last year and is prepared to do so again in the coming year.

Precision railroading can be difficult to deal with on the client side when a railroad first engages in this format. Done right, the strategy dramatically increases efficiency and optimizes use of assets across the board at a railroad, but the implementation period can be rough. CSX picked a rough time to implement precision railroading, in the middle of a tight truck market, since companies were already looking for options to get product off their docks and onto the road or, instead, the rails.

When engaged in successful precision railroading, a railroad like CSX may “shed” operations (including ramps and associated operations) while expanding profits all the while. This can complicate things for shippers to no small degree.

“CSX has more pricing power [now]…particularly in intermodal truck-rail business,” wrote WSJ business editor Paul Page this past October. Precision railroading provides more pricing power for the rails but also causes massive operational changes which makes having a solid strategic partner that much more imperative. The ensuing volatility certainly had a huge impact on our industry in 2018, but we expect things to calm down in the coming year.

What does this mean for Agforce customers? As precision railroading grows in popularity (and it will with results like CSX is posting), it will be imperative that every company have a highly optimized intermodal strategy. Whether you have had the same basic process for years and are in need of a “revamp” or you have only recently begun working with or considering intermodal shipping, rely on Agforce to help you develop and optimize the intermodal strategy right for you.

Rising Rates Likely to Slow in 2019

Fortunately for the entire industry, 2019 will probably not be quite as volatile as its predecessor. At Agforce, we do not expect the same volume of rate increases that we saw in 2018, which were caused by the coupling of a very tight truck market and the emergence of precision railroading as a dominant trend in railroading. Intermodal growth in 2018 was definitely fueled by tight capacity in the truck market, but now it is certainly here to stay.

The trucking industry appears to be taking a pause of its own as 2019 begins, another positive indicator for you that rates on this side could settle in the coming months. After a huge surge in fleet expansions, orders for heavy-duty trucks in North America were 43 percent lower in December 2018 than they were a year prior and down 24 percent month-over-month, ACT Research reported in early January.

However, ACT vice president Steve Tam observed, order volumes are not so low that the hot freight market could be heading for a downturn. “Freight demand is still growing. Freight demands are still increasing; it’s just that they are growing at a lower rate,” he told WSJ. This certainly correlates to our own outlook, with the caveat that this applies mainly to lanes that still “fit” railroads’ new operations. Be alert: precision railroading can create logistical issues if a railroad’s new ramp pairings do not fit with the network customers are used to. Agforce is dedicated to helping partners identify the best fits between providers and customers and also between rail and trucking providers as this evolution continues.

It is Time to Take a “Deep Dive” of Your Own

At Agforce, we have shifted historical business to rail in many cases due to pricing or capacity constraints. This service shift and the ability to meet demand has made rail a better fit for our customers in certain cases, and those instances are increasing in number as more railroads nail down precision railroading and the positive results it can bring.

It is imperative your logistics partner is doing constant, analytical due diligence for you. This is what Agforce does for its customers.

The good news is we don’t expect the spot market to stay up where it is right now. In fact, we’re predicting it will come down while contractual rates rise a modest 3-5 percent in lanes that continue to fit the railroads networks. Agforce continues to carefully and consistently monitor service provider, freight volumes, ramp pairings and schedules to help you optimize your shipping strategies. Untiring attention to detail in this will play a key role in your company’s successful shipping, regardless of mode or combination of transport methods, in 2019.

 

Together, we can leverage 2019 to your advantage. Let’s partner and create solutions for your business. Give us a call at 877.367.2324 or email us at inquiry@agforcets.com.

 

Andy Tuley is the Vice President of Business Development at Agforce Transport Services. Tuley’s long history of work in the logistics and supply chain industry coupled with skills in freight, sales forecasting and P&L management uniquely qualify him to provide Agforce customers with the strategic industry analysis they need each quarter and in the event of industry disruption.

 

Case Study: Intermodal v. Boxcar

An Operations Manager’s Win

Meet Jerry

Our friend Jerry is the operations manager at a large beverage distribution company. He was frustrated and unsure of his department’s efficiency when we met. You see, the logistics behind the wine and spirits industry is nothing to sneeze at. Jerry was jumping through hoops (picture the kind with fire) to keep the beverages flowing, and to be honest, he didn’t know how long he could keep it up.

All Boxed In

Cash flow and inventory management. Those were Jerry’s biggest concerns. He was using a boxcar process that made Einstein’s Theory of Relativity seem like child’s play. Product was coming in from multiple suppliers, to be placed into a single boxcar, then being warehoused and loaded onto four different trucks for distribution. That’s a lot of loading and unloading — which meant a lot of unnecessary risk.

