What’s Really Going On in Memphis?

A colleague was kind enough to suggest that I might have a few strategic or otherwise insightful opinions about the extent of and the possible solutions for the rail intermodal service problems in Memphis. Why Jim Blaze? Maybe because some are aware of my long-ago urban goods movement role as a regional planner in Chicago and my learning experience as past national Chairman role of the Transportation Research Board Urban Goods Movement Committee. 

A detailed examination of the Memphis SWOT (Strengths, Weaknesses, Opportunities and Threats) situation would require a series of interviews and inspections. In lieu of that, I can offer my opinion based upon previous studies where some circumstances are similar. To that, I can add insight from a few other current-day intermodal experts with whom we network.

Readers, please be aware that the following are scenarios, at best—possible hypothetical circumstances to be discussed. They are not shared here as hard-wired answers.

Various logistics journalists and technical intermodal market experts have been selectively addressing some of the Midwestern, in particular the Memphis region, slowdown in intermodal rail fluidity. Like the coastal ports of LA/Long Beach out West and now the high-growth-rate Eastern ports like Savannah, this region has has a series of congestion problems, beginning in 2020. 

These problems are rather ubiquitous at key intermodal terminals. They include:

  • Lack of empty containers for certain export commodities such as specialty grains.
  • Delays in assembling outbound railway container platform cars.
  • Regional shortages of intermodal semi-trailer (TOFC) rail cars.
  • Shortage of spaces for parking delayed pickup/returning regional containers.
  • Random mismatch between TEUs (twenty-foot equivalent units), FEUs (forty-foot equivalent units) and the longer 53-foot higher-ceiling domestic containers and necessary chassis equipment. 

Network fluidity has broken down in a variety of these ways. I left out health issues and occasional worker-related shortages. 

The point is, this is a complex supply chain interaction. More than one problem needs resolving to return to normalcy. Should the railroads shoulder all the responsibility? No. That seems unreasonable, given the complexity of long supply chain distances and the multiple players involved in the movement of any one container across multiple-carrier network links and terminals. 

PUBLIC OPINIONS SET THE DISCUSSION STAGE

Neither the Class I railroads nor the ocean carriers and their cousins in intermodal, the domestic transloading and trucking/3PL companies, have offered a packaged solution for public debate. So now we have instead seen the local shipper community and the STB exchanging high-level correspondence about issues.

First, the Greater Memphis Chamber of commerce offered an open-letter commentary, sort of a call for action—or at least to a fuller discussion (download below). It publicly asked for STB assistance “desperately needed to help resolve an inland rail crisis.” It stated that the problems impacting Memphis importers, exporters, and motor carriers were created by the 1) surge of freight, 2) chassis shortages, and 3) gridlock at U.S. rail ramps. They saw the problem through their lens as caused by recurring increases in volumes of inbound shipper cargo having overwhelmed interior intermodal infrastructure, causing significant costs, delays and consequences to supply chain participants. For example, the Chamber cited that one of the local five Class I railroads is currently reporting 1,600 boxes on the ground in Memphis and equipment shortages exceeding 600 chassis. 

Need more evidence? They cited more than 3,000 additional loads being staged on trains outside of Memphis waiting to bring their intermodal loads in to offload.

The Chamber offered suggestions. But they literally may have misdiagnosed the technical problems. 

The Chamber seemed to focus upon the chassis shortage. As a result, they seem to favor a solution to waive demurrage fees: “Specifically, no storage should accrue (demurrage) until a container is mounted on a roadworthy chassis and ready for pickup.”

Overlooked is the commercial business model. Historically, the railroads have not been responsible for providing chassis. Over time, they have seen third parties and others like shippers themselves or the ocean carriers arrange for drayage in and out of rail yards. This reflects that railroad managers know how to move train loads. This—not trucking or intermodal drayage operations—is a core strength. 

Strategic planners have seen this chassis and drayage problem brewing for decades. It’s no surprise that it has become critical to some today—but it is not a railroad asset management issue. Therefore, the STB cannot magically wave its hands to institute a rail-based chassis solution. That’s not how this supply chain works. Hopefully, STB staff will agree upon further examination.

The good news is that introducing the subject now allows for constructive timely debate. That can be healthy amidst definite market movement complexity. 

