Class I railroads, which pruned their interline intermodal service as the Precision Scheduled Railroading operating model spread in the U.S. over the past few years, have rediscovered joint service and say it’s a way to capture freight moving on the highway.
Several interline intermodal initiatives have been announced since May. Among them:
- The Canadian National-Union Pacific-Ferromex cross-border Falcon Premium service.
- CN service to Kansas City and Atlanta via Norfolk Southern.
- UP service from Mexico to the Southeast via Memphis and interchange with both CSX and NS.
- Expanded NS service to Florida via regional Florida East Coast Railway.
- And Canadian Pacific Kansas City-CSX service linking Mexico and the Southeast via a new interchange they’ll create in Alabama by acquiring and operating Genesee & Wyoming short line Meridian & Bigbee.
“If we’re successful — and I’m confident we’ll be successful — I think the Falcon service will be the role model of how rails need to work together to gain market share from other modes of transportation,” CN Chief Financial Officer Ghislain Houle told an investor conference yesterday.
Railroads have long concentrated their intermodal efforts on single-line routes where they control the origin and destination. They also have streamlined their interline offerings to simplify their intermodal networks. But that will only get you so far. “You’re limited by your network reach. You go to where you go and you don’t go to where you don’t go,” Houle says.
“The issue in the past is railroads have not worked well together,” Houle says, noting that railroads have traditionally quibbled over where to interchange and how to split revenue.
“When we started the Falcon service we looked at this and said where is the best route and the best interchange point to be competitive with the truck from a customer standpoint,” Houle says.
Chicago was chosen as the interchange point, with Falcon traffic exchanged at UP’s Yard Center terminal and CN’s nearby Markham terminal.
In the past, interline partnerships might have been developed when CEOs dined together, Houle says. “But it wouldn’t permeate itself into the organization,” he says, noting that service would suffer because the railroads didn’t work well together.
UP and CN closely monitor Falcon Premium service, including terminal dwell, incoming interchange volume, and operational details like swapping power. “The notion is we need to run as a single-line railroad,” Houle says.
The coordination has been helped by the arrival of CN veteran Jim Vena as UP’s chief executive, Houle says.
The service offers shippers cost savings and environmental benefits compared to trucks, Houle says. “Shame on us if we screw this up,” he says.
Vena says UP is working to improve and better coordinate joint service with Ferromex via the Eagle Pass, Texas, gateway. UP has a 26% stake in the Mexican railroad. “We need to leverage that better,” Vena told an investor conference yesterday. “We need to look with the FXE as if we’re one railroad.”
The Falcon Premium service is a win-win, Houle says, because it gives CN access to Mexico and UP access to Canada. CN officials estimate that the service could attract 350,000 containers annually, based on research done as part of their failed bid to acquire Kansas City Southern.
“There’s no reason why freight in a can going 1,300, 1,400, 1,500 miles should be on a truck,” Houle says. “It should be on a train.”
CN expects volume to ramp up gradually from its new interline partnerships with UP and NS.
“You won’t see this needle moving in the short term as much because a customer that has done business with trucks for the last 10 years won’t give you all that business tomorrow morning,” Houle says. “They’ll test you out.”
CPKC Chief Marketing Officer John Brooks touted the benefits of the railroad’s single-line service linking Canada, the U.S., and Mexico. “At the end of the day, a single-line haul, one-stop shop, fastest service in the industry matters. It usually wins,” Brooks told an investor conference yesterday.
But the biggest competitor is trucks — not other railroads — he says, and the volume of truck traffic moving between Mexico and the Southeast is huge.
“The truck market available to everybody out there is massive,” Brooks says. “And I think we’ve long been criticized, maybe the rails historically have just been too focused on stealing from each other versus really stealing from the true competitor, and that’s trucks.”
CPKC relies on interline service to connect Mexico and the Southeast.
“We’ve got an existing partnership and great route with NS,” Brooks says. “We’re developing a new route with CSX that just opens up a whole ‘nother world of customers … We’re super excited to work with both those partners to attack — and I mean attack — the truck market in that lane.”