The rise of inland intermodal terminals is changing the logistics landscape in North America. The great inland sea is opening up a new port system.
Decatur, Illinois is a long way from any sea, except the seas of grain surrounding the Midwest city. Not surprisingly, the city’s biggest employer is agri-business giant ADM (Archer Daniels Midland). The idea that a city along the Sangamon River (even among geography buffs, how many would recognize the Sangamon River?) could be an inland intermodal port seems unlikely, but nonetheless represents an emerging trend in North American logistics.
ADM opened a 250-acre, Container On Flat Car (COFC) terminal, ADM Intermodal Ramp12, in September 2013. The facility was established as a key logistics asset of an economic development effort by the Decatur and Macon County Economic Development Corporation in partnership with ADM and called the Midwest Inland Port. The basic concept was to create a logistics hub in Decatur with North American reach through rail and road services.
As with most logistics hubs, the Decatur facility had an anchor client base in Central Illinois soybean producers. The terminal has a capacity for 150,000 lifts per year and presently handles roughly 50,000 lifts annually. This gives the terminal a lot of excess capacity to market.
What makes the idea work is access through a private switching company to three Class 1 railway companies: Norfolk Southern (NS), Canadian National (CN), and CSX. These railroads in turn have access to the entire North American continent. And by virtue of these rail connections a terminal in a small place far from the sea like Decatur can be part of an emerging set of inland ports.
Decatur’s Connection to the Sea
The CN connection is key. CN is transporting an increasing number of import containers from the Port of Montreal and the Port of Prince Rupert, B.C., to the Decatur facility via a thrice-weekly train service.
ADM then reloads the empty 40-foot import containers in Decatur with export loads of grain and processed products destined for global markets via CN’s rail network and its Canadian port gateways. CN and ADM have a strong history of partnering together on other rail freight opportunities including shipments to Mexico.
JJ Ruest, CN executive vice-president and chief marketing officer, said, “CN is a supply chain enabler and its collaborative efforts with ADM and MIP through the Midwest Inland Port Strategic Development Coalition is forging new logistics chain and growth opportunities for ADM and other enterprises in Decatur and the surrounding region.”
Dennis Whalen, vice-president - transportation, intermodal freight for ADM, said, “We are pleased to see rising volumes of imported containers arriving at our intermodal ramp via CN for area distribution in Illinois. The resulting empty container capacity is essential to our efforts to grow exports of our products to global markets, especially in Asia.”
Sea Change: Rethinking Rail
There has been a real sea change in railroad thinking in regard to intermodal. For many, it was rail-centric. It was all about rail origin-to-rail destination with little effort to understand the rest of the supply chain. The difference now, as the establishment of the Decatur terminal and others suggest, is a wider more comprehensive view of the supply chain, true origin-to-true destination. This holistic view includes other considerations such as generating export loads and domestic repositioning which formerly existed only in logistic silos in the railroads processes. Understanding the supply chain has become essential to intermodal as international becomes a larger generator of freight and revenue. In 2015, intermodal accounted for around 23% of the revenue for the U.S. major railroads. In the case of CN’s intermodal, 62% is generated by international against only 38% domestic. These numbers could rise dramatically as there is tremendous room for growth for inland hubs in North America.
In 1990, containers accounted for 44% of intermodal volume. By 2000, containers accounted for 69% of the volume and by 2015 the box share was a record 89%. There is an enormous advantage to containers over trailers. Unlike trailers, containers can be “double stacked,” instanteously boosting productivity and building traffic density which keeps rail intermodal cost competitive with all truck movements. Add in the fact containers can be moved to and from ships and trucks, and this produces other savings through modal flexibility.
Currently, international intermodal movements account for roughly half of the total U.S. rail intermodal traffic share, down from closer to 60% six or seven years ago. The domestic share of intermodal traffic has been rising in recent years, with much of the increase consisting of freight that used to move solely by truck but now has been converted to rail intermodal.
Companies like J.B Hunt have more than embraced intermodal: they are intermodal. For years, J.B Hunt was described as a trucking company with intermodal services but now it is an intermodal company with trucking services. The difference is that the investment in intermodal yards along with deployment of assets and matching technology has made the former trucking company a model for intermodal services. The intermodal system allows for surges in demand with predictable schedules and scalable capacity. What was once an unlikely alliance between rail and road is now a fundamental business proposition.
Inland Ports – Defining the Indefinable
While inland ports are nothing new, cities like Albany, Memphis and Burns Harbor are all classic inland ports. But there is a new wrinkle in the port system, as the Decatur example illustrates. This involves marrying intermodal services with demand, site (generally forty acres or more for an intermodal ramp), rail mainline, and a port link.
In most cases, demand needs to be in the range of 200,000 lifts annually, which requires an anchor shipper. The site itself is more than acreage, as the greater community has to buy into the value proposition of an inland port. Location is also critical as the more transportation services available the better. Major highways, waterways and Class 1 rail connections are critical to building a logistics center. Finally, the connection to the sea is what makes it work.
In the case, of Greer, South Carolina or Front Royal, Virginia the rail from the port to the inland terminal is really an extension of the port itself. This model is attractive as it effectively increases the volumes that the port can handle. In both cases, the distance from the actual port is a little over 200-miles, considerably shorter than what is normally considered an economically viable distance for container rail movements. However, as an extension of an ocean port with dedicated rail services these distances are actually an advantage, being outside of the ring of congestion normally associated with port cities. Already the model is being extended as Georgia, South Carolina and North Carolina have plans for similar facilities.
With this model working well at 200 plus miles, would it work across State lines to 300 miles to 400 miles? How far is too far? Is the era of the great inland sea upon us?