Rediscovering the Competitive Advantage.

We’ve long understood that the cost advantage in freight transportation depends on distance, with railroads, and water carriers where waterways are available, making the longer hauls more cheaply, particularly with bulk commodities.  The cost advantage of rail over highway transportation appears for shipments travelling farther than five hundred miles, give or take.  The railroads, however, have been shying away from much of that intermodal business, that despite signs of strain in long-haul trucking manifesting themselves long before anybody heard of Wuhan, let alone of virology research there.

A week ago, I noted, “There are no short-term solutions, and the railroads have to think about how best to do shorter-haul and retail intermodal trains.”  Then an executive with a freight-forwarding company rented a boat to look at what was going on shoreside at Los Angeles and Long Beach and posted his impressions.  Among his suggestions to ungum the works was an all-hands effort by the railroads to get the containers somewhere inland and let the truckers pick them up there.

I don’t know if somebody in Omaha heard him, or if somebody noticed that there was money to be made.
Union Pacific, the Port of Long Beach, and the Utah Inland Port Authority have announced the launch of direct rail service between the Long Beach and Utah facilities to help address ongoing port congestion.

The executive directors of the two facilities, Mario Cordero of Long Beach and Jack Hedge of the Utah authority, said in a joint statement that the direct, regularly scheduled service “will allow cargo destined for all of the Intermountain West to be rapidly evacuated from terminals in Long Beach to Salt Lake City for further distribution throughout the region. Much of this cargo traditionally moves to Utah, Colorado, Nevada, and Idaho by truck, and thus must be removed from the port terminals one container at a time. Reengaging this direct rail service will allow removal of blocks of containers at a time.”

Cordero also said the agreement immediately reduces pressure on terminal storage, gates, chassis, and the local drayage community on the coast. … It’s a major step forward for exporters from the region.”
It’s a research project for another day to work out why those boxes weren’t already moving on stack trains to Salt Lake City rather than as one container at a time with a driver putting in more than a full day on the road between the coast and Salt Lake.  Several commenters on that post are noting that the reluctance of the railroads to go after those 500 mile intermodal moves goes beyond Union Pacific.  Perhaps, dear reader, you’ve heard of North Baltimore, Ohio.

How much money might Union Pacific have been leaving on the table?  A Railway Age analysis includes this.  “Millions of TEUs [a 20′ x 8′ x 8′ basic container load — Ed.] of international goods are imported to or exported from the Intermountain West annually, but only 10% of this cargo currently moves by rail. This initiative aims to provide consistent, reliable movement of cargo by rail, which improves fluidity and reduces delays of shipments already set to come to the Intermountain region, rather than increase cargo volume.”  The value proposition might have been there as early as 2018, and the allocation studies I referred to at the start of this post are over fifty years old.  And only now Union Pacific and Utah Inland are going after this traffic, and only now claiming the environmental benefits and less highway congestion??

I’m also puzzled by the way Our Political Masters are working the problem.  There’s now a Container Excess Dwell Fee in Los Angeles, applied to containers that aren’t railed out within three days or trucked out within nine.  Forgive me my age, but what ever happened to per diem charges for rolling stock in motion, and demurrage charges for rolling stock sitting around?  The per diem charge is the rental a railroad company pays to the owner of the car for a day, and there used to be a chess game called get-the-foreign-road-cars-interchanged-by-midnight, sticking the receiving road with the per diem charge; while the demurrage charge applied to a consignee who treated a freight car as free warehouse space rather than unloading it promptly and releasing it for service.

Power Line’s Paul Mirengoff suggests that the Biden administration’s efforts to untangle the ports aren’t likely to succeed quickly.  But if you’re thinking about parallels to incapacitated presidents current and past, some of the port jam-ups bring to mind the logistical nightmare that was mobilizing the American Expeditionary Force.  That, too, is outside my area of expertise.

Why, though, weren’t the freight railroads better positioned to go after some of those container hauls before the current emergency manifested itself?

(Cross-posted to Cold Spring Shops.)

37 thoughts on “Rediscovering the Competitive Advantage.”

  1. Yes, it seems very odd that these boxes weren’t being rail-hauled to Utah in the first place. I read somewhere that there *is* a preexisting intermodal service over this route from UP, but evidently it wasn’t very heavily used compared with the total traffic volume. The only possible explanation I can think of is that perhaps the total schedule time was longer, or at least more uncertain, for intermodal than for direct truck, given schedule synchronization delays at the Utah end of the haul.

