October 18, 2021 | By Merrill Douglas
Tags: Air Cargo, Ocean, Intermodal
Here’s some practical advice for deciding how to ship your load, in normal and new normal times.
High-end circuit boards from Asia, critically needed for production in Michigan? Probably an air cargo shipment. Cardboard boxes from New Hampshire that ship to a factory in Colorado week after week? Domestic intermodal should be fine.
Sometimes it’s obvious which transportation mode to choose, given the nature and value of a product, the urgency of the shipment, the distance to be covered, and the money you want to spend. But in other cases, there’s more than one viable answer to the question of mode. That’s when you have to evaluate the tradeoffs and set priorities to make the best choice.
In normal times, when a pandemic hasn’t thrown global trade into chaos, shippers start the mode selection process by examining key factors about the shipment.
"The first question to ask is, ‘What is the promise to the customer?’" says Frank Dreischarf, vice president of supply chain solutions at R2 Logistics, a third-party logistics (3PL) provider based in Dallas. For instance, if you’ve promised a customer 2,000 miles away that the shipment will arrive the next day, air is an appropriate solution.
Does the customer expect delivery at a precise time, or within a time window of several days? That could make a difference in mode choice, notes David Broering, president, non-asset logistics at logistics and transportation provider NFI Industries in Camden, New Jersey.
Maybe your promise involves dollars. "Are there economic factors you’re trying to meet with respect to the total cost of transportation as part of the delivered cost of the goods that are more important than the delivery time?" Broering asks.
In general, shippers choose rail for overland transportation when cost is more important than speed, and they choose some form of truck when they need fast or time-definite delivery. Urgency can also help determine what kind of trucking service is best.
"Full truckload is almost always faster than less-than-truckload (LTL)," says Dreischarf. "On shipments longer than 600 miles, team truck is typically faster than single drivers."
Factors beside cost and speed may also come into play. There’s also size and weight.
"A 40,000-pound shipment can move either by truckload or intermodal; LTL is no longer an option," says Dreischarf. A 10,000-pound shipment can often go by LTL, but only if the product is dense enough.
"With 10,000 pounds of material that take up 30 feet of truck, LTL isn’t viable," he says. But that load might be a candidate for volume LTL, a service that takes advantage of an LTL carrier’s underutilized capacity.
A shipper might use intermodal to create rolling inventory, a tactic employed when relieving a crowded warehouse is more important than getting product quickly to another location.
"Companies that ship raw goods—grains, oil, paper—with continuous movement, have flexibility with delivery times, and know there’s a decent amount of safety stock in place, can use intermodal to cost advantage, too," says Matthew Witten, director of carrier procurement at Scottsdale, Arizona-based 3PL GlobalTranz.
On the other hand, when you ship to an e-commerce merchant with a demand-driven supply chain, you need a faster mode. Weather might also play into the decision.
"In winter, intermodal lines sometimes get jammed," Witten says. "You might put a shipment on truckload just to insulate yourself from product arriving late."
International shippers often choose air when fast service is more crucial than cost, and ocean when the opposite is true. But ocean carriers also offer expedited and time-definite services, such as APL Logistics’ OceanGuaranteed for less-than-containerload (LCL) shipments.
When considering expedited ocean service, a shipper should examine the details of a route to learn if that service meets the need. For instance, how many ports does the vessel call, and when?
"Where the port sits within a vessel rotation can impact five or six days of transit, which makes a significant difference," says Betsy Ducat, head of retail, North America, at APL Logistics Americas, based in Scottsdale, Arizona.
You also need to understand conditions at the destination port. "In some terminals—take Matson, for example—the flow-through is much more reliable," Ducat says. Cargo shipped there will get on the road faster than from a more heavily used terminal.
Details like those could determine whether expedited ocean service offers the speed a shipper requires.
Unfortunately, in today’s transportation market, rules of thumb don’t apply. Port closures in Asia, congestion in destination ports and rail terminals, labor shortages, tight truck and rail capacity, and soaring freight rates have narrowed shippers’ options and changed the math behind mode selection.
"Traditional mode choice has been thrown out the window," says Craig Callahan, chief commercial officer at Werner Enterprises, a transportation and logistics company based in Omaha.
