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Use Intermodal Transport to Decrease Shipping Costs and Increase Efficiency

by John Rediehs on May 11, 2015 1 comment

Failing to recognize the benefits and efficiencies that intermodal transportation services can bring to your supply chain is ignoring innovation and progress. If you’ve been looking for ways to make your business run more smoothly, learning more about intermodal logistics is the way to do it.

Over the past 50 years, domestic intermodal freight transport has overcome standardization, material handling equipment, and scalability issues. It continues to grow and change, using advancing technology to further the connection of live information and coordination to provide a seamless product that is a complete supply solution.

If we take a look at the long term outlook on full truckload movements throughout the United States there are several outside forces that are shaping the future of transportation.

Cost continues to rise because of driver shortages, fuel prices rising, and safety/regulations. Tackling each issue is the key to obtaining a cost-effective, efficient solution to your supply chain.

Driver Shortages

Driver shortages have been caused by a number of factors, so it’s essential to address each of them separately.

Increased Freight levels

  • As of 2015, the full truck load trucking industry is experiencing a shortage of 35,000 drivers. With freight levels expected to grow every year for the next five years, this shortage has already been seen in the cost of shipping over the road, and rates will continue to rise in order to secure capacity. The increased rates for over the road shipments can be attributed to a pass-through cost that trucking companies are paying not only to attract new drivers but to keep their current ones. The driving industry has a historically high turnover rate, but recently has been seeing turnover rates in the high 90s, and in some cases, over 100 percent. Due to the shortage, drivers are beginning to demand better terms at many companies, driving up the cost of shipping products.

Attrition

  • The driving work force continues to grow older, and according to the Bureau of Labor, the average age of a commercial driver is 55–13 years older than the average worker in the United States. Drivers continue to retire, and are not being replaced at the same rate, creating a net negative and forcing the pool to shrink even smaller.

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Recession

  • During the recession in 2009, 3,500 intermodal trucking companies went out of business forcing thousands of the drivers out of the industry into different careers. Many of those drivers did not return when the demand for their services grew again.

Recruitment

  • While many trucking companies have been experiencing issues recruiting young people to fill these roles, they have had limited success. Companies have found that many young individuals are attracted to the industry if they are able to be home on a nightly basis. Long over the road trip are not attractive to the younger generation. The Drayage setup that intermodal freight transport creates is attractive to many young drivers as they can hold down a normal nine-to-five job and be home on a nightly basis.

drayage trucking company

Intermodal Benefits for Driver Shortage

Intermodal transportation services build a network that limits long haul trucking; many runs are considered day runs, with the same truck being able to move several loads to and from the intermodal ramp in single day. Instead of one driver handling one long haul shipment over the period of 2-3 days, you have that same driver able to initiate and deliver five to 10 long haul shipments during that time span.

This creates human capital efficiency that is quadrupling the number of loads that a single driver can handle in the same time period. A few other benefits of this method of freight transport include:

  • Day runs are creating a work-life balance for the driver which is an attractive model for recruiting younger individuals to the career.
  • By eliminating over the road miles and switching it to rail, the cost of human capital will go down by 70%, with most of the capital investment being spent on the day runs in the destination and origin ports.
  • Efficiencies and cost saving are implemented by reducing the over investment of human capital into the shipment.

Cost of Fuel

Another reason intermodal containers are becoming a more popular way to ship is because the cost of fuel is constantly on the rise.

The transportation industry has experienced a steady climb in fuel prices from year to year. To deal with this extra cost the transportation industry created the fuel surcharge, a per-mile fee or percentage of line haul charge based on the national average diesel price. This surcharge helps supplement the rising cost of fuel that many transportation companies face.

Currently, however, companies are seeing a break on fuel rates, but the long term forecast sees energy prices returning to previous pricing levels. This rise of cost will be the burden of all shippers using over the road carriers and the rates will be indicative of the ever-rising cost of fuel.

Intermodal shipping including trucking

Intermodal Benefits for Reducing Fuel Costs

Rail transportation is four times more fuel efficient in moving a ton of freight than a semi five axle trucks and trailer set up. The drayage portion of transporting intermodal containers lowers the fuel efficiency of the solution to about half of the total fuel usage per a ton. Overall intermodal transport is twice more efficient than an over the road carrier.

Additionally, half of the fuel consumption allows the mode to price competitively and on average is decreasing cost by 15-20% to shipper on loads over 800 miles.

Safety & Regulations

Recent Department of Transportation (DOT) regulations have cracked down on over the road trucking companies regarding hours of service (HOS) and released a new driver/company scoring system in 2010, Comprehensive Safety Analysis (CSA), to monitor every DOT carrier in United States. This new system grades drivers and companies on five categories.

If the scores total in the top 90% of the carrier group (grouped by size of fleet), the company is ranked “unsatisfactory” in that category. If the company is ranked unsatisfactory in 1 or more categories they will be audited by the DOT, or the DOT will warn them of a possible audit.

Not only does the system monitor the company, but individual drivers as well, so violations will follow the driver from company to company.

Many drivers with several violations become unemployable due to restrictions from insurance companies. These regulations also open shippers up to liability issues if they are found not to have done their due diligence in their carrier selection process.

Shippers can be found liable and responsible in any accident if the carrier they were using was considered a safety hazard.

The more road miles driven on the highway system opens shippers and carriers to a larger window of liable situations. Shippers are looking over the supply chain to eliminate risk and limit their overall exposure.

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How Intermodal Transport Helps with Safety/Regulations

The intermodal container shipping process faces less individual regulations because of the rail portions of the transport process. For example:

  • In transit weight stations are limited throughout the intermodal fright transportation process because long distances are covered over the rail
  • Rail providers limit the exposure of liability by taking the truck off the US highway system and limiting truck miles to a minimum.
  • The fatality rates are 40% higher per ton when the cargo is transported by truck from the origin to the destination
  • With long distances being handled by rail many shippers have far less exposure to road way accidents and fatalities.

Truckload cost and capacity will continue to put pressure on supply chains that have not taken the time to include multi-modal solutions in their design. Make sure that your supply chain at least looks at a comparison cost option for OTR shipments versus intermodal transportation. Implementing an intermodal management system that diversifies risk will be key to keeping cost down and adding efficiency to your current and future supply chain.

Want to compare your current over-the-road rates to an intermodal rate? Check out our Instant Rating Engine for an instant quote with no sign-up required, or send us an email. We’d be more than happy to walk you through the process and answer any questions you may have. https://www.reddoglogisticsinc.com/blog/freight-class-calculator/

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John RediehsUse Intermodal Transport to Decrease Shipping Costs and Increase Efficiency

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  • Shweta Sharma - February 17, 2016 reply

    Nice blog!

    One thing is more important is that Truckload cost and capacity will continue to put pressure on supply chains that have not taken the time. its too good. Well ! if you want a great shipping services with component rates, Then Visit u –

    Thanks..

    Regards –

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