  2. I can think of a couple of possible reasons, not based on any insider knowledge but just some educated guesses by a railfan/historical railroader.

    Until COVID, railroads were actually pretty constrained for track capacity and likely still are. As you no doubt know too, a lot of rail was ‘rationalized’ between about 1980 and 2000 but a lot of new rail has been going back in since then. Sometimes in the same place it was taken out but not always. A freight train going west from LA to Ogden (or east Ogden to LA) takes up the same amount of track capacity between those two points as an equivalent train that will continue on to Chicago or come from Chicago, and if you add additional LA-Ogden trains it’s going to make it harder to run the ones already coming from/going to farther east. Given the choice, a railroad is always going to go for the longer haul. If they’re taking a 500 mile haul it’s because they can’t get a 1000 mile one.

    PTC is another factor. PTC has been soaking up time, energy, and capital that could have been used to build more track that could have supported the shorter hauls. It’ll eventually be able to increase capacity but it’s just not there yet, but with the mandate it had to be done.

    Dropping containers in Ogden more than likely means dragging lots of empty tables back to LA since there just ain’t a whole lot of stuff to put in a container produced out there, as opposed to taking a container to Chicago or all the way to the East Coast. This feeds back into capacity because a train of empty tables takes the same amount of track space and crews as one loaded with containers to get back to LA, and gums up the operation of other trains just as much. Again, any transport company is going to take a load-load operation over an empty backhaul unless it’s unavoidable. Truckers just have more options in this space since a single tractor could haul a loaded container from LA to Boise, then either run bobtail or take a short haul trailer to Yakima, then grab a load of apple products to take back to LA. You just can’t do that kind of stuff with a railroad now (unlike, say, at the turn of the 20th Century in free-roaming boxcars.)

    There are probably other technical justifications, and I’m sure there’s more than a little ossified thinking, that went into declining to create an LA/LB-Ogden lane before now. But I think overall it wasn’t just that railroad management was complacently leaving money on the table.

  3. We are asking the wrong question. The issue is not how to make it easier to import goods from China, etc. The issue is how to make it easier to manufacture those goods across the USA — like was done in the days when the US was the world’s leading country.

    Used to be that energy (oil) was cheap. That made it relatively cheap to ship goods very long ways. And there were lots of believers in the false doctrine of Unilateral Free Trade — as if any US company could compete against foreign competitors who are not burdened by US regulations and can use child labor, slave labor, ignore workplace safety, toss waste into the river, etc. The imports were cheap, but the destructive externalities on US society have been building up to a critical level.

    One of the side effects of unsustainable “Green” energy is that it is not cheap — just ask a German. As energy costs go up, the economic benefits of producing closer to the point of use should become more obvious. And the huge social & strategic costs of depending on imports should become more obvious, even to the deluded “Free Traders”.

    But there are no quick easy solutions.

  4. Driving around in Arizona, I often use I-8. Running along I 8 is a rail line that is carrying huge trains of containers (stack trains, I guess) every day. The container revolution began with “piggyback flat cars.” It seems odd that railroads are avoiding this business elsewhere.

  5. Does any body want to bet that the new arrangement disadvantages one or more of the unions running the ports? That’s all the reason you’d need.

    Another thing I read was that the containers are mostly packed by hand rather than being palletized. They require more labor and time to unload. At the same time, the containers themselves are both heavy and small compared to the 53′ x 102″ trailers that are the norm. The usual practice is to move the containers only as far as a nearby warehouse where they are unloaded, the content put on pallets and loaded on dry vans for shipment on to their destination.

    Then there’s a problem that the ships have been complaining about for a long time. The containers often weigh much more than is listed on the manifest. This makes it hard to load the ships so that they are stable. It would also put trucks carrying them out of compliance with the law. Another is that they can contain undeclared hazardous material.

    I’m still betting that various people made more money out of the prior arrangement.

  6. If you look on the sidebar at the link David gave, you’ll see a list of articles about other reasons the ports are screwed up.

  7. A comment regarding per diem and demurrage

    Take a look at any stack train rolling past and note the reporting marks on the well cars. Likely none of them are owned by the railroad running the train (pulled by somebody else’s locomotives fairly often, too), and certainly few if any of the containers. If anything, the railroads are lucky they aren’t paying rent for the cars. Even auto racks with railroad reporting marks are owned in a pool arrangement among the roads and likely aren’t subject to those charges. Who is paying per diem doesn’t mean much when there’s basically only four railroads left in the country (UP, BNSF, CSX, NS). They made sense for free-roaming general purpose cars interchanging among a hundred class 1s (and still do to an extent) but not for specialized rolling stock operating in semi-dedicated service.

