Rising fuel rates trigger more intermodal shipments

David Hannon, News and Transportation Editor -- Purchasing, 11/4/2004

Ball Corp. ships a lot of air. As a $4.9 billion supplier of containers for the food and beverage industry, Broomfield, Colo.-based Ball sends out about 500,000 full containers of, well, containers each year from its 34 manufacturing facilities across North America. In the past, the majority of those shipments went by truck from manufacturing plants to warehouses, but as Ball looks to reduce its costs and trucking rates increase, the company is sending more of its shipments by intermodal.

"We had been able to trim truck rates consistently for about 10 years," says Peter Roberts, manager of transportation at Ball. "But we realized the bottom had been reached in trucking. We needed to find ways to be more cost-effective outside trucking and that's where intermodal came in."

Intermodal has gained a big swing in business this year as fuel rates continue to push trucking costs and rates higher. Bill Matheson, vice president of truckload services at intermodal carrier Schneider National, reports "dramatic upsurges of volumes in intermodal" with Schneider reporting an intermodal growth of 20% per year due to trucking issues. And the capacity crunch looks to continue through next year, according to Matheson, in all modes.

"Historically, rail was considered to have infinite capacity. But as intermodal volumes increase, rail capacity has not moved much. The rail infrastructure cannot be increased as easily, so shippers are going to have to be more efficient in their supply chains to gain advantage. The capacity reservoir is not moving right now. If you are an inefficient shipper you will have real problems. Rail is not the outlet that it has been in the past. And on the trucking side, pending emissions standards mean most trucking companies will have to replace and update their fleets."

About half of Ball's facilities use intermodal today and the company is growing its intermodal shipments. This year Ball plans to send roughly 2,100 loads intermodally, up from the 2,000 it sent last year and dramatically up from the 700 it sent in 2002.

"Our longer distance shipments are usually for specialized cans that can only be built in certain facilities and have to be shipped from there and those are the cases we look more to intermodal," Roberts says. "Our shortest intermodal move is about 830 miles and our longest is around 2,900 miles from New York to California."

Historically, Ball had used intermodal primarily in Canada and very little in the U.S. market until 1998, when Ball acquired the domestic beverage can business assets of Richmond, Va.-based Reynolds Metals, which increased Ball's specialty containers business requiring longer shipments.

"Before the acquisition, we basically just shipped 12 and 16-ounce cans, so our product line broadened and we were shipping longer distances," Roberts says. In 2001, Ball decided to take a closer look at intermodal services because of its longer shipments and also because the "quality of the intermodal package was getting better," according to Roberts. "Before then, there had been a lot of horror stories on intermodal shipments. Shipments were arriving damaged and there was a lack of reliability, which limited savings potential."

Ball did an extensive market study in 2001 to find out what was being offered in intermodal. The company was encouraged by what it saw and put a bid out to some intermodal carriers and the numbers that came back were attractive, with Schneider Logistics coming in with the most attractive offer. In 2002, Ball shipped 700 loads in North America as a test run and two years later, the company expects to triple that amount.

The independent intermodal carriers like Schneider were most advantageous, according to Roberts, because they had their own assets and could use their own trailers for road or rail. "If we have to decide on a road or rail container ahead of time, intermodal is harder for us as a shipper, because we may change at the last minute," Roberts says. "The intermodal carriers gave us more flexibility to react more quickly to our needs as a shipper."

Roberts also credits the intermodal carriers for making equipment improvements that made intermodal a more attractive option to shippers. The articulated spine rail car, which allows shippers to lock cars together without the shuttering action that previously produced a lot of damage, was one of the main factors. And the increased availability of stacked trains provided better packages for Ball. The increased use of the 53-foot container by intermodal carriers helped sway the company as well.

"We're shipping a lot of air, so we want as much room as possible and weight is not a big issue for us," says Roberts. "And we are shipping a food-grade product and the container has to be water-tight and clean and odor free. We cannot have anything that can contaminate the product."

Another major factor that drove Ball to ship more by intermodal was as simple as a piece of cardboard.

"We came up with a way to secure our packages in the intermodal container so they would not shift in transit [in order to] reduce damage that is often associated with intermodal," Roberts says. "We use the cardboard void fillers that are easy to put in, low-cost and help minimize damage. We got the idea from our customer, Coors Brewing. We have a joint venture with Coors where we operate their can facility in Colorado and we found they were using a lot of intermodal and using the void fillers so we experimented with them to fit for our different shipments."

Since Ball started using the void fillers it has not had a single case of a load of cans shifting during shipment, which is a big factor when shipping somewhat fragile empty cans. Ball now uses three to six void fillers per container as standard operating procedure for all long-distance shipments.

The drop in damage levels has helped Ball earn the confidence of its plant-level logistics personnel—the ones that historically received the irate phone calls from customers with damaged product. Roberts also credits the backing of Ball's senior management for supporting the decision to increase its intermodal shipments.

"We want it to be second nature for our plants to consider intermodal as an option," says Roberts. "We are working to produce reports to show us what we're shipping via intermodal each week. We don't have the day-to-day knowledge at our fingertips but we hope to have reports to show us those opportunities."

And it's not just Ball discovering the advantages to damage-free shipments. The Association of American Railroads reports payouts for loss and damage to freight cargo on U.S. and Canadian railroads declined in 2003. Total payouts dropped 4.6% while the percentage of freight revenue paid out in settlement of claims declined from 0.33% to 0.31%.

When it comes to evaluating intermodal vs. truck for full container shipments, Roberts says price is the biggest factor, but there has to be a significant savings to make the move worthwhile from a process perspective.

Roberts points out that intermodal requires more planning than trucking, especially in the case of 20 Ball plants that have guaranteed capacity from contracted truckers.

To combat that, Ball pushed for a similar commitment from Schneider, its intermodal provider—a guarantee of at least 20 intermodal containers per week for each plant.

"Timing is a big piece of that analysis," says Roberts. "As part of our decision on which mode to use, we ask if the customer gives us releases in plenty of time. Do they give us short warning because their customers give them short warning? The simple nature of some of our customers' business does not allow them to give us enough leadtime to use intermodal. Our planning groups have to be a little more cognizant of what's going on when we use intermodal. The shipments take a bit longer."

Another aspect that many shippers may overlook in their analysis of intermodal vs. truck is the various service levels offered by intermodal providers. "You have to focus and spend the time to learn the different services and equipment and stay committed to it," says Roberts. "Plants can get off course easily so we work closely with them to meet their needs."

"The main thing to remember is moving to intermodal is not something you can just decide to do. You have to visit facilities and talk to the railroads and intermodal carriers to go over loading procedures and make sure everyone understands how it has to work. Then go to the customers and make sure they understand how intermodal works. Customers do not know if the shipment came intermodal, so we want to make sure they know how it is working and we want their feedback on the shipments coming in."