It also meant the challenge of ordering enough from suppliers to get that boxcar full, but not ordering so much that you can’t sell it, and Jerry’s company couldn’t sell that extra product. So, they did not meet this efficiency challenge and the costs were adding up.

That wasn’t the only expense. Low visibility of the supply chain and having to use a crystal ball to predict what might need to be ordered in 45 days meant Jerry’s availability was limited. His time was spent manually checking into the moving parts of the company’s sensitive supply chain. He couldn’t risk an unforeseen missed delivery appointment that could blow timelines. Both Jerry and his team were putting in unbudgeted overtime just to keep up.

Jerry knew if he didn’t get things on track fast, he and his team would burn out.

A Helping Hand

While Jerry was seeking solutions, he met Adam with Agforce. Jerry knew he wanted to partner with a company built on honesty that he could trust and, above all, they would meet his expectations (effectively lowering his stress level).

Before Jerry ever talked about his burdened supply chain, Adam asked him about what he found important. Jerry was tickled with the direct and forthright communication as their relationship developed. Confidence grew in Adam and the Agforce team. Commitment to truly serve him as a client was apparent in the knowledge Adam shared and interest he showed in Jerry’s personal success.

The Partnership and the Plan

Once Jerry and Adam finished their initial discovery, the Agforce team went to work designing a plan to simplify processes for Jerry. He was asking for the ability to feel good about the decisions he made so he could dive into other operational areas in need of attention.

To get him that level of confidence, we encouraged him to consider intermodal. With Jerry’s boxcar experience, it did not take long for him to be comfortable with the idea. The Agforce team proposed a new intermodal process that eliminated the need to fill an entire boxcar and nixed a warehouse stop. The plan also included broader cost savings than transportation alone. It would eliminate the need for excess inventory, in turn boosting cash flow and reducing the need to pay interest to the bank on net 30 terms.

Crisis Averted

Jerry took the proposed solution back to his team. With all stakeholders on board, he set to work with Adam to get the plan underway. He was pleased to find his new partners steadfast and true to their word. Implementation was an organized, smooth transition with world-class customer service supporting him through the entire process.

He was no longer frustrated and enjoyed compliments for seeking out a solution with a solid transport service.

Successful Partnership

The partnership between Jerry and Adam and the Agforce team freed up Jerry’s time:

  • Provided better visibility to freight
  • Allowed some inventory flexibility
  • Sured up capacity
  • Decreased lead time for ordering
  • Decreased transit time

It also eliminated long lead times and long transits. In time cash flow improved. The company’s overtime payout, to Jerry’s now incredibly efficient team, became almost non-existent. Jerry had saved his company’s bottom line and most days now resembled a walk in the park.

The Agforce team also celebrated the way they worked together. They had saved Jerry’s sanity, and did it in a manner that reminded them they work with the smartest people in the industry. Adam sure knows that without those hard working experts by his side every day, his friendship with Jerry may have faltered.

 

Curious where your company could you find efficiencies? Let’s partner and create your business’s solution. Give us a call at 877.367.2324 or email us at inquiry@agforcets.com.

 

Rail Price Spike: What You Need to Know

A capacity crunch in rail shipping is occurring earlier in the year than anticipated has the industry bolstering for substantial and sustained price hikes. Shippers should be aware of this trend. Rail prices are expected to continue to rise over the course of the year.

Market observers are pointing to fully booked rail lines on freight routes out of Southern California as an anomaly that indicates the trend, since the current level of demand typically doesn’t take hold until later in the year. Experts are anticipating unprecedented pricing peaks in rail prices in late summer and into the fall as many factors push more freight to railroads, including overall strong economic growth, a shortage of truck capacity, rising diesel prices, and reduced driver productivity attributed to the electronic logging device (Elog) mandate.

These factors, along with the capacity availability and reliability of intermodal shipping, are shifting the market:

  • Total domestic intermodal traffic expanded 7.4 percent year-over-year in the first quarter of 2018 (the strongest gain since the second quarter of 2014), according to the Intermodal Association of North America, as shippers that could not find truckload capacity turned to the rails.
  • The four-week moving average on U.S. intermodal is up 7.9 percent, according to the Association of American Railroads.
  • The Cass Intermodal Price Index rose 6.6 percent year over year in April to 141.9, close to the all-time record of 143.2 established the month before. The three-month moving average is up 5.9 percent.

