Sunday 23rd Oct 2016 - Logistics Manager

Can intermodal become the norm?

As international freight volumes increase, some US rail operators have seen a huge first-quarter growth this year. Norfolk Southern announced a 57 per cent increase in net earnings to £166 million, while Union Pacific announced that its net profit had doubled during the same period.

The US rail industry has been operating close to capacity for the last two years, allowing operators to impose sharp price increases on customers. Rising earnings in the US means that investors are reassessing their attitudes towards rail freight, which is typically known for low returns on capital. US rail companies have been winning business away from hauliers due to a driver shortage and rising fuel costs.

Currently, fuel cost difference in the US is 18 per cent for rail while road hauliers have to allow 25 per cent of their operating costs. It’s arguable that global sourcing is changing traditional distribution patterns, but now, with the road transport system being affected by the rising price of fuel, are we now entering a new era where intermodality rules?

Tony Berkeley, chairman of the Rail Freight Group says that it depends on how you define intermodality. “After all, road freight is often part of an intermodal chain with sea and sometimes rail.

“I think there will be a growth in rail freight traffic but also of short sea/coastal shipping.”

This year, Freightliner has experienced record handling volumes at its Thamesport operation. Peter Maybury managing director of Freightliner, says that the company is beginning to see its role in the supply chain differently, he says that the company regards itself as a part of the container industry and not necessarily the rail freight industry. He says: “We do not sell ourselves as a rail freight operator, because shipping lines are not buying a train movement, they’re buying a container movement.” He says that they have a choice between road and rail so it’s vital that the process is made seamless for the customer.

Freightliner has invested £30m in new rolling stock. When asked what urged the new investment, Maybury says: “The investment is two fold.”

It is about “exiting old equipment and it’s also about new services”.

“The industry was static last year and there is cautious optimism that it will grow this year.”

However, he says that investment must be made into the UK infrastructure. Port capacity must increase. Both Felixstowe and Southampton have new developments planned but additional capacity must be allowed on the network and inland terminal capacity.

“You have to look at the commodities separately. We have to compete with road and that puts a natural cap on profits.” Maybury also says that he does not think that the UK would see the kind of growth that the US has experienced.

Derrick Potter, chairman of independent road and rail logistics provider, The Potter Group, says that in comparison with the US market, some of the biggest changes in the sector are coming through container sizes. He says that deep-sea containers in the majority of cases are built 8ft 6 high by 40 ft in length or in the smaller size of 8ft 6″ and 20 ft in length.

US trains move slower than those in the UK, but have no height restriction to determine what they carry. He says that as a consequence they are often able to stack two boxes on top of each other.

To move forward, UK rail freight must find a way to incorporate the new box size. Currently, the 9ft 6″ box makes up nearly 40 per cent of the container market, and in 2008/9 it is likely that the higher specification will make up 70 per cent of the market. He says: “I’ve been told by shippers that they are not investing in 20 ft boxes and not replacing them when they come up for renewal.”

In Europe, companies are now building the 9ft 6″ box to compete with road trailers directly, which raises issues over height of tunnels and investment in lower bogie wagons. He says that the UK government will have to allow increased investment in the industry.

Berkeley says: “We hope to see some increase in profit in the UK, but conditions are very different.” Rising fuel prices, the fact that the UK rail network is more expensive (since it is basically a passenger network) and the shorter distances in the UK, all contribute to this.

Gauging the future

If there is anything like the surge of demand in the UK, as the US has experienced, the immediate question posed has to be “Do we have the infrastructure to deal with it? If not, what more could be done?” Berkeley says: “Rail freight has grown 60 per cent in the last ten years, and there is plenty of space on most of the network for more traffic still. Where there is congestion, the cost of providing more capacity for freight is generally much less than that for passenger services.”

Potter feels that change of infrastructure must begin with the ports. He says that the ports should set the example with gauge enhancement. In Southampton, for example, he says, they can only carry the standard 8ft 6″ box and will have to increase investment into low bogie wagons. He says that this enhancement could cost up to £44m, for a link up to London. He says that although it sounds like a lot of money, it is only about equal to adding an extra line to a major motorway, for about four miles. He says the UK government must allow the industry to invest in these changes or risk getting left behind the rest of Europe.

The European Commission is expected to release a white paper in June, titled “Logistics for Promoting Freight Intermodality”.

Potter says it is going to have to take into consideration, the current situation of infrastructure. Berkeley says: “I have not seen any drafts yet of the EC paper but I suspect that its policies will be broadly in line with previous publications on this. If so, we will probably welcome it.

Consistency of transport and rail policies across the EU is vital if we are to remain competitive; an involvement by the EU in promotion is a natural consequence of this, and is to be welcomed.”

Potter points out that smaller European countries are developing their rail infrastructure and are going to have a huge advantage because they will be able to pull longer trains and will be able to pull them very quickly. It will affect the UK market as they won’t have the gauge restrictions that we have, so the UK will have to adapt. In Scotland, rail freight is much more supported and is experiencing a boom. Potter says that in the English market, “we are just playing around with it.”

With the increasing numbers of foreign hauliers, Potter says that it was important to begin involving rail freight in addressing the imbalance in the road freight market.

Getting rail and short-sea shipping to work together is a key issue for the industry. Berkeley says: “I think they are already working together in a number of areas. The key is to ensure that there is adequate port capacity for the traffic proposed and hopefully, rail connections. Luckily, many ports in the UK are still rail connected even if these are not often used at the moment.”

Short-sea shipping is not necessarily about inland haulage of containers and tends to be a different market in itself. Yet, coastal feeding is experiencing growth and new investment abroad. In recent news, the train operator GNER, which is owned by Sea Containers, is selling off its ferry business. The company is thought to be in some £707m in debt and is due to sell off its Baltic Sea ferries. However, it’s felt by some that GNER is more dependant on the sea shipping company than it previously thought as Sea Containers threatened that it may have to negotiate a restructuring with its creditors.

MacAndrews, the CMA CGM-owned short-sea carrier, has confirmed that talks with Kursiu Linija are well advanced. It has been an objective of MacAndrews to develop its presence in the Baltic Sea, significantly, and while this has been achieved to some degree through organic growth, joint ventures and acquisitions have also been explored.

David Halliday, MacAndrews chief executive officer says: “We view some form of co-operation, or even closer relationship with Kursiu Linija, as being perfectly consistent with our strategic aim of growing a strong presence in the Baltic, beyond that we already have in Poland.” Freightliner’s Peter Maybury says: “We’re moving 2,600 containers every day, we have 22 per cent of the market, there’s not a major shipping line we don’t deal with, there’s not a major forwarder that we don’t deal with. That speaks for itself.”

Steeling the limelight

To increase capacity up to 1.25 million tonnes of steel per year Innovate Round Oak Rail has invested in five heavy-duty overhead cranes from Street Crane Company. Innovate are a logistics partner of Corus and the £1 million investment in new cranes is part of a major £6 million refit to its Midlands rail-to-road transfer depot.

The development at Round Oak will play a crucial role in distributing steel to the automotive industry, steel stockholders and service centres throughout central England. Receiving 20 train-loads of steel per week from Llanwern, the steel must be rapidly offloaded and held in store until it is reloaded on to trucks for its final road journey. The contract included the removal of three of the existing cranes and installation of five new double girder overhead travelling cranes. Four of the new cranes are rated at 35 tonnes safe working load and one at 42 tonnes.