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1/18/2023
By Jeff Stagl, Managing Editor
In 2021, U.S. railroads moved 14.1 million intermodal units, up 4.9% compared with 2020’s mark.
Intermodal accounted for about 27% of major U.S. roads’ revenue that year, more than any other traffic segment, according to the Association of American Railroads (AAR). But trucks’ total tonnage in 2021 equaled about 546 million intermodal units, so rail’s intermodal market share in that period was very small, at a little more than 2%.
With one week left in 2022, U.S. roads had registered about 13.3 million intermodal units, down 5.5% versus volume in the same 2021 period, AAR data shows. Thus, their efforts to divert more truck traffic and boost intermodal volume didn’t pan out last year.
Yet, railroads’ chances of gaining more truck diversions remain high in the foreseeable future just based on the sheer amount of freight that’s there for the taking from shippers seeking reliable transportation providers. Plus, a host of other factors bode well for their odds.
The nation continues to grow — gaining millions of more consumers — and gross domestic product (GDP) continues to climb. Over the next 30 years, the U.S. population is expected to grow 0.5% and the GDP 9%, annually.
Moreover, the trucking industry continues to deal with a severe driver shortage that’s worse than railroads’ own manpower crunch, plus an ongoing struggle to recruit more female drivers. The industry was short about 81,000 drivers in 2021 and more than 78,000 in 2022 despite an increase in drivers’ pay, according to the American Trucking Associations. By 2030, the driver shortage is anticipated to reach 160,000.
Then there’s the huge benefit rail can offer shippers in terms of sustainability. Railroads are three to four times more fuel efficient than trucks, can reduce greenhouse-gas (GHG) emissions up to 75% compared with trucks over the same movement and account for 40% of long-distance freight volume, but generate only 1.9% of transportation-related GHG emissions, per AAR statistics.
For all of those reasons — and more — Union Pacific Railroad leaders are firm devotees about intermodal’s long-term potential.
“We believe in the growth of intermodal,” says Kari Kirchhoefer, UP’s vice president-premium, marketing and sales. “The nation has become a high-need society, meaning people want to get everything quickly, so trucks have taken over. But where there is density, in denser markets, we can compete with trucks and show intermodal is virtually the same as truck service.”
People in the United States remain anxious about the possibility of a recession, which would drive intermodal movements down, she says. Plus, volume growth isn’t projected for either rail or trucks in 2023 for a variety of reasons, including the lack of a fall peak last year, ongoing capacity constraints and softening demand.
Yet, UP is anticipating more intermodal traffic this year if partnerships new and old are successfully exploited, capacity is sufficiently expanded, resources are added as anticipated and more shippers are enticed to try or sign up for the railroad’s services. Other railroads likely are peering through murkier crystal balls, Kirchhoefer believes.
“We might be the only one to show growth,” she surmises.
One of the primary reasons: UP became Schneider’s primary western rail carrier as of Jan. 1. Landing that lucrative deal means the Class I will gain 330,000 intermodal units from Schneider alone this year, says Kirchhoefer.
UP already had executed an exclusive rail carrier deal with Knight-Swift Transportation — the largest full truckload firm and an intermodal marketing company (IMC) — that began a year ago. The budding partnership helped the railroad increase volume density on its Interstate-5 corridor between Seattle and Los Angeles.
“It was a nice addition for us. It added about 100,000 loads [in 2022],” says Kirchhoefer.
Now, Schneider will bring on additional loads for UP, too. An intermodal, transportation and logistics services provider, Schneider had contracted BNSF Railway Co. as its primary western rail carrier for 30 years.
The company decided to make the switch because UP’s differentiated network could create more traffic-growth opportunities, and both parties offer customer-centric transportation solutions, Schneider officials said when the deal was announced in early 2022.
Schneider now has the largest driver dray fleet of any intermodal carrier hauling freight on UP. With CSX as its primary eastern rail carrier, the change to UP creates more direct transcontinental connections and forms what Schneider officials characterize as “an unstoppable force in the intermodal marketplace.” Schneider and UP now are working jointly to improve driver efficiency at terminals to further reduce transit delays.
