Mile Post 370

Mile Post 370
Mile Post 370

Sunday, December 27, 2015

Looking at Intermodal Traffic and the New PanaMax Lane of the Panama Canal from a Supply Chain Perspective

    ISO Intermodal Containerized Freight is the most efficient way to deliver manufactured goods around the globe.  These containers were designed by a trucker to be optimized and to be shipped by Container Ship, By Rail and by Truck.  They typically have a long life 15 -20 years with little to no maintenance required on them.  With the demise of coal as a "Cash Cow," supporting other railroad operations with its revenues, Intermodal traffic is the new, big thing for Railroads.  

    In order to keep or gain freight traffic, railroads have adapted to haul Trailers, starting in the 1940s and 1950s.  Railroads adapted from shipping trailers on flat cars to containers on flat cars to Double Stacked Containers in Deep Well Cars to maximize the amount and revenue, while minimizing the cost of shipping.

     The Santa Fe has used intermodal traffic for years, starting with "Piggy Back" trailers on flat cars, with great success, running trains from LA to Chicago on a routing that basically parallels (US) Route 66.  The New York Central System, which evolved into Conrail was very successful with it's Trailer Van or TV Trains.  It's been successful on smaller railroads as well, as Seaboard Air Line Railroad and Southern Railway (among others) had their own set of "Piggy Back" ("Razorback" for Seaboard fans) trains and the Alphabet Route's Shortline Railroads "Alpha-Jet" Piggyback trains were legendary in their competition with the B&O, Erie-Lackawana and the Pennsylvania Railroads.

     Piggyback and Intermodal Freight Traffic really came into its own and allowed Just-In-Time Manufacturing, where items weren't stocked in an over-sized warehouse, waiting to be pulled and brought to a production facility.  The warehouse was cut out of the process, with J-I-T and deliveries are made from the point of manufacture to the point of usage with precision timing.  Truckers got lots of new short haul business, hauling car parts to Ford, GM, and Chrysler and AMC/Jeep.  

     The railroads wanted a piece of the action.  The concept of Intermodal Freight with Imports of electronics, clothes, machinery, food, cars and parts from Europe, South America and Asia bred a new type of Intermodal Freight, the Shipping Container.  Containers could be had in 20', 40', 45', 48' and even 53' lengths and low and high top configurations as well as refrigerated containers.  They could be stacked on ships up to 7 loaded containers high that were locked so securely that if a ship capsized, the containers stayed stacked together.

     Railroads readily accepted the containers, as they only had to buy container trailer frames, rather than box trailers (less capital spent to ship freight without much margin.  New "spine cars" with only central frames that were designed only to carry containers were developed to make shipping the cars easier).  But you could still only get a certain amount of containers on a train.  And train length is generally determined by the length of the shortest passing track on any given route.  However long, heavy trains could derail in a string line derailment, if cars with insufficient mass to stay so the rails as compared to the mass of the train behind these cars during a hard pull, through a sharp curve.

     However, ever enterprising railroaders had an answer.   The Southern Pacific Railroad developed the Deep Well car and Double Stacked container shipping, giving the railroads a way to move twice as many containers on the same amount of rail cars.  Much like the new Plus Sized PanaMax ships (that can transverse the new PanaMax Lane of the Panama Canal) and Super PanaMax ships (west coast only) we will see in the very near future, the more containers that can be moved at once, the more margin that can be made per car of containers and the lower the price of shipping these containers could be.

     In the past, container ships from Asia, bound for the East Coast of North America were limited in size and the number of containers they could ship by the size of the Locks in the Panama Canal.  Larger and more efficient ships, with less cost to ship each container had to dock on the West Coast, due to the cost, time and risk of going around the Southern Tip of South America.  It was cheaper to let container ships dock on the west coast and railroads transport goods to major markets, even on to East Coast cities with ports.

     As most North American railroads are confined to an eastern or western region of the US, usually divided by the Mississippi River, Chicago, Kansas City, St Louis, Dallas, Memphis and New Orleans have tended to be the "hand off points" between the Eastern and Western US Railroads.  The Canadian Railroads are or have been Transcontinental, with varied levels of success. 

    However, as the New Lane of the Panama Canal allows much larger, more efficient ships to pass to the Atlantic Ocean, delivering containers to East Coast Ports at a lower cost, transcontinental rail hauls of containers will become cost prohibitive and Railroads will only haul regionally, where they can make money.  Usually, these container ships will only dock at a single port, unload everything and return to Asia.

