CARRIERS LOOK TO THE EAST (COAST) FOR GROWTH
March 3, 2008
JOHN D. BOYD

Congestion, rail rate hikes and longshore costs push boxes from Pacific ports and long intermodal journeys

Amid a prolonged slowdown in intermodal business, a new container terminal in Virginia could become something of a gold strike for an ocean carrier and area railroads. That’s because months of track work could soon pay off with regular intermodal trains, building container traffic along the Commonwealth Railway, an 18-mile short line owned by Genesee & Wyoming that runs between a new APM terminal and Maersk Line container ships at one end and Norfolk Southern Railway’s intermodal trains on the other.

That’s just the first step, and several more developments this year should add to the intermodal hauls expected out of the big APM-Maersk facility at Portsmouth, Va. Commonwealth will also activate a recently completed connection to CSX Transportation, linking the ocean terminal to the two major railroads in the eastern United States.

Within a year, another key piece of that short line should relocate from its current path, which runs through a series of load-shortening and train-slowing roadway grade crossings, to one that will allow it to run unobstructed for miles within the median of two nearby highways.

After that, full-sized intermodal trains can begin moving, instantly making the long-distance container hauls more competitive with busy regional truck haulers.
Yet that is still not the whole story. NS recently embarked on a three-year project to cut distance and time off its run between Virginia’s Atlantic ports and the heartland cargo jackpots of Chicago and Columbus, Ohio. Intermodal officials believe that will take containers off the highways in the East and Midwest, and route them through the new rail and port connections at Portsmouth.

Meanwhile, the Virginia Port Authority is developing a still larger intermodal site just north of APM-Maersk called Craney Island. Once it opens in a few years and draws more container ships through the Hampton Roads port region, with a new rail thoroughfare toward Chicago in the Heartland Corridor, shippers from the middle of the continent and along the East Coast will have rail-ship options they have not seen since the container industry emerged in the 1950s.

So when Michael McClellan, Norfolk Southern’s vice president for intermodal and automotive marketing, considers the importance of what is just now gearing up in southeastern Virginia, he sums it up simply: “It’s a big deal.”

For the rail industry, the seemingly disparate yet interconnected series of projects add up to what might be called a new phase of intermodal development.

With gains in intermodal business seemingly locked in place in many parts of the country, the intertwined projects along and near the eastern seaboard piece together a new infrastructure map for the intermodal industry, highlighting the complexity of adding new shipping channels and the potential for solving operating challenges.

The series of projects has been years in the making, but they really took shape with three events in 2007.

First, Maersk executed a major overhaul of how it runs containers in and out of North America. That in turn changed its lineup of port calls, and permits the carrier to target Norfolk and other East Coast ports with cargoes aimed just at their regions. “We reorganized a lot of our North American operations,” said Mary Ann Kotlarich, Maersk’s director of external communications. “We reduced the whole complexity of our
system.”

Instead of dropping a container off at any U.S. port as in the past and relying on trucks or the cross-continental rail system to take it from there to the eventual destination, she said Maersk began to load its ships differently.

In the past, for example, a ship leaving China might have carried into West Coast ports containers that would be shipped across the U.S., including to eastern consumer markets. Western intermodal railroads BNSF Railway and Union Pacific Railroad would take the loads across much of the nation but eventually would hook up with NS or CSX to get them into the intended region.

Now, however, ships are loaded in China and elsewhere based on where the containers are meant to end up. Those going into the Southeast are loaded onto a 4,000-TEU ship that might run through the Panama Canal, or come the other direction through Suez, instead of much larger ships headed to Southern California ports with loads for all regions.

Some industry observers link that decision to years of hefty rate hikes by the railroads, especially the two western carriers with their control of intermodal out of the West Coast. But by docking on the East Coast at Portsmouth or Savannah, Ga., Maersk customers can sharply cut surface intermodal bills and time spent getting around the country. And because railroads enter multiyear contracts with ship lines, the catch-up after several years could produce double-digit rate hikes.

“Certainly, rail costs affected certain markets,” Kotlarich said. But she said the change was long planned and had many more aspects than rail rates. “We took an entire overview of how we operate” in this hemisphere, she said, and considered things such as rising fuel costs, how to improve service to local areas and where Maersk needs facilities. Along with the changed ship loading and route planning, Maersk cut its inland services and some interior container yards.

Because Maersk is a giant in container shipping, the changes quickly impacted other parts of the transportation chain. BNSF, the nation’s largest intermodal railroad by volume, saw its box numbers weaken even more than the 2007 slump in freight demand would explain.

The change by Maersk and perhaps some other ship lines also may cut into total intermodal traffic this year, rather than simply switching it to other railroads. Eastern ports are usually within a few hundred miles of the intended consumer market, so containers often move directly from ships to waiting trucks for delivery in a day or two. Even when the boxes hit the rail network from Atlantic ports, they have shorter rides than when dropped off in California.

