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From Site Selection magazine, September 2011

On and Off the Rails

Whether on the move or stymied, intermodal projects
figure prominently in future supply chains and regional economies.

Part of the site for Norfolk Southern’s new $97-million intermodal hub in McCalla, Ala., on the western outskirts of Birmingham. The 316-acre (128-hectare) operation is projected to open by late 2012.

ay what you will about intermodal freight's ability to help regional economies. One thing's for sure: It helps railroads' economies.

Union Pacific's intermodal revenue grew 30 percent in 2010 to $3.2 billion. Accounting for nearly 35 percent of CSX's business, intermodal showed a 24-percent year-over-year quarterly increase in revenues in the second quarter of 2011. At Norfolk Southern, second-quarter intermodal revenues were $540 million, 20 percent higher than last year's second quarter.

Those figures only figure to improve as the inland port concept proliferates. A report issued in July by Jones Lang LaSalle called inland ports "a critical component in the supply chain," though it is quick to differentiate them from the hundreds of simple intermodal hub projects arising across the U.S. The map the firm created (below) depicts its view on how current and future ports and inland ports connect.

"Inland ports are designed to move international shipments more efficiently away from seaports and into locations and customers within America's Heartland," said John Carver, who heads Jones Lang LaSalle's Ports Airports and Global Infrastructure practice, which happens to be currently advising metal component manufacturer TechPrecision Corp. on where to put a new U.S. manufacturing complex. "With pressure mounting on our nation's seaports and high demand for port warehouse space, an alternative route is to move goods to inland ports for handling and distribution. Inland hubs provide a means for ocean cargo to pass through the waterfront terminals with greater speed and literally 'clear the decks' for the next vessel."

JLL says a legitimate inland port, a popular choice for retailers, has a number of common features including proximity to a population of 3 million within a 200-mile (322-km.) radius, a major direct connection to a seaport via a Class I railroad, a Foreign Trade Zone status and an abundance of commercial real estate for warehousing and distribution purposes.

Gateway seaports understand the importance of connectivity and developing direct rail shipping which works in harmony with inland port operations, says the report.

"Many ports are working to become more 'agile' with their capacity to accommodate a variety of vessel types, as well as develop the technology and improved business practices that will decrease 'dwell' or waiting time in ship scheduling, off-loading and land distribution," said Rich Thompson, executive vice president and leader of Jones Lang LaSalle's Global Supply Chain & Logistics Solutions consulting group. "Connectivity to inland ports is an important part of this strategy."

At the same time however, the report points out that many coastal ports may soon see strained road, rail and possibly even warehouse capacity as higher volumes from post-Panamax ships enter the aging U.S. transportation system. Thus many regions are doing what they can to avoid that congestion before it begins. And many companies, such as Walmart, are doing all they can to get as close as possible to those intermodal terminals, as more proximity translates into less drayage.

"In Europe, the hinterlands are very close, so intermodal was critical for them much earlier than it has been for us," says Franc Pigna, managing director for Aegir Port Property Advisers. "Consequently they're more advanced at intermodal facilities than we are. That said, our time has come, because building greenfield or even brownfield ports in North America is a challenging proposition and a long term one, chiefly for ecological reasons. For the most part, existing ports are going to have to become much more efficient on the same footprint, through technology, automation and a rationalization of their property assets. Anything at or near the dock is increasingly going to have to be dedicated to velocity and throughput, and anything not directly related to that is going to have to go to less expensive land at inland terminals and dry ports."

JLL suggests that channel deepening and other infrastructure improvements by those ports will lead to development of corresponding inland ports in places such as Shreveport, La., for New Orleans, and Birmingham, Ala., for Mobile. "The result: The U.S. 'frontier' for cost-effectively moving goods shipped through the Panama Canal is anticipated to drift about 200 miles [322 km.] to the west, bordered roughly by Austin, Dallas, Little Rock, St. Louis and Chicago," said the report. "The Union Pacific hub in Salt Lake City could emerge as an inland port for Seattle/Tacoma and Oakland, while San Antonio should grow as a U.S. transfer point for both imports flowing through Mexico, as well as production from the nation's own factories and farms."