With capacity so tight, shippers will need to be more proactive and flexible than ever, and look to lock up capacity as soon as it is available—especially smaller shippers that don’t have predictable volume and weren’t able to lock in capacity contracts earlier on. Those shippers will need to rely on the spot market to find capacity at a time when prices are at record highs.

All of that means shippers are likely to face a difficult year of negotiations and decisions. And in unpredictable markets like the current one, experienced partners and advisors are more important than ever. Agforce Transport Services monitors shipping markets closely and advises our customers how best to navigate the volatility that typically characterizes the market. We can help shippers navigate market fluctuations and better manage rate volatility by leveraging a wide variety of carriers.

Agforce specializes in customized transportation solutions for our customer’s specific business needs. To learn more, contact Agforce today for a free consultation. Give us a call at 844-713-6723 or email us at inquiry@agforcets.com.

Mixing Modes: Why OTR is Giving Way to Intermodal

As over the road (OTR) transportation continues to rise in higher fuel costs and present additional challenges such as capacity shortages and environmental concerns, shippers are turning more and more to intermodal solutions as a cost-efficient and environmentally friendly option.

Here’s a look inside intermodal and why it could be the ideal solution for your company’s shipping needs. 

What is intermodal?

Intermodal refers to moving cargo by using two or more modes of transportation—generally OTR truck plus rail, ocean plus rail, ocean plus OTR truck, or all three modes. For example, stackable containers are designed to move across multiple modes of transport such as tanker, rail and truck, without unloading and reloading cargo.

Rail intermodal is the long-haul movement of shipping containers and truck trailers by rail, combined with truck or water movement at one or both ends. In 2016, intermodal accounted for approximately 24 percent of revenue for major U.S. railroads. Intermodal transportation provides shippers with an efficient option to transport their products with low energy usage and reduced costs.

To reduce risk and ensure there is enough product in the pipeline, many businesses have the option to consider dividing freight on the same lane between intermodal and OTR. Industry experts recommend that shippers look for these opportunities to convert to intermodal every six to nine months.

Shipping freight in transferable containers rather than dedicated trucks can significantly lower shipping costs and overhead. Integrating rail as one component in the cross-country shipping process reduces the fuel surcharge that you will be required to pay — and with gas prices fluctuating so much, dedicated OTR shipping can be astronomical.

Breaking down the benefits

Here are some of the reasons it makes sense for your company to consider an intermodal shipping strategy:

  • Statistics from the Association of American Railroads show that rail is the most environmentally sound way to move freight over land. On average, trains are four times more fuel efficient than trucks. They also reduce highway gridlock, lower greenhouse gas emissions, and reduce emissions of particulate matter and nitrogen oxides.
  • According to the Intermodal Association of North America, a typical intermodal train is equivalent to 280 truckloads, and can move one ton of freight 470 miles on a single gallon of fuel. This translates to fewer trucks on the highways, less congestion and greenhouse gas (GHG) emissions, and fewer accidents.
  • With the price of diesel often topping $4 per gallon, shipping by truck has become increasingly expensive. Transporting a medium- to long-distance load via intermodal costs 15 to 40 percent less than moving the same load by truck. And even considering the fuel surcharges railroads typically impose, shipping by rail is still three to four times more fuel efficient than shipping OTR.
  • Customers, environmental advocacy groups and regulatory agencies all are putting pressure on companies to reduce their environmental footprints. Shipping freight on the rail is fuel efficient and produces lower greenhouse gas emissions. A ton of freight shipped by train produces two-thirds less in greenhouse gas emissions than the same volume shipped by truck, according to the U.S. Department of Transportation’s SmartWay Transport Partnership.
  • With the ever-tightening capacity for OTR shipping, intermodal also alleviates a personnel challenge for shippers: Given the ongoing shortage of long-haul truck drivers, new safety regulations and requirements; a shift to intermodal means an alternate solution to the need for long-haul drivers.
  • Intermodal’s freight loss and damage statistics have steadily decreased over the past 20 years. Since 1995, the loss and damage experienced by Class 1 railroads has dropped by 75 percent.
  • While intermodal might be slightly slower than OTR transport, the lower cost of intermodal shipping can be worth a day or so of extra transit time — and many railroads offer expedited service to accommodate urgent freight.

What’s the best approach to intermodal?