But while Maersk was realigning its U.S. system, several railroads were working to be ready for one piece. One was Commonwealth, a low-speed short line that had mainly hauled bulk cargoes for some area chemical shippers to connect with the major railroads. To get ready for regular intermodal trains, it had to extend some track into the APM terminal and upgrade other parts, with the $15 million tab paid partly by the state of Virginia.

John C. Hellman, Genesee & Wyoming’s president and chief executive, told a recent Stephens financial conference that Commonwealth’s was a “lucky” situation. “We had the short line. It’s 16 miles and it’s the sole access to that Maersk terminal.” (Maersk Line and APM Terminals are subsidiaries of A.P. Moller-Maersk.) Once it hooks up to CSX and NS, he said, “traffic to go over either railroad will have to go to us.”

Meanwhile, McClellan said, “Since the beginning of 2007, Norfolk Southern embarked on about a $17 million investment program.” That covered improvements in its connection to Commonwealth and track signaling at nearby Suffolk, Va., plus track and signaling work at Crewe, Va., where NS will combine Maersk loads with those from two other area terminals to build long-distance intermodal trains or break out the APM-bound containers off trains arriving from distant cities.

Gary Sease, a CSX spokesman, said that carrier also has been spending in the area, including $6.1 million split between the railroad and the state’s Rail Enhancement Fund for the new connection it recently completed a few miles from the APM terminal. CSX also completed track-clearance projects last year in the Portsmouth area “that allows double-stack access to our southeastern network from Portsmouth Marine Terminal, Norfolk International Terminal and the new APM terminal,” Sease said.

NS completed its related projects early in last year’s fourth quarter, and then began testing intermodal moves inbound from the APM terminal as well as outbound. “It’s going very well,” McClellan said. “It’s just an extraordinary operation that we have.” Now, “we’re just waiting for the density to build up” from Maersk to launch scheduled intermodal train service, he said, which is expected this year.

That might depend on when traffic perks up, along with the economy.

Maersk used to report its numbers to the VPA, which operates its own competing docks but combined the totals with its traffic figures for docks around Norfolk, Hampton Roads, Newport News and Portsmouth. A VPA spokesman said Maersk last provided its numbers to VPA in August; the next month, Maersk moved from a 70-acre dock area to the big new site.

That facility is immense by comparison — a $450 million, seven-year project that starts out on 291 acres with an annual capacity up to 1 million TEUs, making it the third-largest U.S. container terminal. And it has enough extra acreage to eventually build out for twice that volume.

It boasts a fleet of cranes, dock-area cargo shuttles, a dozen truck gates in each direction and fast turnaround procedures that can get a ship in and out the same day.

Portsmouth Mayor James Holley told the Virginian Pilot newspaper that the terminal’s opening was “the biggest and the best ribbon we’ve cut since 1752,” the year the seaport town was founded.

But APM Terminals and Maersk, even with their expansion here and new continent-wide program, were not immune to the broad slowdown in container traffic as the U.S. economy slowed this past year. Nils S. Andersen, A.P. Moller-Maersk’s group chief executive, said in late November that container business through August was “showing increased profitability, although the result is still far from satisfactory.”

Data from PIERS Global Intelligence Solutions, a sister company of Florida Shipper, showed that container traffic for Norfolk-area terminals peaked in October at about 152,715 TEUs — mildly above August levels — but then dropped off in November.

Besides its own direct investments last year linked to the Maersk-Commonwealth project, NS sees this as a good example of the multi partner projects that bring investments from various public and private groups for a strategic effort.

McClellan said a significant next step would be the $60 million relocation of 4.5 miles of the northern end of Commonwealth’s mainline, with new rails laid in highway medians to bypass the grade-crossing zones. That will relieve a major hindrance to putting boxes onto the railroad instead of trucks. Trains moving through the 14 grade crossings from APM’s terminal into Portsmouth are limited to 2,000 feet. That allows positions of up to 80 double-stacked containers, while normal intermodal trains might easily haul two or three times that number.

That new line should be up and running about a year from now, allowing the short line to run entire intermodal trains in one piece instead of breaking them into sections as now.
Later will come the volumes from the NS Heartland Corridor starting in 2010, and by 2017 the VPA’s $2.1 billion Craney Island terminal should be open. The authority has set aside $200 million to connect the rails into that facility.

But the work now under way is key. “(The) median rail-relocation project is important to Hampton Roads and the port community,” both for bypassing the local crossings and for its eventual role in cross-country traffic, said Joe Harris, a VPA spokesman. “This project will improve the flow of cargo from our port to the Midwest by utilizing rail and reducing congestion on our interstates.”