Not all inland ports and hubs are on U.S. soil. Taking advantage of gradually building traffic using the Port of Prince Rupert in B.C. are two new major inland port projects in Canada. In June, CN began construction of its new C$200-million Calgary Logistics Park, aiming to be complete by year-end 2012. The 680-acre park in Conrich, located northeast of Calgary, will feature more than 2 million sq. ft. (185,800 sq. m.) of warehousing capacity, including a multi-commodity rail-to-truck transload and warehouse facility. CN also plans to have an automotive compound for regional vehicle distribution ready during 2013, and to add a liquid and dry-bulk transload and distribution facility to the logistics park at a later date.

One province to the east, and just west of Regina, Sask., the Global Transportation Hub (GTH) is taking shape on 2,000 acres of serviced land. Featuring new highway infrastructure and a new higher capacity intermodal facility from Canadian Pacific capable of about 250,000 container lifts annually, the complex thus far includes an 800-job distribution center operated by Canadian Logistics Services to serve the Loblaw's group of stores and a new $20-million project from Yanke Group's AFI Distribution Group that will bring will bring between 400 to 500 truck loads per week into the GTH and 40 new jobs to the area.

Popping Up All Over

While they may not all qualify for inland port status, the intermodal facilities rising across North America certainly qualify as status boosts for regional economic development.

Norfolk Southern is wasting no time getting going in Birmingham. In June, CEO Wick Moorman was joined by Alabama Gov. Robert Bentley and other dignitaries to break ground on a $97.5-million regional intermodal hub in the west Birmingham suburb of McCalla. The hub will occupy a 316-acre (128-hectare) site adjacent to the Jefferson Metropolitan Park in McCalla, and is expected to open in late 2012. According to the railroad, the Birmingham Regional Intermodal Facility is expected to create or enhance 8,600 jobs in central Alabama over the next 10 years, and its capacity will grow to handle 165,000 containers and trailers annually.

The facility is part of the railroad's multi-state Crescent Corridor initiative to establish an efficient, high-capacity intermodal freight rail route between the Gulf Coast and the Northeast. Five weeks before the McCalla ceremony, Norfolk Southern broke ground on another link in its refurbished chain: the $105-million Memphis Regional Intermodal Facility in Rossville, Tenn. That facility will be built on 380 acres (154 hectares) in Fayette County and is also expected to open in late 2012. The railroad says it will create or enhance 6,200 jobs in the Memphis region over the next 10 years, and its capacity will grow to handle 327,000 containers and trailers annually.

In Louisville on August 1, CSX announced a $15-million, 12-job intermodal terminal project on 34 acres (14 hectares) between CSX's Osborne Yard and the Louisville Industrial Center near Louisville International Airport. Slated to begin operations in early 2012, the new terminal will provide inbound and outbound daily train service connecting through the company's Northwest Ohio Intermodal Terminal just west of Toledo.

CSX is also moving forward with development of its Baltimore-Washington Rail Intermodal Facility, looking to locate it at one of four finalist industrial sites south of Baltimore along the I-95 corridor. The finalists were picked from a field of 12 potential sites in the area that had been selected based purely on parcel size and proximity to the Port of Baltimore. Among the finalist criteria was the existence of at least 70 contiguous acres (28 hectares) of usable land, adjacency to the CSX mainline, and proximity and accessibility to a major highway. CSX has begun talks with property owners connected to the various sites, and will apply for rezoning where applicable. The goal is to complete construction of the facility and begin operations by the year 2015.

CSX also is gaining ground in its native Florida. As part of Gov. Rick Scott's approval of the much-debated $1.2-billion SunRail commuter rail project in Orlando, linking central Florida via a line to Osceola, Volusia and Seminole counties, CSX will sell the state 61 miles (98 km.) of its track for $432 million, and then invest up to $40 million from that amount in rail infrastructure connecting to the Port of Jacksonville, "subject to an on-dock rail facility being constructed by Jaxport and intermodal cargo sufficient to fill two trains per day," said CSX spokesperson Gary Sease. CSX has pledged to invest the entire $432 million from the SunRail sale into Florida rail infrastructure. The deal also signals the official move of CSX's freight rail hub from Orlando to the new 110-job, 318-acre (129-hectare) intermodal terminal it's building in Winter Haven.

Intermodal Debate Turns Litigious in North Charleston

CSX and Norfolk Southern both find themselves at the center of an intermodal yard siting controversy in North Charleston, S.C., in the latest chapter in a port and base redevelopment saga that goes back 15 years.