     With the New, Larger PanaMax Lane of the Panama Canal about to open, I expect that ALL Western Class 1 Railroads will experience a SEVERE DROP (up to 50%) in exchange hauled intermodal traffic over the next 5 years (assuming that the world economy doesn't take a dump, which is a very real possibility), as traffic that used to go on their Transcon's from the Port of Long Beach (or Oakland, Portland or Seattle/Tacoma) to Chicago (or Dallas, Kansas City, Memphis, St. Louis and New Orleans) and points east, will be sent to the east coast port of Miami.

     As a Buyer, I look at the length of the Supply Chain from Producer to Customer.  There are two sides to look at:  Raw Goods to Finished Goods (that are Ready for Sale) and Finished Goods to Store.  Rule # 1 in Supply Management is to make the process less expensive.  It is "low hanging fruit (an easy job)," when you can "shorten" the length or the number of players in a Supply Chain.  Ships beat out trains in efficiency (consider how many trains full of containers can be created with a single Panamax ship), so that's the easiest place to see gains.  Although ships docking on the East Coast will take more time than docking on the West Coast and shipping containers to east coast markets by rail, the supply chain is being shortened by at least 1 less player.  It takes more planning to keep the supply chain moving, with longer transit times, but cost will win out over convenience. 

     With the country of Panama investing in a new PanaMax lane for its canal, much railroad traffic will necessarily shift to the East Coast, delivering containers from Asia to North America.  The higher the fuel costs and crew costs are, the higher the likelihood of a traffic shift.

     All that either CSX or FEC/NS has to do to change the balance of where container traffic originates in the US, is prove that it's quicker or cheaper to ship from Miami and Port Everglades to Kansas City, Dallas-Fort Worth, Memphis, St. Louis or Chicago than over the Santa Fe Transcon or the Union Pacific Sunset/Texas Pacific Route.  The FEC's infrastructure is in place and ready.  I'll bet that CSX or FEC/NS and KCS can easily beat the BNSF delivery times to Chicago, Kansas City or Dallas- Fort Worth on the Santa Fe Transcon.  So BNSF container traffic to Chicago, on the old Santa Fe will probably drop at least 25% due just to Panamax Ships going to Miami.  In the long run, I expect that the traffic increases from containers to Eastern and Mid-West Markets will cause the FEC will have to double track its mainline all the way into Jacksonville and the NS will need to do the same from Jacksonville into Atlanta.  Only Hurricanes are a threat to shipping containers to East Coast ports.

     Consider this:  The major exchange points between the Eastern and Western Railroad Carriers are Chicago, Kansas City, St. Louis, Dallas, Memphis and New Orleans.  Currently, the most important two are Chicago and Kansas City.  But that could quickly change.
  • Chicago has become a disaster.  It is such a choke point that Federal Tax Dollars are being invested to help railroads get their traffic through from West to East (  It's a well connected, but very tangled spaghetti bowl with the added pain of commuter trains clogging the freight routes between 6 and 8 hours per day.  CSX is already looking for a back door connection, just as Conrail and the Santa Fe did 20+ years ago.  And unfortunately for tax payers, the Panamax Shipping Lanes and Container Ships will make many of these upgrades to "Chicagoland" unnecessary in about 5 years.
  • Kansas City is easier to get through, but it is also a spaghetti bowl with Auto Plants originating a lot of traffic.   5 of the 7 Class 1 railroads interchange in KC, so going to Chicagoland is redundant for many shipments that aren't heading toward the Great Lakes Corridor.
  • St. Louis is a smaller spaghetti bowl and not as much of a major gateway anymore.  Most trains into St. Louis that exchange freight from West to East, will also pass through Kansas City.  Why would a shipper want add a second layer of intricacy rail movements?
  • Dallas is very interesting, as it's become a gateway from the UP and BNSF to the southeast through the Kansas City Southern and Meridian Speedway (a joint venture between the Norfolk Southern and Kansas City Southern) into Birmingham.  It bypasses Kansas City, and St. Louis, making life simpler. Traffic is currently down on the Meridian Speedway as more container ships are already going to southeastern ports.  It has served its purpose of moving the NS Southwest exchange point from New Orleans to higher ground at Shreveport while upgrading the capacity and speed of the KCS line from Birmingham to Shreveport.  From Shreveport east to Birmingham, the KCS competes with Meridian Speedway Partner NS to get business to CSX in Birmingham.  I expect to see much more traffic flowing westbound over the Meridian Speedway and KCS into Dallas as a distribution point.
  • Memphis is interesting as a gateway, as Fed Ex's hub there diverts traffic into an little exchange point.  The Union Pacific's Sunset Transcon over the old Cotton Belt's line into Memphis has merit with its FedEx traffic, but not against container trains from the East Coast. It's never been a major gateway, as only the UP serves it from the west.  However, with CSX or even NS as a partner, westbound traffic to Dallas and Kansas City from Southeastern ports might have a dramatic traffic effect on this line.  
  • New Orleans was an exchange point before Hurricane Katrina and when the Southern Pacific was a separate entity from the UP.  It's not much of an exchange point anymore except between UP and CSX.  Their Westbound traffic to Dallas from Southeastern ports might have an effect on this line.  
     To consider why these routes will loose traffic, let's apply the SWOT analysis (Strength,Weakness, Opportunity, Threat) to each of the western transcontinental lines that are shipping containers to the eastern US.