"It’s about getting the capacity, understanding that your transit times are going to be extended regardless of mode of transport," says Ryan Carter, vice president, Americas operations at AIT Worldwide Logistics in Itasca, Illinois. "It’s also understanding that your supply chain expenses are increasing exponentially."
For example, if you ship low-end goods from overseas today, with no urgent time constraints, you would probably still choose ocean transport. "But you may be willing to pay $25,000 on an ocean vessel that historically was $5,000," Carter says.
Widespread congestion has not only slowed most modes but also made them less predictable, says Broering. For instance, an intermodal shipment from the Port of Los Angeles to Philadelphia might sit in LA for a few days before it’s loaded on the rails; then spend three to five days in Chicago waiting to be transferred to another train; and then sit a few more days in the rail yard in Philadelphia waiting for a dray carrier.
"The only mode that has not changed is truckload," Broering says. "Can you get a truck to come in and pick up the load? That’s a question. It’s based on rate, relationships, and other factors. But COVID has not materially affected the actual transit time."
For companies importing into the United States, another strike against intermodal rail is the fact that many steamship lines today terminate shipments at the ocean ports, rather than put containers on the rail to inland terminals. That’s because the lines want to move those containers back to Asia as fast as possible, to accommodate high-ticket eastbound freight.
Given that obstacle, many importers transload cargo from ocean containers to truck trailers. "We also convert some of those transloads from what was sea freight into the United States to air freight, and then fly it across the country, depending on when the customer needs the products in the distribution center or to the final customer," says Carter.
One key to mode selection in this difficult market is to ask how crucial a shipment is. "For instance, will the shipment shut down a line?" says Dreischarf. "Is it a must-have or a nice-to-have?" Performing triage on shipments can reveal the best options.
"A customer often says, ‘This shipment absolutely has to go,’ until you put a price to it," Dreischarf says. "You find out quickly that what was an absolutely must-go situation becomes a ‘Yeah, go ahead and ship it by ocean.’"
Still, customers with service promises to keep or production lines to feed may have no choice but to pay more for a faster mode. "Money is still an object," Dreischarf says. "But surety of supply is much more important now than lowest cost."
One particularly interesting pair of tradeoffs in mode decisions today involves consumer values. Some APL Logistics customers generally eschew air freight, given the commitments they have made to environmental sustainability. Consumers care about those commitments. But consumers also want quick access to products, especially toward the end of the year.
"Everyone wants to make sure the holiday merchandise is getting in, and retailers that would traditionally not consider air freight are now considering it," Ducat says.
To keep freight moving in this challenging era, shippers and their service providers have developed a variety of creative mode-related solutions. Some of those involve replacing a single mode with multi-mode transportation.
APL Logistics has explored the use of sea-to-air services, using an ocean vessel to transport cargo a short distance to a major city and then transferring the shipment to an aircraft. This tactic moves the freight to a market with more airfreight options.
"Out of certain locations, this can be economically viable, compared to a 100% air freight play," says Ducat.
In other cases, shippers may answer COVID-induced challenges with a counterintuitive mode choice. AIT sometimes finds a good alternative in China’s Silk Road rail service from Asia to Europe. "Many traditional supply chains don’t consider that as an option, because there may be a negative connotation to rail with regard to speed," says Carter.
But when Chinese cargo airlines cancel flights due to COVID outbreaks, and as shippers face heavy congestion in ocean ports, that rail route could become a good choice, he says.
Or a carrier might apply a special strategy to speed up a one-mode solution. Werner takes this approach at the U.S.-Mexico border, where a trade imbalance—with more northbound traffic than southbound—makes it hard to find enough equipment to take freight into the United States.
"We have a transload center in Laredo, Texas, so we can bring more freight to the border than we can handle with our own fleet," says Callahan. Werner unloads the incoming trailer—freeing it to return to Mexico for more freight—and puts the shipment on another truck, owned by Werner or another company.
"That allows us to be more flexible and versatile," he adds.
To find more capacity for ocean shipments, AIT has taken advantage of extra loader vessels—smaller containerships that steamship lines add to their rotations to alleviate the cargo backlog.