It did not take long for the Association of American Railroads to get into the debate and letter exchanges. AAR did not actually suggest a specific set of solutions. Instead, the AAR seems suggest that the STB just not get involved in Memphis:

Upon a pause to reflect, this rail economist sees two messages being delivered by AAR. The first message is a recurring one of re-regulation fear. Here the AAR spokesperson flatly states that a regulatory intervention by the Board in intermodal transportation markets would face a high bar in meeting the revocation standard of intermodal deregulation. This suggests that the STB somehow permanently revoke its right to review changed circumstances of public service and benefits during unforeseen dysfunctional transportation periods. That seems illogical for any regulatory body that believes it has a broad Congressional oversight role. 

The second assertion by the ARR is that the railroads have demonstrated a clear historical ability “to respond rapidly to changing market conditions,” and “lead the innovation changes,” and that somehow this was made possible by the TOFC/COFC exemption. That’s not always the way the intermodal industry unfolded. “Rapid response” is a relative term. Rail intermodal has seen very good growth years, taking market share from trucking—and some not so good years. 

AAR and IANA (Intermodal Association of North America) statistics and other data sources show pretty clearly that rail intermodal growth has recently slowed. Bluntly, there is evidence that the market share gains have stalled. AAR asserts that “the volume of intermodal shipments has increased from approximately 3 million containers and trailers in 1980 to nearly 14 million units in 2019.” Further, “TRhe exemption of intermodal traffic also has generated significant environmental benefits, as railroads have succeeded in diverting large numbers of trucks from the highways.”

If it’s true that rail intermodal innovation is facing challenges, then that suggests a business model review might be of benefit to all—including the “Big Seven” Class I railroads. Thus, is it premature to ask the STB to keep its distance?  

STB Chairman Martin Oberman.

This series of public letters and media releases included several observations from STB Chairman Oberman. Why did he suddenly speak up?

The STB seems to observe that the expectations of continuing market growth and service improvements might not be as rosy as projected by carrier pronouncements. In one letter, Oberman acknowledged STB awareness of certain substandard railway operating performances, including: missing customer switches, railroad operating delays in mid-yards and interchanges, and certain examples of extended off-route travel. These were clear examples of train arrival delays and container availability disruptions.

In a second recent letter, the STB seemed to clearly warn the AAR that it ought to take more seriously the April 14 letter from the Greater Memphis Chamber of Commerce:

This kind of rapid and detailed public commentary seems extraordinary, given my recollection of how previous ICC and STB federal regulators kept mostly silent in public arenas.

As a rail economist, I admire public openness. It is not backroom politics. It reflects an image of openness and leadership from regulators about a public problem. In part, that is refreshing. It suggests that the Wall Street financial view is not the only public policy standard. The STB seems to be searching for balance. It’s not going to be easy.

As to Memphis and its intermodal issues, I’m afraid that the STB and its staff will have to spend time educating themselves as to the complex circumstances. Many of the root causes of Memphis’s delays occur globally, beyond the jurisdiction geography of the STB. Yes, it may be partially true that if a butterfly flaps its wings in a Chinese or South Korea rail yard or port,  a storm cloud may eventually appear overhead at Memphis.

Memphis “intermodal parties” need to look at inbound loads as soon as they get onboard ships in Asia. That’s how to prepare ahead for oncoming traffic surges.

Graphic by FreightWaves analyst and business logistician Michael Vincent. 

Databases like this help inland ports like Memphis get prepared days before cargo actually arrives. More of this digital mining has to occur for Memphis fluidity to improve.

In partial defense of the freight railroads, they have been making investments in Memphis to physically add capacity to their part of these global transaction operations. BNSF spent a ton of money to build an all-new recently opened Memphis terminal. Why is this significant?

BNSF likely had no way, when working with shippers back in 2008 or so, to predict how much transloading from TEUs to 53-foot domestic containers might occur between then and now—and affect container parking and loading/unloading sequencing. BNSF had to plan for a fixed terminal’s new capacity within a narrow footprint of land and set their operational capacity accordingly. Surges in business caused by good customer fortune (or by 2020’s medical issues) were not embedded in their design plan for what at the time of opening was a pretty impressive facility. 

BNSF’s relatively new Memphis intermodal terminal. BNSF illustration

Transloading is one example of changes not anticipated by the railroads or by many of their customers. Transloading from a ship to a domestic intermodal train occurs when shippers try to stuff three or more TEU container loads into one high-cube domestic 53-foot box.  That improves container utilization and reduces shipper costs somewhat on a cubic capacity basis.

Back in 2008, transloading might have occurred about 15% of the time. In 2020, on some routes it can be 45% or more of the units handled. This is important because some rail yards were laid out to expedite TEU and FEU box and train loading spacing. Transloading can sometimes be disruptive at the terminal—not always, but enough to matter.