Santa Fe Transcon: 
  • S=Established, Well Run, High Speed CTC Equipped Double Track Routing From LA/Long Beach to Chicago
  • W=Distance to Chicago, Interchange at Chicago, Crossing Multiple Mountain Ranges, Shared Trackage at Cajon Pass, Congestion around Los Angeles, Lots of Traffic
  • O=Most opportunities with this mature route have been taken
  • T=Lack of Capacity, Shorter Routes with less demanding geography
LA and Salt Lake City Route into the Overland Route:
  • S=Established, Well Run CTC Equipped Double Track Routing From LA/Long Beach to Chicago, Track Capacity
  • W=Distance to Chicago, Interchange at Chicago, Crossing Multiple Mountain Ranges, Shared Trackage at Cajon Pass, Congestion around Los Angeles, Lots of Traffic
  • O=Most opportunities with this mature route have been taken
  • T=Lack of Capacity, Shorter Routes with less demanding geography 
Southern Pacific Sunset Route:
  • S=Established, Double and Triple Track Main From LA/Long Beach to New Orleans, Memphis, and even St. Louis and into Chicago
  • W=Longer Routing into Chicago, Crossing Multiple Mountain Ranges, El Paso Delays (even with the new terminal and yard)
  • O=More Traffic from old Texas Pacific Route, CSX interchange and FedEx hub in Memphis, Phoenix Traffic
  • T=Shorter Routes with less demanding geography
UP Overland, SP Donner Pass, WP Feather River Rio Grande Routes
  • S = Established Routing through the Sierra Nevadas, Redundant Feather River Canyon “Double Trackage,” Redundant Rio Grande “Double Track Route,” C&NW Mainline into Chicago
  • W = Donner Pass and Winter conditions, Keeping the Lucin Cutoff open, Wasatch and Rocky Mountain Crossings
  • O = Redundancy makes this route very attractive as far as reliability goes
  • T = Shorter Routes with less demanding geography
BNSF's Northern Transcon
  • S = Established Routing from the Pacific Northwest into Minneapolis, Madison, Milwaukee and Chicago 
  • W = Long routing over Steep Grades, Single Tracked in many places.  Shared with slow oil tank train traffic.  Weather Related Delays in Winter
  • O = With improvements a more direct routing for Korean Imports into the Mid-West
  • T = Shorter Routes with less demanding geography
CP Rail's Milwaukee Road/Soo Line/CP Crow's Nest Transcon:
  • S = Shorter Route to Korean Penninsula, via Vancouver
  • W = Crow's Nest Rocky Mountain Crossing, Winter Weather Delays, Slow Oil Trains near the Bakken and Canadian Oil Sand Fields. Export Coal Trains from the Crow's Nest to Vancouver
  • O = Not at Capacity with Trains Yet
  • T = Shorter Routes with less demanding geography 
CN's Canadian Transcon via Missabe/Wisconsin Central/Illinois Central:
  • S = Better Canadian Route as far as grades are considered. Shortest route to the Korean Penninsula via Prince Rupert
  • W = Winter Weather Delays
  • O = Not at Capacity with Trains Yet
    T = Shorter Routes with less demanding geography
     Now, to ship containers in Plus PanaMax (east or west coast) and Super Post PanaMax (west coast only) container ships, we need to find ports that are deep enough to allow a ship with a 50' draft to dock  (This link shows a lot of data, including that Savannah night be able to support a New Plus Panamax ship:  I read something the other day, about the Corps of Engineers having ruled out Savannah,  as not being able to be dredged any deeper than 47'without getting into the fresh water table.  This keeps Savannah from getting the largest new Super Post PanaMax ships to their port.  Yet look on page 5 of the referenced documents, at figure 7, "Top 20 North American Container Ports,"  to see that Savannah is the 4th largest port in the US for import/export of intermodal containers,behind LA, Long Beach and New York/NJ, but ahead of Vancouver, Oakland, Seattle, Houston, Norfolk, Manzanillo, MX, Tacoma, Montreal QC, Charleston, Jacksonville,Miami, Baltimore, Prince Rupert, Portland, Mobile and Tampa.  From the Trains Magazine article, Miami has a 50' deep channel AND it's the closest US mainland port to the Panama Canal.  I'm betting that Natural Ports (Miami, Tampa, Charleston, New York City, Boston, Mobile and Houston) will have an advantage over ports that are somewhat inland and on rivers (Savannah, Brunswick, GA, Wilmington, NC, Philadelphia, and even New Orleans and Port Arthur, TX), as rivers can only be dredged so deep before hitting the fresh water table.

