Here’s a excerpt from Robert Leachman, who had at one time worked in Union Pacific’s marketing department. I have inlcuded a link to the full report on the topic of the recently announced Utah Inland Port.
Western Pacific Transport
"With the notable exception of the appliances and farm implements handled through Freeport Center, over the course of the 1970s most westbound merchandise freight moving via rail converted from movement in boxcars to TOFC (trailer on flat car, the early name for rail intermodal). Westbound merchandise traffic was generally “cube freight” (if stackable) or “floor freight” (if not) that ran out of space in a boxcar or a trailer before the weight capacity of the vehicle was reached. On the other hand, eastbound freight traffic on the railroads included considerable “weight freight” such as lumber, paper, plywood, and canned goods. Two or three truckloads of such commodities could be accommodated in one boxcar, and so such eastbound rail traffic was resistant to shift to trailers. This put the western US railroads in the awkward position of running trainloads of empty trailers eastbound while running trainloads of empty boxcars westbound.
John J. Gray joined the management of Western Pacific Railroad in 1972 and sought to address this problem. Western Pacific operated from various Northern California points to connections with Union Pacific and Rio Grande railroads in Salt Lake City. It seemed to Gray that a continuing transition of rail traffic into intermodal movement was inevitable, and so to improve profitability, something had to be found to fill the eastbound empty trailers. Ideally, this should be done without cannibalizing the profitable movement of canned goods, plywood, lumber, etc. in boxcars.
The railroads can haul freight such as LTL just fine. And they can put money on the bottom line doing so.
But…
This getting into competition with your customers problem is just that, it’s a problem. And it’s not a problem unique to railroading. At some point a customer becomes large enough, or other circumstances exist, so that it makes business sense for the manufacturer to bypass the middleman and sell directly to the customer. This upsets the middlemen, who loose out on a large customer. These middlemen can punish the manufacturer for bypassing them. They’ll do this if they can and divert purchases to another manufacturer that won’t bypass them. (In this case the railroad “Manufactures” transportation.)
So, you gotta’ watch it.
This “Bypass” thing is exemplified today by the Walmart and Amazon containers moving on intermodal trains. These companies are bypassing the traditional middlemen that handle rail intermodal. These bypassed firms include the likes of JB Hunt, Hub Group, etc. These are major rail customers that can hurt you big time if you upset them enough.
It’s my understanding that the WP didn’t have much of a problem in this area with LTL service to Salt Lake City and Denver. Nobody else really wanted freight into those cities because there were few loads for their equipment out of those cities. So, the WP got a freebie.
Expanding the service to other destinations on the UP may have upset the rail customers and it could become payback time. The folks in Omaha arguing against competition with their existing customers won the day.
As information, the ignorant government regulators really messed
I always get a kick out of how the ICC told NYC. That since Erie couldn’t “afford” to use the container system. That it would cause harm to the industry?
I’d like to know how they arrived at that conclusion?..I thought we were doing free market here? Not corporate victimization?..
I’ve always said that the railroads are missing opportunities by not going after LTL more aggressively. And then someone invariably brings up how UP’s purchase of Overnite didn’t work out 40 plus years ago, and that this one example proves that the idea itself is bad.
Here in Canada alot of LTL does in fact move by rail; however, the railroads are not working with the end customers… they simply move the containers from the freight forwarders instead of going after the smaller shippers directly. End result is that the freight forwarders make 25% to 75% margins as they own the relationship with the end customers. The railroads get paid a much lower rate to move containers from one terminal to another. I don’t know why they wouldn’t try to capture that 25% to 75% for themselves. It’s not as if they’d have to grow that business organically… they could buy an existing freight forwarder (like CN did with TransX a few years ago)…
Same could be done in the US… pick a large LTL regional like Pitt Ohio or Old Dominion… make an offer, and go from there…
I believe there is already a lot of LTL moving over the railroads - 3rd party logistic companies are aggregating the LTL shipments and moving them in containers or trailers over the railroad. Railroads are just moving the boxes, not being involved in the background of loading or billing the containers/trailers.
The Class 1’s do move quite a bit of LTL IM by rail. It’s wholesale, and BNSF moves many more units than UP. Some of the major customers: UPS, FedEx, Estes, ABF, Yellow, and R+L Carriers…
Now NS runs a limited LCL service in the same vein as LTL from their Calumet Terminal in Chicago to destinations in the south, and east. These boxcars ride in existing IM trains. Most of the product moved is industrial. As LTL handles much more industrial product than TL. Which handles more of the consumer side products, and construction material.
Overnite was a weak carrier to begin with, and a poor one for UP to acquire. It didn’t have an efficient network and it’s operational expenses were much
Yes, I agree, but my point was that the railroads could make that 25% to 75% margin (that the freight forwarders and consolidators now make) by doing that themselves, in house, much like WP did all those years ago.
Today’s railroads do not have the infrastructure to support that operation without regard to the margin. Organizations that are hell bent on reducing corporate head count will not add heads for a ‘shot in the dark’.
I wouldn’t call it a shot in the dark. Cutting out the middlemen where possible and offering transportation services directly to the customer would enhance profitability even with a higher head count. The money is in retail not in the conveyor belt wholesale. Given that they’ve already picked the low hanging cost fruit, now would be the time to bring on more business at higher margins. WP was on the right path…