Although transportation managers often shy away from integrating rail into their freight and logistics plans in the past, more and more companies are making intermodal a key element of their transportation strategies. Over the road trucks currently handle more than 50 percent of all goods moving across the country at any given time, and as such play an incredibly important part in getting these products to thousands of customers daily. A savvy shipper knows how to work intermodal rail into their shipping matrix to allow flexibility in lanes that are highly competitive in transit times while compromising very little in comparison to over the road trucking. 

Agforce Transport Services specializes in transportation solutions for our customer’s specific business needs. From trucks and chassis to domestic and international containers, Agforce has the experience to maximize the efficiency and effectiveness of your intermodal transportation experience.

To learn more about how we can help simplify your path to market, contact us today for a free consultation. Give us a call at 844-713-6723 or email us at inquiry@agforcets.com.


Sources:

Intermodal Factbook: An Introduction to Intermodal Freight Transportation
Intermodal Association of North America (IANA); 2017
https://intermodal.org/

Rail Intermodal Keeps America Moving
Association of American Railroads (AAR); April 2017
www.aar.org/

The Rewards of Rail

Securing the best transportation options while achieving as much value and cost savings possible is no easy task for individuals responsible for managing the supply chain and transportation processes. Adding to the economic factor factors are complexities of customer expectations, order visibility, inventory management and various types of cargo shipping requirements for diverse product lines. It’s for all of those reasons that rail shipping continues to play a crucial role.

Studies show that adding rail to a company’s transportation process has significant advantages for businesses. Transporting cargo by rail can not only reduce shipping costs but also provides an environmentally sound alternative. Here are some facts that will help determine how and why rail may be right for your business:

Cost-effectiveness and efficiency

  • The Association of American Railroads reports a 99 percent improvement in freight rail fuel efficiency since 1980, and an additional 18 percent improvement since 2000.
  • Thanks to improved freight car design, the use of longer trains and other factors, the amount of freight railroads carried in an average train in 2016 was 3,533 tons, up from 2,923 tons in 2000.
  • According to the Texas Transportation Institute’s 2015 Urban Mobility Scorecard, highway congestion cost Americans $160 billion in wasted time (6.9 billion hours) and wasted fuel (3.1 billion gallons) in 2014.
  • According to the Intermodal Association of North America, a typical intermodal train is equivalent to 280 truckloads, and can move one ton of freight 470 miles on a single gallon of fuel. This translates to fewer trucks on the highways, less congestion, lower greenhouse gas (GHG) emissions and fewer accidents.

Environmental impact

  • Expanded use of freight rail offers a meaningful way to reduce greenhouse gas emissions without harming the economy with new technologies such as reduced idling, new intermodal terminals and positioning locomotives in the middle of the train.
  • Greenhouse gas emissions are directly related to fuel consumption. That means moving freight by rail instead of truck lowers greenhouse gas emissions by 75 percent.
  • According to Environmental Protection Agency (EPA) data, freight railroads account for just 0.6 percent of U.S. greenhouse gas emissions from all sources and just 2.3 percent of emissions from transportation-related sources.
  • According to an independent study for the Federal Railroad Administration, railroads are, on average, four times more fuel efficient than trucks.
  • If just 10 percent of the freight that moves by Class 7 or Class 8 (the largest) trucks moved by rail instead, fuel savings would be around 1.5 billion gallons per year, and annual greenhouse gas emissions would fall by approximately 17 million tons — equivalent to removing 3.2 million cars from the highways for a year or planting 400 million trees.
  • The Congressional Budget Office (CBO) estimated that the external costs associated with emissions of particulate matter, nitrogen oxides and carbon dioxide are three to five times higher for trucks than for railroads. In other words, moving freight by rail rather than by highway significantly reduces the harmful emissions that the EPA regulates.

Considering these important factors — and teaming with an experienced partner like Agforce — can help your business identify the most efficient and environmentally responsible methods for shipping your cargo.

Agforce Transport Services specializes in customized transportation solutions for our customer’s specific business needs and requirements. To learn more about how we can help simply your path to market, contact us today for a free consultation. Give us a call at 844-713-6723 or email us at inquiry@agforcets.com. 


Sources:

Intermodal Factbook: An Introduction to Intermodal Freight Transportation
Intermodal Association of North America (IANA); 2017
https://intermodal.org/

Rail Intermodal Keeps America Moving
Association of American Railroads (AAR); April 2017
www.aar.org/

Freight Railroads Help Reduce Greenhouse Gas Emissions
Association of American Railroads (AAR); April 2017
www.aar.org/