Transloading poised for strong growth

DOMESTIC bulk intermodal activity, particularly rail transloading, seems poised to undergo one of its broadest expansions over the next few years. Both liquid and dry bulk cargoes will be affected.

The growth will occur across North America, spurred on by a variety of driving forces. Key factors include new driver hours-of-service rules that took effect in January 2004, driver shortages, security-related delays at the US-Canada and US-Mexico borders, and ever-growing demand for just-in-time deliveries of bulk cargoes such as plastic pellets.

The future of domestic bulk intermodal operations was discussed in detail by an expert panel during the International Powder & Bulk Solids Conference May 3-6 in Chicago, Illinois. The panel consisted of A Y “Butch” Bingham, president/treasurer of Bulkmatic Transport Company; Pete Denil, president of Alliance Logistics Inc; and Gary Watt, senior vice-president of Superior Bulk Logistics.

Transloading has a strong future because it lowers overall transport costs, provides short-term storage of inventory closer to the end user, and offers a great deal of flexibility, according to Bingham. Transload operators can provide customized delivery solutions that include everything from bulk deliveries to repackaging.

Driving forces

All indications are that transloading will get a big boost from an industry wide driver shortage that was compounded by new driver hours-of-service rules. These factors are helping push more long distance shipments onto the railroads, with final delivery to the consignee arranged through a transloading yard.

However, numerous challenges lie ahead for the transloading industry. This includes potential federal regulations mandating fall protection and prohibiting dust emissions. More sophisticated scaling systems and portable bagging systems that connect to railcars may be needed to meet future customer requirements.

Finding enough skilled workers to operate all of the different equipment and deliver the product will be another challenge. “We're facing real problems today,” Bingham said. “We can't get enough skilled drivers, and reality is that it takes very skilled people to operate pneumatic self-loading trailers. You don't fall out of bed and start running one of these things.”

Bingham added that some shippers still don't understand how bad the driver shortage has become. “They're in denial, and they still want service for nothing. It's all got to change, though. We have to pay drivers more, and we have to treat them better.”

Truck drivers aren't the only people in short supply in the transloading industry. “We have a serious lack of young people — both drivers and managers,” Bingham said. “This is something that has to change. We have to begin bringing new people into this industry.”

Transload service providers aren't alone in needing newer, younger managers with an understanding of the business. “Our customers need to know more about this business,” Bingham said. “We see a growing lack of concern for the details of our business by those buying our services. We could reach a point where relatively few people understand this business in coming years. Shippers could make some very bad decisions if they don't understand how to use transloading and other transportation services.”

Security challenges

Watt agreed that shippers need a better understanding of over-the-road dry bulk transportation in general. “We are all feeling the impact of 21st Century challenges that include post 9/11 security measures and increased sanitation assurance, in addition to the driver shortage,” he said. “These are not just carrier problems.”

Security measures stemming from the September 11, 2001 terrorist attacks in the United States include federally mandated carrier security plans, rail transload site security audits, fingerprint-based driver background checks, and vehicle tracking and immobilization systems.

The need for increased sanitation assurance is driven by potential terrorism exposure, out-of-control liability insurance costs, out-of-control tort judgments, more stringent restrictions on prior cargoes, and tougher tank cleaning facility audits.

For a variety of reasons, many bulk shippers have turned to third-party logistics providers for transportation expertise on issues such as transloading. Almost 80% of the Fortune 500 Manufacturers, including those that produce plastics, have contracted with third-party logistics providers for help in managing bulk transportation, according to Denil.

A key reason for the growth is the ability of 3PLs to bring shippers and consignees expertise in specific areas of bulk logistics without the overhead of an internal staff. Carriers benefit because they gain opportunities to improve efficiencies. They can boost load ratios (percent of loaded to total miles) and generate additional revenue.

“3PL involvement will grow in the bulk sector,” Denil said. “We expect to see more 3PL specialization in areas such as plastic pellets. 3PLs provide benefits by taking cost out of the transportation process. Smart use of resources is what we are trying to achieve. By controlling cost, we can help make an operation more efficient.”

The pursuit of greater efficiency is almost certain to include intermodal containers that can be used for both domestic and international shipments. Bingham stressed that the industry will see steady growth in import and export shipments of plastic pellets and other dry bulk cargoes.

“Increasingly, we all need to learn how to handle intermodal containers coming from overseas,” he said. “Use of these containers in North America is going to increase like crazy. We have to be able to transload and deliver them. It's just as important as learning the latest techniques for warehousing and material handling. ”

Domestic containers

Watt added that the new hours-of-service rules would help accelerate the use of bulk containers in domestic service. “These containers will work well in the high-density rail lanes,” he said.