  8. “The claim is that even if an ‘autonomous’ truck has a human safety driver, there is still a reduced-fuel-consumption benefit of about 13%.”
    Have bridge; will sell.

  9. Does a 13% fuel savings justify going to autonomous trucks? How about the increased risk to other drivers on those highways?

    The question I have about all this autonomous vehicle BS is this: What happens out in the real world, where these autonomous vehicles aren’t getting all the exquisite care and routine maintenance they get while under development? Sure, it works when you’ve got someone going over the vehicle with a fine-tooth comb on the daily, but when you put it out there in the wild, with Joe Blow doing the routine maintenance and putting off fixing things like mis-aligned sensors and the like…?

    End of the day, I trust the driving reflexes of the average human a lot more than I trust their diligence and attention to rote detail in matters of maintenance. You only have to see one or two vehicles that have been brought in for “brake adjustments” whose calipers are rubbing bare metal-on-metal or whose brake disks are worn through to tissue paper before you start wondering about the cars you’re sharing the road with every single day.

    Before they make autonomous driving ubiquitous, they’re going to have to solve this problem, first. It’s bad enough, dealing with human-operated vehicles that are poorly maintained; you factor in these systems which are being designed with perfect conditions in mind…?

    I really expect the rollout for autonomous vehicles to be a disaster, one that’s likely to result in they’re being banned totally from anything other than carefully controlled and separate road environments, much like railroads really are. Machinery doesn’t handle chaos very well, at all…

  10. It’s common to see semi’s pulling three trailers while traveling north on I-15 from Los Angeles and then east on I-70 to Durango, CO. Then, they disappear, with just single trailers going east from Durango to Denver. I’ve always wondered if 1) there’s a law against multiple trailers going over Vail Pass and/or through the Eisenhower/Johnson Tunnels or 2) semi’s just can’t handle the grades so companies don’t bother.

    In either case, it makes sense to transport containers by rail from LA to Denver or Cheyenne, avoiding high altitude passes on I-70 and, to a lesser extent, I-80 through Wyoming. Eastbound after Denver or Cheyenne, it’s just flatland. But I don’t know if railways have the capacity to do so.

  11. CapitalistRoader: ” it makes sense to transport containers by rail from LA to Denver or Cheyenne …”

    As a good capitalist, note ChristopherB’s perceptive comment upthread: “Dropping containers in Ogden more than likely means dragging lots of empty tables back to LA since there just ain’t a whole lot of stuff to put in a container produced out there

    To be sustainable & economic, a transportation system needs goods flowing BOTH ways. That is clearly part of the issue between LA and Utah — and is also a very serious issue between China and the USA.

    The English solved their 19th Century problem of one-way trade from China to England by launching the Opium Wars. That is not an option any of us could support today. The only sustainable alternative is to start making more goods within the US — and maybe exporting some of them to China.

    My apologies for being a broken record on the trade topic, but really, people … let’s engage brain!

  12. We’ve got our opium, or at least had it. It’s called oil and gas. The low prices curtailed that for a while but now every LNG train (what they call the systems liquefying natural gas and loading it onto ships) is running full out with more being built. Oil is coming back too. A little slower where Brandon can screw things up. We’re even selling the coal we won’t use here to China.

  13. MCS, that is true. Now think of the implications. The US is exporting commodities like soy beans and coal and LNG, and importing high tech goods and other manufactured products.

    We used to call a country which exported basic commodities and imported manufactured products a Third World Nation. Maybe we still should?

  14. Gavin,

    Your observation would be more apposite if not for the fact that all of the tech was invented and designed here or, more accurately, the West. All they export is cheap labor.

    At the same time we are exporting millions of tons of commodities, and consuming even more ourselves, they are unable to feed themselves. This is as much a product of our infrastructure that allows things like corn and wheat to be transported economically thousands of miles to ports as our unequaled productivity, both uniquely American.

  15. To be sustainable & economic, a transportation system needs goods flowing BOTH ways. That is clearly part of the issue between LA and Utah — and is also a very serious issue between China and the USA.

    My apologies for being a broken record on the trade topic, but really, people … let’s engage brain!

    China imported 100 million metric tons of soybeans in the past year, 37% of it coming from the US Midwest. Wouldn’t 37 million tons be considered goods flowing east to west?

  16. Capitalist — the issue is scale. What the US exports to China is worth much less than what we import. For years, one of the largest volume exports from the US to China was trash — literally trash for recycling. Then China decided it had enough. There are not enough US exports to fill the containers arriving from China.

