James R. Hertwig envisions Florida East Coast Railway continuing to grow as more freight converts from roads to rails and as greater cargo volumes shift to Sunshine State ports from elsewhere up the East Coast and even the West Coast.
As FECR’s president and chief executive officer, Hertwig believes the Class II railroad is well-positioned to handle this growth, including via new on- and near-dock rail capabilities at South Florida seaports. Chatting with the American Journal of Transportation from his office overlooking a Jacksonville rail yard, Hertwig shared his insights on the 351-mile line along the Florida’s Atlantic Coast… and the importance of fulfilling commitments. What have been the keys to the success of Florida East Coast Railway in becoming a leader in providing intermodal rail service since you assumed the company’s reins in 2010? Coming in looking at our service, our service was good, and we continue to refine it to make it better. The biggest thing is that we weren’t being compensated as well for the service that we gave, and we did take rate increases to many customers. That certainly helped us from a profitability standpoint, but what we should be really talking about is growth. We went to work on converting more over-the-road business to intermodal here at Jacksonville. We did that with many of the different motor carriers. If you think about our current business, for every four loads that we go south with to South Florida, we only come back with one load. And the same is true in the trucking industry. There’s not a lot of freight coming out of South Florida. So many of the trucking companies will lose a driver for a couple days by sending him down there, because you get into traffic congestion, and then you get into waiting for delivery appointments and all different kinds of things. Fuel expense has gone down, but, as you well know, the cost of running empty is very expensive, and many of the trucking companies don’t want to do that. So we’ve increased our business. Although we compete with motor carriers, they are certainly among our best customers, because they will bring in their loaded trailer to us here in Jacksonville and then we’ll take it to South Florida. We have our own drayage company – Florida East Coast Highway Services – that will make the delivery, bring the empty back, put it on a train and we bring it back here to Jacksonville. For the motor carriers, they’re able to have their drivers basically stop in Jacksonville. Once they deliver their load, they pick up an empty here right in the yard, and then they can get a load either out of Jacksonville or Savannah or someplace like that, where it’s not a long length of haul to get their next load. It’s worked very well for those motor carriers, and we’ve been able to grow that business quite well. The other thing we’re doing is our South Florida ports strategy. In that vein, what role are the new FECR links at both Port Everglades and PortMiami in South Florida playing and how do you see them being even more important in the future? We were not able to efficiently service Central Florida in the past. If you had a load coming into Central Florida, you’d have to truck it to our terminal. Then we’d put it on a train and go up to Cocoa and then make delivery. A lot of the Central Florida business was always moving via truck out of South Florida or Jacksonville or Savannah. Today, now that we are on- or near-dock at both of those ports [Everglades and Miami], you no longer have that drayage operation at the origin. The container comes off the ship and goes onto our train. Our train goes from either of our two ports directly to Cocoa, and, from there, it’s about a 30-mile drive into the Orlando area. So you’re trucking is only 30 miles versus, out of Jacksonville, you’re probably talking about 180 miles and Savannah maybe 340-some miles. Therefore, your costs are a lot more competitive. We’ve seen, in phase one of this, good solid growth into Central Florida by having those on-dock rail facilities. You ask about the future, well, Miami is getting 50 feet of [channel depth] water, and that’ll be done the end of 2015. Everything I’m hearing is that the Panama Canal expansion will be ready the first quarter of 2016. At that point in time, there will only be three ports on the [U.S.] East Coast that can take on the big vessels – Miami, Norfolk and up the Chesapeake Bay to Baltimore. If you think about the Southeast, we service the Atlanta and Charlotte markets, as an example, in two days. We get it to Jacksonville and interline that product with the Norfolk Southern or the CSX, and it’s available at destination the second day. We’ve done trial shipments where we have had the freight at destination by the time the ship gets to Savannah, so we feel we have a very competitive product. They [ocean carriers] are going to have to load up the big ships with all kinds of freight. The population of South Florida is about 6.5 million, and there are another 6.5 million people in Central Florida. That’s 13 million people. No other place on the East Coast do you have that large concentration of people other than up in the New York area. And then you’ve got more than 90 million people a year who visit this great state, and where are all the products coming from? They’re coming from Asia. They [ocean carriers] have the density to start building on that ship. Someplace like Savannah, it’s a population of about 150,000 people. Sure you have the Atlanta market, but we believe the ocean carriers are going to want to put in a large geographical zone – that being the entire Southeast and all of Florida – on those ships because that will help fill that ship. With our time to market of two-day service into the Southeast and overnight service in the state of Florida, we feel we offer a competitive advantage. Probably, you’ll see traffic transitioning down to South Florida from some of the other ports along the East Coast that don’t have the deep water. I don’t like to see any area of the country hurt with service issues, but I know you’re familiar with what’s going on [with congestion and labor issues] on the West Coast. That’s actually helped us, in that we go around the world calling on ocean carriers. I can remember three years ago when I went as part of the FEC Railway, and the first thing I had to explain is that we were not the Norfolk Southern or the CSX but that we were owned by ourselves, and explain our services. The second year, we talked about South Florida ports, and they had some interest. But I’ve gotta tell you, this year, there’s a lot of interest in having an alternative solution to what’s going on out on the West Coast. I’m not here to say that we’re immediately going to grab a lot of business from the West Coast, but I think that what’s happening on the West Coast is going to support more people in thinking they’ve got to have an alternative service