All of the speakers agreed that the international perspective must be a part of any transloading program in the future. “Business has never been more international than it is today,” Watt said. “We all work in a global marketplace.”

International transloading activities are as close as Canada and Mexico. Both countries are likely to see greater transloading activity as a result of tougher border security procedures that have slowed truck traffic to a crawl in many places.

“For the most part, international trade between the United States and Canada has come down to a science — a pretty easy science at that,” Denil said. “There are relatively few restrictions for border crossings. However, the 9/11-related security requirements have created problems.

“The US and Canadian governments crafted the FAST (Free and Secure Trade) system to expedite crossings and reduce the impact of the security restrictions. The carrier, carrier driver, shipper, and consignee have to register under the FAST program. If they do that, shipments should zip through the border very quickly.”

Unfortunately, tractor-trailer rigs have been backing up at inspection points on the Canadian side of the border. Lines can be six to seven miles long. It can take hours for a driver to reach the FAST lane for the actual crossing.

“We're also frustrated that Canada has one set of policies for expedited customs clearance, and the United States has another,” Watt said. “Here are two countries that are probably the closest allies in the world, and they can't agree on a single, unified customs clearance system.”

He added that another problem is the privacy law in Canada. Canadian officials may be aware that a driver has an infraction that will bar entry into Canada. Officials won't communicate that information to the US carrier. Fleet managers don't find out about the problem until the driver is stopped at the border, which means the shipment is delayed.

Transloading offers an easy way to avoid these problems. Excellent rail connections are in place between the United States and Canada, and an extensive network of transloading facilities stretches across Canada.

More access

Transloading also holds the key to reducing or eliminating border-crossing delays between the United States and Mexico. While some of the lost time results from tougher border security, the greatest inefficiencies come from entry restrictions on US and Mexican carriers that were supposed to have been eliminated under the North American Free Trade Agreement (NAFTA).

“It's ridiculous that we failed to fully implement NAFTA's trucking provisions for so many years,” Bingham says. “It's the Teamsters that kept the border closed, and it was all politics. There was never any problem, environmental or otherwise. The border will open; the Teamsters can't stop it.”

The US Supreme Court ruled in June that the Bush Administration could open the US side of the border to Mexican carriers in accordance with NAFTA. Even after the restrictions are removed, though, trucking companies are unlikely to move quickly in setting up operations either north or south of the border. Few US fleets have drivers who speak Spanish, and only the largest Mexican carriers can afford to meet US requirements.

“Mexican regulations still must be adjusted to achieve parity with the United States,” said Diego A Aguilar, an executive with Q-Logistics, a Mexican transloading service provider. “For instance, Mexican regulators are still trying to decide whether they will develop diesel engine emission rules based on US or European Union regulations. That's a big issue right now.

“I believe that it probably makes more sense to adopt US rules. Our northern border is with the United States, not Europe. Choosing European standards would be just a convenience for the European truck builders. At the end of the day, we want Mexican trucks to be able to enter the United States.”

In addition, the security restrictions are still in place on the US side of the border. Delays will remain for truck traffic for many years to come. Rail shipments that combine transloading offer the best means of avoiding the delays and headaches.

Young infrastructure

Mexico's transloading infrastructure is still in its infancy, but many companies see plenty of potential for the future. In addition, the railroads were privatized several years ago and have been significantly upgraded. Rail service is steadily improving.

“There's a huge need for more transloading sites in Mexico,” said Bingham, whose company operates four transloading facilities in partnership with a Mexican carrier in Mexico. “Expanding the transloading network in Mexico, combined with improving rail service, will eliminate the border crossing issue for many bulk shipments.

“Mexico is a huge market; a great partner. There is no question that business will grow between Mexico and the United States. We're going to see more transportation-related investment between the two countries. Capital will flow to the greatest opportunity. There's a lot of investment capital in Mexico, not just the United States.”

Aguilar added that a number of new transloading projects are underway, including a large facility in Toluca that will include a container depot, aboveground storage tanks, and dry bulk silos. Mexican railroads are planning intermodal terminals in Queretaro and Leon. Southern Mexico apparently is the only part of the country with no intermodal projects in the works.

Aguilar's company, Q-Logistics, has facilities in Mexico City and Guadalajara that provide in-bond warehousing for chemicals and machinery. “Our customers want bagging and other expanded warehousing services,” he said. “We definitely see the potential for growth in transloading, and we're looking at adding facilities in Monterrey and San Luis Potosi.”

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