     So as Intermodal Ships move toward the East Coast ports, what will happen to Chicago?  Well it's still a huge consumer base to which many containers will be shipped, but it won't be much of a transcontinental exchange point any longer. The same holds true for Kansas City, Dallas, and St. Louis. New Orleans won't be much of an exchange point, but it's a port which will ease some of their traffic loss that has already occurred.

     The Real Threat to ALL Chicago, Milwaukee, Minneapolis Traffic will be the Waterlevel Routes of the CN from New Orleans and Chicago.  

CN's Illinois Central Water Level Route to Chicago:
  • S = Established Water Level Route. Shortest route from an Ocean Port with large ship capacity to Chicagoland.
  • W = May require double tracking for additional capacity.  Water levels in New Orleans may not be enough for a Super Post PanaMax ship.
  • O = Lowest potential Fuel Cost for getting Intermodal Freight to Chicagoland
  • T = Small Container Ships docking Directly in Chicago, Milwaukee or Green Bay
     Traditional east coast ports Boston, New York/North Jersey, Baltimore and New Port News won't be able to compete with the CN's IC water level route for the same reasons that the western railroads can't.  They are also fighting against a shorter, less geographically challenging, direct, water level route.

     Even the old Frisco line into Mobile (via York, AL and onto the NS into Mobile) or the G&W/AGR line from Pensacola via Columbus MS could become a threat to the BNSF's Santa Fe Transcon for Chicago Traffic.  The question is how much is BNSF willing to spend on the old Frisco to shorten its own supply lines into Chicago.

     The bottom line is that the Santa Fe Transcon, the KCS Mexican Shortcut to Larazo Cardonas, the UP's Sunset Route and Overland Route(s) will all suffer from traffic loses from the Super and Plus Panamax Container Ships from China, Vietnam and Southeast Asia.  The further south and away from the great circle route that the ocean traffic takes, the longer the trip time to the West Coast of North America.

      Northern ports, such as Prince Rupert, Vancouver, Seattle Tacoma and Portland won't be hurt as badly as LA, Long Beach or San Francisco/Oakland  Container ships originating from South Korea have a short water route to North America as compared to China or Vietnam.  Much of the traffic from the Korean Peninsula will continue through Kansas City or Dallas toward eastern markets.  

     The route that most closely follows the "Great Circle (air plane) Route" is from Busan to Prince Rupert to Kansas City is the shortest and most efficient route ( ( followed closely (300 air miles) by the Pusan to Seattle to Dallas Route (   That route can be fairly closely replicated by a container ship from the Korean Peninsula to Vancouver and from Vancouver on the CP to Kansas City and slightly longer by a container ship from the Korean Penninsula to Seattle or Portland and a BNSF or UP route toward Kansas City or an even longer routing from Vancouver, Seattle or Portland to Dallas-Fort Worth.  

      Some container traffic from the west coast to points east of the Mississippi River will always remain.  And as long as there are vegetables being grown in the Central Valley of California (and that is being seriously threatened by California's new water and environmental regulations), there will always be traffic to the eastern US over the Sunset, Santa Fe, and Overland Route Transcons.  

      The Ports of LA and Long Beach had their run as a "national ports" from Southeast Asia into North America, but the strike/slowdown this past fall was just another nail in their coffin that is causing their decline to a regional port.

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