come peak time of next year, and I think you’ll see Miami get some first ports of call in preparation for the Panama Canal expansion in 2016. I think you’ll see some of that happen in 2015. All you have to do is get one of those big [ocean carrier] alliances to make a calling in Miami as their first port of call, and I believe that’s going to happen. That’s going to certainly build our volumes down there in South Florida. When I grew up in the business, you would go the West Coast and you had to pick up low-rated backhauls – seed and stuff like that – just to get back into the Midwest or East Coast. Today, that’s all flip-flopped, as you well know, and now the head haul is out of the West Coast. Why is that? It’s because of imports. So I think what you’re going to find in the future is that it’s a great marriage – transloading facilities, there’s 53-foot equipment down there [in South Florida], and it makes for a great opportunity to transload a lot of those 40-foot marine containers as they come into the Miami market, put ‘em on one of the 53s and run ‘em up our railroad to destination in the East Coast and Southeast and anyplace in the state of Florida. And then they can put that empty container right back on a ship and get it back to Asia and get reloaded. I think that’s what you’re going to see in the future down there, and we’re excited about it. So you’ve got the economic value of backhaul and you’ve got the time to market that’s going to support the growth of the South Florida ports. How do you envision opening up of U.S.-Cuba trade impacting FECR and, more broadly, Florida transportation and logistics? We’re already handling freight going to Cuba. Crowley has an agreement where they run a ship into Cuba on a weekly basis, and we’re currently hauling cargo down to Port Everglades, and then it goes on down to Cuba. My vision of Cuba is that there’s going to be a lot of money required for infrastructure. I think what you’ll initially see is a lot of carload-type business, goods used in construction. There’ll be container traffic, but I think you’ll also see some carloads that go on barge and down to Cuba. I think in a three- to five-year time span that there’ll be a lot of export out of the United States going down there to build plants, improve the road infrastructure and the railroad, things like that. Everybody talks about near-shoring. Wow, there’s near-shoring right there. I think, over time, you’ll see things kind of twist a little bit and there’ll be a lot of importing coming from Cuba, because, once those plants get open down there and are making products such as we currently have made for us in Asia, they’ll be making it a little over 100 miles south of Miami. How has your own background – from your days on truck terminal docks in the 1970s to 25 years of presidencies at trucking firms including Con-way Intermodal, Carolina Freight Carriers Corp. and Landstar Logistics and at CSX Intermodal Inc. – helped shape successes of FECR? We operate a little differently from many of our Class I rail partners that will run a coal network, an automotive network, a grain network, an ethanol network, all these different carloads, and then they’ll run an intermodal [network]. What we have on our railroad are very sturdy ties – concrete ties – and we have 136-pound rail. We don’t run separate networks for our trains. We run carload and intermodal together. For example, you’ll see hopper cars loaded with aggregate going up our railroad with intermodal containers behind it. Going south, you’ll see automobile cars loaded with automobiles along with intermodal. Or you might see the Tropicana juice train going up and down our railroad with intermodal cars with it. Why is that important? Many of the Class Is in even their big lanes, like Chicago to New York, may run two schedules a day. If you miss a cutoff, your unit’s going to set for 12 or 24 hours, because, in some destination pairs, they may only run one train a day. We run six trains south, six trains north. If you miss a cutoff, there’s another train going in four to five hours, so you’re not setting around waiting for a train for 12 to 24 hours. What that does is allow us to really compete with trucks by having frequency of schedules, and that’s been very beneficial to us. Having been in the trucking business, I know that customers don’t all load just to accommodate a railroad cut time. So the more cutoff times you can have, the more opportunities you can get in converting more business from over-the-road to intermodal. Does the fact that your wife, Debbie, is also in the transportation business, as owner and president of Cobalt Transport Services Inc., make for interesting dinner table conversations? Well, yeah, and it also allows you to get grounded all the time. I make a lot of sales calls and talk to a lot of customers. I believe that, if you’re not out talking with your customers and asking them how your services are, that… My office is right here at the Bowden Terminal facility. I’m not where the other 100-plus administrative personnel are in an office park building. I’m here at the terminal where I can see the crews, talk to the crews, see the trains. You’re able to really have a better perspective of what’s going on. Then, certainly when you get home, you can hear from your wife about how her day has gone and learn lessons, because you hear of situations that have occurred in her business and you can think, “Boy, I sure hope my customers aren’t experiencing that same problem.” I believe you were a pretty good baseball player back in the day. Do you get a chance to play ball anymore? Yes, I do. It’s funny that you ask it. Yesterday, it was a nice day here and I was down playing basketball. When I got married, we played basketball the day of the wedding, before the wedding. My son-in-law and my sons who’ve gotten married, we did the same thing with them. And a son is getting married in May, so I’m getting a little practice right now, getting ready for that game. I was real proud that the older group – me being one of them – actually beat the young kids prior to the wedding the last time, so I’m trying to uphold that tradition. What about baseball? I play baseball, too, and I enjoy baseball. I don’t play it that much anymore. I enjoy watching it. Actually basketball is what I’m doing most, and, boy, you wanna talk about something that really will get you in condition quick, because we play full court. I enjoy working out, and I try to do that every day. I think in jobs like this, where you can have a little bit of stress here and there, it does help make for a good day if you have a good workout in the morning. It improves your attitude. One other thing is that I always like to say to the people around here, “Do what you say you’re gonna do. Don’t overcommit, but if you say you’re going to do something, then do that and fulfill your customer’s expectations.”