"The megaships may take 12,000 or 14,000 containers," says Carter. "Now we can go to vessel operators that may have a 4,000-container capacity or less and contract them to run special services, maybe into Oakland instead of Long Beach or Los Angeles." AIT might prepay to reserve space on some of those ships, or it might charter an entire vessel.
Some shippers split their shipments between modes. For instance, a large beverage company might move its fastest-selling items by truck while putting product that’s less in demand on the rail. A small company with an occasional large shipment might divide things in a different way. "They might split that truckload into three LTL parts to get it moved if they’re struggling to find a truckload carrier," says Broering.
Some importers daunted by congestion at ocean ports are tempted to switch not the mode but the route—for instance, skipping Los Angeles and Long Beach for a port in the Pacific Northwest.
That might be a good solution, but only if the smaller port offers the right facilities. "Is there proper warehousing infrastructure if you need to transload your merchandise? Are there proper options to expedite?" asks Ducat. "You have to consider everything, end to end."
Companies trying to keep product moving in the face of high freight rates in all modes can take advantage of various options for mitigating costs. "Most revolve around building inherent flexibility throughout your supply chain," says Dreischarf.
The first step a company should take is to honor the needs of its transportation partners—for example, by not taking six or seven hours to load or unload a truck. "Time is money to those folks, and that will be factored into the price of your freight," Dreischarf says.
When you suddenly need team drivers rather than a single driver to fulfill a commitment, if you’ve made yourself a shipper of choice, you’ll probably pay less for that service upgrade than if you’re a less desirable shipper.
For shippers with special needs, such as just-in-time manufacturing, Werner sometimes provides custom-engineered situations to get better performance from the chosen mode. One example uses a Pony Express hand-off model.
"You design a network that relays the shipment from Point A to Point B through a series of relays that look a lot like truck, with a single driver, but execute more like expedited," Callahan says. "It offers a good alternative to traditional team service."
With no end to the shipping capacity crisis on the visible horizon, alternatives, flexibility, and innovative thinking are vital, whatever modes shippers employ.
"It has never been more economically attractive to move freight on the rail if you can find the capacity," says Craig Callahan, chief commercial officer at Werner Enterprises. Shippers have always viewed intermodal as a low-cost alternative to truck transportation. In an era of soaring truck rates, intermodal looks especially attractive.
But booking intermodal transportation is easier said than done. Like other modes in the COVID-19 era, rail has seen demand for service outpace supply and has also suffered from congestion on its networks.
Some observers blame Precision Scheduled Railroading (PSR), a strategy the Class I railroads have implemented in recent years. PSR seeks to improve service by operating fewer, longer trains on defined schedules. Instead, PSR has reduced the quality of intermodal service.
"Many intermodal yards have closed across the country," says Frank Dreischarf, vice president of supply chain solutions at R2 Logistics. "Some railroads have stopped offering intermodal into certain markets."
Not only have railroads reduced total bandwidth on their networks but, like companies in many industries, they’re struggling for labor, says David Broering, president, non-asset logistics at NFI Industries.
Of course, the railroads could not foresee how a pandemic and its economic fallout would leave shippers clamoring for access to cost-effective intermodal services. But now that the crisis is here, carriers have responded in recent months by reactivating some closed facilities.
For instance, in August 2021, the BNSF Railway reopened its Harvard Intermodal Facility in Marion, Arkansas, to expand capacity in the Memphis region. At around the same time, Norfolk Southern reopened its intermodal facility in Greencastle, Pennsylvania, closed since 2019, to help ease supply chain congestion.
Railroads have also added new facilities and services. Callahan points to the Twin Cities Intermodal Terminal, which Union Pacific opened in 2020 to support direct service between Minneapolis-St. Paul and Los Angeles. "The railroads are trying to make investments where they see traditional gaps in intermodal service offerings, and there’s also a large consumption area, either inbound or outbound," he says.
Some shippers are also finding new uses for intermodal, for instance as an alternative to less-than-truckload (LTL) shipping for smaller loads. "Some intermodal providers look at potentially creating an LTL solution through the railroads," says Matthew Witten, director of carrier procurement at third-party logistics provider GlobalTranz.
MODES & SERVICES
©2021 Thomas Publishing Company
October 18, 2021 | By Merrill Douglas