The intermodal transportation business has had its ups and downs since the invention of the double-stack train more than 20 years ago. Shippers have been drawn to the mode's natural economies, yet put off by service problems and congestion over the rails. Now, intermodal seems poised to capitalize on the woes of the trucking industry, including the rising cost of gasoline and a shortage of qualified drivers. Michael Uremovich, chairman and chief executive officer of Pacer International, talks here about his industry's advances in service, and its hopes for growth in the near term.

Q: How is intermodal faring against long-haul trucking today?

Uremovich: Pressures on the trucking industry-particularly the issues of fuel and driver availability-have increased the favorable posture of intermodal relative to long-haul trucking over recent years. There's no reason to expect that won't continue.

Q: How is the quality of rail service today, in terms of schedule integrity and reliability?

Uremovich: Much better than it was several years ago, when there was a significant capacity crunch. To give you a specific metric on that, the turn time on our boxes today has improved over the 2006 time frame. We have gotten eight to 10 percent additional capacity without adding a new box. There was a massive meltdown in rail service in the West when the Union Pacific took over the Southern Pacific in the late 1990s. In general, reliability is much better.

Q: Are we starting to see positive effects from new investments by railroads in equipment, technology and terminals?

Uremovich: Yes. The hiring of more crew, locomotive investment, terminal investment and other [actions] have helped. It's clear, however, that business is a little softer today than it has been in the recent past. So the real question is, what happens when volumes pick back up again? Will service remain at the level that it is today?

Q: So congestion is not an issue right now, even at intermodal terminals within the port areas?

Uremovich: Not really. The terminals and railroad systems are relatively fluid. You always have periodic interruptions in certain areas, if there's a derailment or a local situation like there was last week in Northern California, where the cartage drivers had a work slowdown. But it's not a systemic problem.

Q: How is intermodal serving the needs of U.S. exporters, who stand to benefit from a weak dollar but are having problems finding containers?

Uremovich: They can still move their freight by putting it in domestic boxes and then transloading it at the port. It's been more difficult because the shipping companies have had an extraordinary increase in demand, and they only have so many boxes in the interior to fill. Also, because railroads have raised rates, international shipping companies have been less inclined to move their boxes inland. So exporters are being well-served, but in a different way.

Q: Isn't that an inefficient system for lower-value exports?

Uremovich: It can be. Many exporters tend to be shippers of agricultural products and lower-value commodities. But supply and demand works in most of these markets. That's just the brutal reality of the business. The good news is that the exporters can sell more. The bad news is that there's some crunch on export capacity from interior points.

Q: What kind of green initiatives are we seeing in the intermodal sector?

Uremovich: To date, it has focused primarily on local aspects. There are proposals in place at the ports of Los Angeles and Long Beach to change out some of the trucks, and not permit those over a certain age to operate in and out of the port, as a way to reduce emissions. That's a very controversial proposal, but the controversy more surrounds the issue of company drivers than it does green initiatives. All companies recognize the need to upgrade equipment and reduce emissions. But what this is, frankly, is largely a subterfuge by the Teamsters Union to attempt to organize the truck drivers out there. Basically, [the intention is] to put the independent contractors out of business, and force companies to hire drivers so they can organize them. The Teamsters are fundamentally hiding behind the green initiative as a mechanism to strengthen their organizing effort, which has failed to date. As an industry, we've made it very clear that we will fight the company driver aspect of [the ports' initiative] as vigorously as we can.

Q: In the past year, ocean carriers have shifted a large number of ships from the trans-Pacific trade into Asia-Europe routes. What has been the impact of this change on your level of business, and your ability to provide efficient inland service to shippers?

Uremovich: The actual flow of cargo into the United States tends not to be affected by how the shipping companies deploy their vessels. We have not seen a significant impact as a result of the redeployment. We do see an effect if import volumes soften, as they have in recent times. Of course that affects the entire intermodal market. The redeployment of vessels is not the proximate cause of that, but it does mean that the shipping companies have an opportunity to raise their inbound rates, which is what they are attempting to do in this situation.

