In one of his final acts before his untimely passing last month, E. Hunter Harrison took an axe to the configuration of the CSX intermodal network, shelving much of the functions of the massive Northwest Ohio intermodal hub in favor a “block swapping.” What does this mean and what are the implications for intermodal?

When I first started out in intermodal in the 1980s, the intermodal world was a fragmented one, with many more railroads than today, each rostering a multitude of mostly low-volume intermodal ramps. A significant proportion of these terminals still “circus-loaded” trailers by backing them down strings of trailer-on-flatcars (TOFCs). Many of these TOFC loads moved via the conventional carload network from origin to destination, buried in merchandise trains along with boxcar traffic and the like.

The transportation product produced by this system had plenty of problems. Transit times were slow and highly variable. Damage was endemic, particularly when TOFC cars were pushed “over the hump” in classification yards. TOFC trailers were equipped with heavy doors with double-locking rods to prevent the load from bursting out in the not-infrequent event of a hard coupling in the hump yard of a TOFC car with the trailers oriented “doors forward.” In this context, intermodal was the “mode of last resort,” utilized only when you had a load that you could not break, that you did not care exactly when it arrived, and only when you needed to save a buck or two.

Fast forward to today, and the intermodal offering has been completely transformed. Small terminals were closed and operations consolidated into fewer, high-volume, highly mechanized facilities near major population centers. TOFC went largely by the wayside, replaced by double-stacked containers on articulated, reduced slack cars. Most importantly, intermodal was pulled out of the merchandise train network and began to travel predominantly in segregated unit trains operating on a schedule. The result has been a transformation of intermodal into a core transportation offering that occupies an important niche in most sophisticated supply chains.

But the world is continuing to evolve and at an ever-faster rate. The e-commerce revolution and its attendant demand for quick response is pushing inventory out of regional distribution centers (DCs) forward into a much more dispersed network of small, local DCs. Freight flows are therefore fragmenting. Railroads, particularly those in the east, are responding by opening new intermodal facilities at secondary locations. At the same time, the railroads are making use of new technologies such as distributed power to lengthen and consolidate trains, including intermodal unit trains. Monster trains of 12,000 feet long are not uncommon these days. The challenge is how to amalgamate such large volumes while creating a train network that efficiently links a dispersed system of terminals.

This was where the CSX sorting hub in North Baltimore, Ohio, came in. It was intended to serve as a giant sorting facility on a hub-and-spoke intermodal network, much as Chicago functions as a hub for United Airlines. Each regional terminal would dispatch a single daily train with all outbound volume, which would then get sorted at North Baltimore to all the other destination terminals. But this all came at a price. The terminal originally cost $175 million when built and was later expanded, so probably totaled about $200 million in investment. If for the sake of argument, one assumes a 10 percent hurdle rate, then each of 809,000 containers handled by Northwest Ohio in 2016 was carrying roughly $40 per visit in order to recover that investment in 10 years. If one was willing to wait 20 years, that number drops to about $29 per visit. That is before including the operating cost of the terminal, plus the additional train miles required to divert all trains through the hub, etc. Put it all together and you might be looking at $60 to $80 per visit, or 7.5 to 10 cents per mile on a typical 800 mile haul. Not a deal-breaker perhaps, but certainly an attention-getter. The working assumption was that by consolidating volume in longer trains one would make back this amount if not more.

But that is not how Harrison saw it. He looked at North Baltimore and saw an intermodal hump yard, albeit with cranes instead of gravity doing the work. He thought that his brand of “precision railroading” could offer a better solution. To put it mildly, Harrison was not a fan of hump yards, nor was he a fan of unit trains, which as he saw it tended to suboptimize crew and locomotive utilization.

Rather, “precision railroading” entails the operation of all trains, merchandise and intermodal alike, on a predictable, reliable schedule. Where in a traditional operation trains are routinely “held for tonnage” with schedules annulled or consolidated as needed, a precision railroad devises an operating plan and then sticks to it. Under this scenario, the need to segregate intermodal from merchandise begins to fade away, and the inclusion of blocks of intermodal cars at the front of conventional freight trains becomes an attractive means of attaining “big train” economics on lower-volume intermodal routes.

The key to the network connecting lower-volume terminals then becomes “block swapping,” an intricate, scheduled ballet where trains pick up and drop groups of intermodal cars at strategic locations scattered throughout the system, as opposed to one central location. Intermodal cars are routed more directly, without the need to divert to a central sorting hub. But everything rests on operational discipline. If the trains are not on time, then the ballet begins to fall apart.

Of course, we are in the early days regarding the new CSX, and Harrison’s unexpected passing occurred with the transformation only partially accomplished. So time will tell whether the infant transformation of the CSX intermodal network will work out the way he anticipated. But it is crucial that intermodal continue to explore non-traditional ways to knit together an ever-growing network of dispersed terminals in order to meet the challenge of this new, more demanding supply chain era.

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