That's when the Navy's base closed, and the port had the option to move operations to that property after plans to consolidate port operations on Daniel Island were scuttled by community outcry. State legislation mandated that the state's ports authority and the City of North Charleston come to an agreement, which stipulated how the property would be divided between them, with the port getting the southern half. That 2002 MOU specified that rail would be used exclusively out of the south end of the former base.

"The Ports Authority said, 'We need no rail, it will be all truck,' " says Ryan Johnson, spokesperson for North Charleston Mayor Keith Summey. "The city said, 'We think you might, but if you decide to use it, we want it to go out of the south, because we don't want new rail lines running through the property we just received."

Fast forward to this year. The South Carolina Public Railways Commission (PRC) and the South Carolina Commerce Department would like to see a new intermodal yard occupy property to the north, currently owned by the PRC. The city has a problem with that. Among other things, the Clemson University Restoration Institute has broken ground directly next door for the largest wind turbine drivetrain testing facility in the world, with the help of a $98-million grant and more than 80 acres (32 hectares) of property that used to be a tank farm, donated by the city.

In addition to reminding the state of the 2002 MOU, city officials contend the intermodal project should go to the McAlloy site, which is larger and has access to the south. CSX, which has a roughly 25-percent market share in Charleston, has offered Norfolk Southern access to that yard at cost. However Norfolk Southern, which has controlling stakes in the competing port cities of Savannah and Norfolk, would have to cross CSX control points to get to its own line.

The impasse has led to a federal lawsuit filed by the city against the state and against several federal agencies, seeking to enforce the language of the MOU and keep the project away from an area where mayoral spokesperson Ryan Johnson says millions of dollars have been invested by the city, citizens and companies "who have relied upon that MOU, and didn't expect to have a railyard and rail line in that area." Among other things, two historic districts are in the area, including the Park Circle neighborhood.

Summey says the McAlloy site is ideal because it has already been cleaned up for development, there are rail lines and an unused CSX facility on site, and it offers the opportunity to have warehousing right at the terminal, "which is something we need to be competitive with other port locations."

Summey cites job creation projections for the wind turbine research facility that estimate up to 20,000 jobs over the next 10 to 15 years. Plus, he says, the relocation option offered by the state for that center is not zoned properly and is not close to the water, which is an important factor for large wind power industry components.

The state's Supreme Court denied the Commerce Department's countersuit, so Summey is hopeful that new negotiations are afoot. He says he has never had a one-on-one dialogue with Gov. Nikki Haley.

"We're not anti-port or anti-rail, but the state is asking one community to pay the cost of what it takes to operate it, and not sharing the cost with the rest of the state of South Carolina.," says Summey. "There are ways that this can work that enhance the rail, the port and the neighborhood at the same time."

Dual Rail Top Priority

Ron Brinson, a former president/CEO of the American Association of Port Authorities and of the Port of New Orleans, noted in a recent column in the Charleston Post and Courier that the city's lawsuit also "seeks to reopen the federal permits for the planned terminal expansion and require that the state's proposed rail facility be considered an integral aspect of the Ports Authority's plans." He wrote that this aspect of the suit could have far-reaching consequences: "Reopening the federal permits could delay the planned terminal expansion for years, at the very time the Port of Charleston fiercely competes to be a post-Panamax container shipping center."

In an interview, Brinson says he doesn't think the dispute is negatively affecting industrial development prospects, but if the stalemate continues it could become a marketing issue for the state and the port.

"But I think this will be resolved, certainly over the next six months," he says. "What's clear is that the state is pretty much demanding that any public rail facility has to treat both railroads very equally, and equalize access and pricing — that's principle number one." Though he understands Summey's assertions with regard to sticking to the MOU, he says North Charleston already is the transportation infrastructure hub for the Lowcountry, and figures to be in the future. He also says there are ways to manage railroads' relationships with communities so that their operations' effects are not as deleterious as some might suggest.

The state's position has been backed by leaders in Upstate South Carolina, who point out that nearly half the port's $44.8-billion annual economic impact on the state is directly related to their region, with an estimated 112,700 Upstate jobs related to the Port of Charleston's shipping. The port's recently completed $21.7-million terminal enhancement was primarily driven by BMW's growing export business. Last year, exports of three vehicles manufactured at its Spartanburg plant to 130 global markets were valued at $4 billion.

The port also used to import BMWs, but lost that business to Brunswick, Ga.