    We can make all kinds of excuses, but let’s not lie to ourselves. We have a problem which we created by offshoring our manufacturing industries.

  17. When I was young I drove truck. I had my own tractor for quite a few years, and about 1/4 of what I did involved getting cans onto the pig. Containers onto the train in other words. this was in Vancouver where we have a pretty serious port, well a bunch of ports actually.

    So getting cans off the dock, and putting them on the pig was common. I don’t know why that would become less of a thing, but it did.

  18. If we “import” 1,000 iPhones at $1,000 each, you’d say that’s a million dollars. Wrong, China nets something between $10 and $15 on each one. What’s not counted is all the parts imported into China from all over the world that go into one and most especially the big chunk of each that belongs to Apple.

  19. MCS…”(American export of commodities) is as much a product of our infrastructure that allows things like corn and wheat to be transported economically thousands of miles to ports as our unequaled productivity, both uniquely American.”

    A big part of that infrastructure is freight rail, which doesn’t tend to get much attention compared with the hyperventilating that goes on over high-speed passenger rail and America’s lack thereof. (Interestingly, a Chinese railway expert…a *very brave* Chinese railway expert…had some harsh things to say about his government’s excessive investment in HSR, at the same time the roads were congested by endless fleets of coal trucks.

  20. An analysis of iPhone cost components:

    I question Tim Cook’s assertion that we can’t make iPhones in the US because of a shortage of tooling engineers…somehow, we manage to make a lot of other products, some of which are surely more mechanically complex than an iPhone. He doesn’t mention *marketing* and *government* as factors in the location decision; I think they are clearly key. What would happen to AAPL’s Chinese market if it wasn’t doing hunge amounts of manufacturing there? Chinese government would surely be a lot less supportive.

    The article’s statement that China is better than lower-wage countries (such as Vietnam) because it has major seaports also seems questionable. If there’s anything that should be economical to ship via air freight, it would seem to be the iPhone.

  21. A very significant portion of commodities are transported by river barges down to the lower Mississippi as well. Low water, high water, early freeze and late spring breakup all have put a crimp in the orderly transport at one time or another. The rivers are also an important conduit for fertilizer and formerly, more than now, coal.

    American railroads are very efficient transporting bulk commodities. This is done in unit trains of 100+ cars, more than a mile long, from terminal to terminal. As can be imagined, each terminal requires a lot of space. That’s why there isn’t talk of moving more containers directly by rail from the ports, it would require acquiring around a half square mile of the most expensive real estate. Part of the problem is that there just aren’t any large sheltered inlets on the West Coast that aren’t in the middle of large cities. So they all have to be trucked some distance.

    The down side is that general freight is a dirty word to the rail road. What they are still obligated to carry, they do very poorly. I was once involved in spending two weeks getting the railroad to deliver a car from their yard to our siding, three miles away. The irony was that it was material to produce ties for the same railroad.

  22. Freight is what makes US railroads profitable. Randal O’Toole:

    The World’s Finest Railroads
    …The result is that European’s freight-rail system is “absurdly backward,” carrying only 11 percent of the region’s freight, compared with nearly 40 percent in the U.S.

    The Staggers Act of 1980 gave the railroads freedom to set their own rates, abandon unprofitable routes, and expand service into profitable areas. By 2010, profits of class I railroads had recovered to $10 billion a year, and by 2018, they had more than doubled that.

    This article targets logistics, not trade policy. It doesn’t matter that US exports to China is worth much less than what we import when talking about logistics. The fact is that we ship 37 million tons of soybeans from the Midwest every year to China. Now, it might be a lot cheaper to barge that product down the Mississippi rather than load it on trains for the west coast, IDK, but still, we do ship a lot of tonnage to the PRC.

  23. [The Other] Kirk…PTC is Positive Train Control, now required and implemented on a high % of US rail trackage. Intended for improved safety and ultimately higher traffic-handling capacity.

    Trains must continuously determine their positions to a greater precision than is offered by the traditional blocking system…usually, but not always, this determination is done via GPS. The positions are transmitted wirelessly to other trains and to dispatchers.

  24. Thanks for all those observations.

    First, let’s keep in mind that balancing the workings is always hard for a transportation company. It’s easier for passenger, with all those work-related round trips, than for freight. And it has always been so, note how the Baltimore and Ohio’s old West End is engineered to offer an easier pull for the eastbound loads, and that is also the case on The Pennsylvania Railroad’s crossing of the Alleghenies east of Pittsburgh, because most of the freight flow is into, rather than out of, the Official Reason. More recently, Norfolk and Western bought the Virginian Railway so as to obtain an easier haul of coal to tidewater, for a while the new Norfolk and Western was directional with loads east on the old Virginian, and empties west on the original Norfolk and Western.