Gaining Schneider expands the railroad’s roster of strong, asset-owning IMC partners — which include Hub Group Inc., Knight-Swift and STG Logistics — to compete against and divert trucks, said UP Chairman, President and CEO Lance Fritz in outlook-on-2023 comments emailed to Progressive Railroading in November. The switch also helps enhance the Class I’s EMP and UMAX domestic interline container service programs.
“The partnership creates seamless service and reliability between UP and Schneider, which provides the critical first and last miles of the supply chain,” Fritz said.
Schneider had approached UP several years ago about the carrier switch, says Kirchhoefer. It takes time to invest capital and add capacity to prepare for such a transaction, she adds.
Spending capital on and boosting capacity for the intermodal franchise is a long, continuing pursuit for UP. The railroad plans to add a significant amount of intermodal capacity over the next two to three years, Kirchhoefer says.
In 2022, the Class I spent $600 million on facilities — mostly on intermodal terminals — and invested its most-ever dollars on intermodal in a given year, she says.
Efforts are well underway to add 1.5 million lifts to total intermodal capacity over a two-plus-year period.
“We [added] 750,000 lifts by the end of 2022,” Kirchhoefer says.
The other 750,000 lifts will be added over the next one-and-a-half years, she estimates.
Some of the additional capacity will come from expansions to the Twin Cities Intermodal Terminal (TCIT) in Minneapolis and Inland Empire Intermodal Terminal (IEIT) in Fontana, California, near Los Angeles, as well as a new intermodal terminal planned in Kansas City, Missouri. The K.C. facility is in the design phase and is projected to open in late 2024.
The TCIT opened in January 2021 as a pop-up ramp. Work completed so far expands the facility’s annual capacity from 20,000 to 100,000 lifts. Crews in 2022 completed 13 turnouts, constructed 5,500 feet of track and realigned the yard to streamline unloading operations.
Additional improvements to be completed by mid-2023 include more grading, utility and asphalt paving work to improve truck drivers’ access to stacked containers, and the addition of canopies for inbound and outbound traffic.
Opened in second-quarter 2021, the IEIT is located in the nation’s fastest-growing industrial warehousing region, and near the major ports in Los Angeles and Long Beach. Ongoing work to expand the terminal will add up to 500,000 lifts in annual capacity over time, says Kirchhoefer.
UP also recently installed five wide-span cranes featuring artificial intelligence that can operate semi-autonomously at the Global IV intermodal terminal in Joliet, Illinois. The cranes — which became operational last month — will provide 350,000 additional lifts annually, Kirchhoefer says.
Another intermodal equipment move made in 2022: acquiring 5,600 additional chassis. But what Kirchhoefer cites as a “big thing” that’s occurred over the past year is an ongoing effort to add GPS devices to 50,000 UP-owned containers.
Other major intermodal players such as Hub Group, Knight-Swift and Schneider already have installed GPS devices on their containers. Schneider alone owns more than 28,000 containers.
The fleet of 100,000 containers in UP’s EMP and UMAX programs also will be fitted with the devices. By 2023’s end, GPS will be available on all containers controlled by UP, says Kirchhoefer.
“GPS means we can, in a sense, create more containers without buying more of them by turning them faster,” she says. “The safety benefit is we will know if a box is opened during transit to help reduce theft and tampering.”
But the railroad needs to be fully staffed to move containers through its network quickly, including within the intermodal franchise. And recruiting and retaining more workers has been a longtime struggle for UP and most other railroads.
The good news is UP made significant strides with recruitment, training and retention in 2022, says VP of Human Resources Polly Harris. The railroad met — and slightly exceeded — a goal to hire 1,400 train crew members, and about 1,000 train engine-service and yard (TE&Y) employees completed training.
Several efforts to bolster recruiting paid off last year. UP offers a virtual hiring process and virtual career fairs, and advertises available jobs on social media, iHeart Radio and local billboards, Harris says. Since 2021’s start, the Class I has completed 500 virtual career fairs.