South Carolina Secretary of Commerce Bobby Hitt came to that position after 17 years working for BMW, most recently as spokesman. In an interview, he says, "We will get a resolution to this. The difference between the mayor's point of view and ours is several hundred yards. I feel confident as we continue to look at the complexity of this, we'll settle on the right place."

Hitt says the city's plan gives CSX an advantage because Norfolk Southern would have to pay a fee to get to the site, thus leading to unequal costs: "We need to have a railyard where both railroads start out with equal dual access," he says.

He says BMW sends 700-plus cars a day to the terminal in Charleston, using one railroad (Norfolk Southern). He then points out why dual rail is so important to big end users.

"When you have one rail company, and sit down to negotiate, you're negotiating with yourself. If you have two, you have a real negotiation. In the long term, we need customers to be able to negotiate with two different rail systems to get good competitive rates, which will advantage South Carolina for shipping, manufacturing and distribution. It would not be fair for the state of South Carolina to build tens of millions of dollars of new rail to advantage one [rail] company over another."

He calls the job creation numbers associated with the wind energy center "interesting," noting that the economic juggernaut that is BMW has managed to create "only 7,500 jobs." And he says ultimately, it's about the whole state succeeding because of these crucial links.

"In several years when the post-Panamax ships come, that inventory needs to be able to move, needs to have as much rail as possible, and needs highly efficient rail systems involved from both carriers," he says. "Not just the new terminal, but all the terminals, will be linked to this yard, in order to move as much commerce by rail as possible."

'One Chance' To Get It Right

Franc Pigna, who has consulted for clients looking to develop the McAlloy site, says the Port of Charleston "has for too long been thought of as Charleston's port, when in fact it's South Carolina's port." He says intermodal has been its fundamental weakness up to now, pointing to the Georgia Ports Authority's "brilliant" strategy of focusing on attracting the shippers as much as the shipping lines. At the same time, he points out Charleston's advantages over Savannah in terms of far less distance to the sea buoy and less hazardous channel navigation.

"The competition isn't between ports, it's between supply chains," he says.

A Norfolk Southern spokesman says the railroad's position still hews to a statement delivered to the Port Oversight Committee last September by Rob Martinez, vice president of business development, when he said the city's proposal would put place the port and Norfolk Southern at a disadvantage due to sheer operational headaches involving multiple street crossings at grade and two CSX-controlled crossover points, not to mention related street traffic tie-ups. "Moreover, customers' schedules will require that Norfolk Southern and CSX run trains within the same time frame over the same track," he said. "If CSX controls the track, the dispatching and the intermodal facility, they will have a huge operating advantage over Norfolk Southern. We would have to endure unacceptable delays on our time-sensitive intermodal container business. This operating reality would put us at a serious disadvantage even if CSX granted access to their track and facilities for free — which, of course they won't, nor could they be expected to."

Martinez pointed to examples of cooperation in Savannah and in Hampton Roads where the two railroads negotiated track and property arrangements conducive to equal intermodal access. He pointed out that the two companies serve different end markets inland. And he pointed out that every recent new East Coast port complex has included dual rail access, including the two in Hampton Roads and Savannah that now have surpassed Charleston in container port market share.

"We believe an alternative plan can be formulated that would provide equal, competitive access by both railroads to a port facility while still preserving the element that is at the heart of the city's plan — the removal of tracks through its Park Circle neighborhood," he said. He also said the railroad's growing business with BMW already was seeing constraints using the port's Union Pier, and long term, the best site for a new BMW roll-on roll-off terminal is Veterans Terminal, which Norfolk Southern would access via the same route as the proposed jointly-served intermodal facility that the City of North Charleston opposes.

"Simply stated, any effort by North Charleston to cut off our north access also threatens ever locating BMW on Veterans Terminal," he said. "If BMW does not have access to a Charleston facility adequate to its demands, what will happen to that business?

"South Carolina has one chance to get this issue settled correctly, and the outcome must be good for everyone in the State, not just for some," Martinez concluded. "We seek to ensure that NS's ability to serve the port and the region not be damaged, which this MOU clearly would do, and that the entire region benefit from an equitable, environmentally beneficent and, perhaps most importantly, competitive rail and investment strategy."

Story in Pictures

This map and the following map depict the opposing sides in a dispute between South Carolina and the City of North Charleston over location of an intermodal railyard.
Map courtesy of City of North Charleston
Click for a larger view.
Click for a larger view.

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