    And yes, I invoked loads and empties. Although there are fewer Powder River trains today than a few years ago, those all operate as loads to the power plant, empties back toward the mine. Likewise, a lot of those grain hoppers run loaded from flood loader to dockside or ethanol brewery, returning empty, and those ethanol tank cars (placarded 1987, if you’re interested) run loaded to the mixing plant and return empty to the brewery. You don’t want to mix loads in tank cars, and just for grins take a look at what service many of them are assigned to.

    Thus pricing for loaded in one direction move is just another day at the office in the rate department of a railroad, doing so for unbalanced intermodal workings doesn’t pose any great intellectual challenges, and the occasional light engine or bare-table move is just part of doing business. Should not be insurmountable should the railroad want to go after some of it. It doesn’t have to be like retail piggyback used to be, where, for instance, the turntable on The Milwaukee Road in Madison remained in use in order that a piggyback flatcar could be turned for proper positioning at the end-on ramp they were using to get the trailers off. A glorified forklift would have been an excessive expense there.

    It’s true that most of the intermodal cars belong to Trailer Train or a similar pool, which moots the per diem on the cars. The containers, however, belong to shipping lines or truckers, and if that itinerant trucker hauls container and chassis to somewhere in the Mountain West, and then heads off bobtail for Christmas trees or potatoes or what have you, the owner of the container or the chassis are still going to want those back. Repositioning the tractor balances some workings, but not others.

    As a side note, I’m interested that BNSF still lists North Baltimore on that intermodal map. I thought CSX was phasing that yard (it is impressive, even hidden behind a berm) as part of its precision scheduled obsession.

  25. Stephen K: “Thus pricing for loaded in one direction move is just another day at the office in the rate department of a railroad …”

    No doubt about that. There is also no doubt that the customer pays for everything — including shipping empty wagons back to where they are needed. Thus, increasing the volume of return freight, so that wagons do not go back empty, would cut the transportation costs approximately in half. That applies to ships & trucks, as well as trains.

    This bring us back to the obvious — we should be focusing on increasing manufacturing and production within the US, to counter-balance the tidal wave of imports.

  26. Gavin Longmuir: “Thus, increasing the volume of return freight, so that wagons do not go back empty, would cut the transportation costs approximately in half.”

    Where practicable. There’s not much one can do with those Powder River coal gons going west, or those tank cars dedicated to specific chemicals, and back in the days of everything that could go in a boxcar went in a boxcar, you still wouldn’t send a clean car that had brought newsprint to Omaha back toward paper mill country with a load of hides!

  27. Steven K: “Where practicable.”

    Of course! it is difficult to use dedicated coal wagons or oil tankers for other service on the (empty) return trip.

    However, this discussion started about how to move the mountain of imported manufactured goods from California ports to points of sale, often in containers on flatbed wagons. The issue there is refilling those containers with US manufactured goods and getting them to the coast for shipment overseas. The problem there is the lack of US manufactured goods for export. Serious problem. We can try to duck it for as long as we want, but eventually reality will bite.

  28. Here’s another point on some graph:

    72,000 CDL drivers that failed drug tests with at least 54,000 showing no signs of trying to be reinstated. Truck drivers have been subject to random drug testing for a very long time, they all know this. It’s surprising that the old system was so porous in comparison to now.

    I’ve had conversations with friends and relatives that drive about the problems of “legal” marijuana. They’ve all come across people that don’t seem to realize that the they’re still going to be fired if they’re caught. Believe me when I say the truck driving community has very detailed knowledge of what they can get away with.

  29. Who is saying that agricultural commodities are “low tech”? No-one questions that the US has put a lot of investment & technology into making agricultural production highly efficient.

    And then we trade those basic agricultural commodities for high tech manufactured goods imported from other countries. How many imported high tech parts are built into that expensive picker?

    The weakness of the US does not lie in agriculture. It lies in the short-sightedness of politicians & businessmen who have offshored the former world-leading US manufacturing capacity. Thus the US has become an anomaly — an apparently rich country which exports basic commodities and imports manufactured goods (just like the average developing country). Of course, if we account for the trade deficit, the US is not as rich as we like to think.

    We need to rebuild/reshore manufacturing industry. Or we will suffer serious consequences.

Comments are closed.