Q: What are the biggest challenges right now with regard to the funding of intermodal infrastructure?

Uremovich: There are several. In the eastern part of the U.S. rail network, specifically on the Norfolk Southern and CSX, there are a number of areas that aren't yet cleared for double-stack. Both railroads have aggressive programs to do that. The Norfolk Southern effort is called the Heartland Corridor. CSX's is the National Gateway program. They're investing significant amounts of money and infrastructure, both in terminals and double-stack rail clearances. But you always have the "last-10-mile" problem. And that tends to be a highway infrastructure issue. It's all wrapped up in the national infrastructure problem relative to highway congestion, particularly in major cities. Those problems are going to require addressing. There were some congressional hearings on this very subject within the last month or so.

Q: Independent of the local trucking issue, the ports of Los Angeles and Long Beach are attempting to install a per-container fee that would help pay for infrastructure improvements. How do you feel about the imposition of this kind of local fee in order to achieve such a goal?

Uremovich: Infrastructure improvements have to be paid for. The difficulty is always the fact that the politicians seem to hide behind the imposition of these kinds of fees. They assess the fees, and then they use the money for something else. We've seen that over and over again in various federal trusts, as well as with local infrastructure fees. California is particularly notable for this; it just continues to assess one fee after another. Obviously, at some point it affects the state's competitiveness. From an individual company's point of view, it doesn't mean as much because everybody has to pay it-we're all going to pass it through. I don't know why politicians seem to believe that fees don't get paid by their own constituents, because ultimately they do. They think they impose them on companies, but they really impose them on consumers.

Q: So the funding should come from elsewhere-either at the government level, or private-public partnerships?

Uremovich: I don't know where it needs to come from. I know that there are public-private partnerships being examined in a wide variety of areas. The CSX effort is one notable example of that. They are looking for some state and local money to improve certain kinds of infrastructure. And there are public-private partnerships in roads and tollways rapidly developing. I don't have a magic policy solution. I don't think that people in a given locale ought to have the ability to assess a fee that in effect gets paid by all U.S. importers. But that's what's going to happen if this kind of individual local thing continues.

Q: What new service initiatives have recently been introduced at Pacer?

Uremovich: We have a new arrangement with the Burlington Northern Santa Fe, which has opened up its system to our business, and we have begun to route traffic on the BNSF to certain points that we didn't serve previously. That has been one major step. It provides our customers, even in areas where we used to use the Union Pacific, with an alternative, because some prefer the BNSF and others the Union Pacific. That's been a significant step forward for us. We have made some smaller service introductions jointly, with companies like TrailerBridge in Puerto Rico. Those efforts have had modest or mixed success in the early stages. I can't tell how much of it is due to the economy, and how much to implementation. We have significantly improved our customer standings in the last 18 months, in terms of the quality of the intermodal service that we provide the end-user. The best demonstration of that is the growth that we have seen in our business as opposed to the total market. We've gained some significant share in a lot of areas.

Q: What initiatives do you have planned for the future?

Uremovich: We've been pretty public about the fact that we're going to increasingly turn our attention to the beneficial cargo owner, and continue to progress our intermodal service, because we think that's our core product for the future. Our logistics services have also significantly improved, particularly in the truck brokerage area, and we're looking to aggressively expand our brokerage and local trucking operations.

Q: In getting closer to the beneficial cargo owner, does that mean you would bypass traditional intermediaries?

Uremovich: We're going to continue to serve the intermediaries. But given some of the fundamental changes that are occurring in the business, the role of those intermediaries is changing. The business is coalescing around a different model which tends to deal more with the direct customer. We just have to recognize that change. We do a significant amount of business with intermediaries, and obviously want to continue to do that. But we also know that, given the way the railroads have been pricing, it becomes more and more difficult as an intermediary to capture that cargo.

RESOURCE LINK:

Pacer International, www.pacerstack.com