The railroad also offers hiring and transfer bonuses. An employee can transfer to a different hub if they are considered a good fit there, says Harris.
“We want to be as flexible as we can be,” she says, adding that the ability to transfer saved 50 jobs in 2022 and likely will save even more in 2023.
In addition, UP continues to promote a second chance program that targets 70 million people who have a criminal record involving non-violent offenses. UP recruiters have found that the program — which was launched in fall 2021 — helps provide a pool of skilled, motivated and diverse candidates who are seeking a job opportunity despite a criminal past.
By collaborating with community partners, a number of second chance program candidates have joined UP. Since its inception, the railroad has hired nearly 100 through the program, and hundreds more are in the hiring pipeline.
Another successful hiring initiative: an employee referral program UP started a year ago. If an applicant referred by an employee through the program is hired, the employee receives $500 as an incentive.
The program has led to 16,000 referrals that generated more than 1,000 job offers. Now, about 30% of all new hires come from employee referrals, says Harris.
“We need to pull all levers [to help with recruiting],” she says.
The railroad also needed to speed up its hiring process to bring more people on board as fast as possible. Through various means, the time span from an application to job start was reduced 30% last year, Harris says. The average time fell from 70 days at 2021’s end to about 50 days at 2022’s end.
One example of the means: The railroad now uses pre-recorded interviews to expedite the hiring process and provide candidates flexibility by conducting an interview when they find it convenient. Pre-recorded interviews also free up recruiters to continuously review and make offers to candidates.
Other application process improvements either recently were completed or are coming soon. Two individuals now are dedicated to the candidate experience — such as being continuously available to answer any applicant’s inquiries — and a new recruiting system will be in place sometime this year to remove manual touches throughout the hiring process, Harris says.
In terms of its training program, UP added 25 new instructors and increased class sizes and teacher/student ratios to improve and accelerate training. Plus, 14-week training classes now start every week instead of biweekly or less often.
To address retention and heightened railroad-employee tensions of late, UP on Nov. 1, 2022, launched a pilot project aimed at addressing quality-of-life concerns raised by TE&Y employees. The railroad is testing a work-rest cycle that includes scheduled days off for workers in craft jobs that traditionally have been unassigned.
“We are working closely with union leaders on this project, which is in its infancy, and hope to gather a better understanding of how to best implement a work-rest balance more broadly throughout our system, while acknowledging there may not be a one-size-fits-all approach,” UP spokesperson Robynn Tysver said in an email.
To better understand all workers’ needs and concerns, UP typically conducts an annual employee engagement survey in the third or fourth quarter. The railroad completed the 2022 survey at November’s end and still is analyzing results, Harris says.
“The surveys help us with retention,” she adds.
To find and hire more people this year, the railroad plans to continue focusing hard on the referral and alternate recruiting programs, and its partnerships with military and trade organizations.
“We will keep doing what we’re doing,” Harris says.
Having enough workers to perform all the planned capital work associated with the intermodal franchise and otherwise is one the biggest challenges UP faces this year, Kirchhoefer believes.
A healthy headcount can also help with ongoing efforts to improve trip plan compliance for intermodal, the most service-sensitive part of UP’s business. The on-time delivery metric shows performance is averaging a mid-70 percentile.
That’s a solid improvement of late, but not high enough to meet the company’s — or many intermodal shippers’ — expectations, UP leaders say.
Despite more hurdles that need to be cleared and more plans that need to be carried out, the leaders remain confident intermodal will prove to be a compelling growth story for the railroad, with many chapters yet to be written.
As UP Executive VP and Chief Financial Officer Jennifer Hamann put it Nov. 30 at Credit Suisse’s 10th annual global industrials conference in Palm Beach, Florida, intermodal is a great business fundamental for the foreseeable future.
“We are so excited about the long-term prospects for our franchise,” she said.
Email questions or comments to jeff.stagl@tradepress.com.