Pacific Harbor Line

And Memphis, “you are not alone.” Check out congestion at Joliet, Ill.; multiple Chicago intermodal yard locations (some with odd shapes and little container parking on-site); and selected yards associated with LA/Long Beach and the Alameda Corridor. Is Memphis statistically worse off than these locations are?

Beyond yard design and flexibility, there is the last-mile/first-mile intermodal drayage problem. Some of us have been watching this problem become a deeper quicksand for intermodal during the past year or more. How? There is a national and set of regional drayage delays or congestion index values that are public information–but available only by subscription.

Noel Perry (l) and Larry Gross

Here is a peek at the recent drayage congestion as calculated by experts like Noel Perry and Larry Gross. Have we all been paying attention? No. Some of us have not.

Drayage is not a Class I railroad solvable problem, because most drayage is third-party organized and run. Larry Gross flows this drayage issue nationally at an incredibly detailed market level. The Memphis situation relative to congestion and chassis shortages is not a surprise to those that follow his periodic graphic reports like this:

“Drayage capacity at various Southeastern U.S. ports is so low right now that ocean carriers, NVOCCs and shippers are scouring to locate small truck carriers on the spot market. Impact? They have to pay extra to get their drayage loads or their longer distance truck loads moved.” – Ari Ashe, Senior Editor, Journal of Commerce, June 4, 2021

NEW PLAYERS CAN ADD NEW COMPLEXITY

Control of the U.S .imported container market volume used to be clearly dominated by a few of the big container ship lines, companies like APL, Sealand and Maersk. But into the late spring of 2021, the Journal of Commerce now reports that, in some cases, the biggest organizers of such U.S. import cargo might be the forwarding industry. Who saw that coming? 

“Non-vessel-operating common carriers are now handling a majority of U.S. imports from Asia as carriers limit bookings to their steady customers in the booming eastbound trans-Pacific.” – Bill Mongelluzzo, Senior Editor, Journal of Commerce, June 04, 2021

PROVIDING SOLUTIONS IS A LOGISTICS SKILL

The STB can hold hearings and write up reports and suggestions. But the root-cause resolutions may extend well beyond the traditional railroading skills of the STB.

Does the STB have the managerial logistics skills to directly provide or order a solution? What sources of intelligence—for example, the sources referenced above—might the STB require to reach a set of informed operational solutions in today’s digital era? Is it accessing such resources? What past events give it the experiencer to administratively resolve such problems if it becomes much more proactive now? The STB, of course, could contract-out needed skills.

Frank N. Wilner

STB Chair Oberman seems to have triggered an outward profile. “Oberman is proving no Casper Milquetoast nor subject to long-alleged regulatory capture that has seen multiple former STB and ICC members take railroad employment after leaving the agency,” says Railway Age Capitol Hill Contributing Editor Frank N. Wilner, author of Railroads & Economic Regulation, to be published this summer by Simmons-Boardman Books (downloadable supplement below). “His background at the Illinois Racing Commission and as a Chicago Alderman was to confront misdeeds and arrogance head-on. An attorney, he no doubt viewed the AAR letter, to which he responded, as equivalent to a criminal defense attorney arguing legal technicalities in an effort to avoid addressing facts of any wrongdoing. While regulatory agencies are never truly independent—nominations and Senate confirmations being political decisions, as is budget authorization—Chairman Oberman has planted a flag of regulatory independence that hasn’t been seen at the STB or ICC in more than a generation, if not longer.”

Oberman appears willing to challenge the laid-back attitude of some previous regulators. How might he do that, with a possible majority vote of his fellow STB commissioners? Here are a few possibilities:

Without necessarily re-regulating the railroads, the STB might instead try using other resources. It could beef up its Rail Customer and Public Assistance Program (RCPA). It might establish a more robust yet voluntary mediation process concerning such rail-customer disputes. There is, I believe, some limited experience at playing such a role. There is an RCPA process that even some rail carriers have found useful, to a point.

As for the Memphis joint suggestions, the Memphis Supply Chain Innovation Team asked that the STB recommend or perhaps even order establishment of a single, interoperable, gray chassis pool in Memphis (download white paper below). The locals could try to form that business enterprise themselves—charter and capitalize their own local venture, and then get receivers and shippers to patronize it. This would, in part, recognize that Memphis is competing with other gateways as a solutions provider. 

There are other possible strategic longer-timeline roads to congestion solutions for Memphis and other intermodal “hot spots”: Encourage the rail companies and their customers to consider terminal designs and 53-foot slots vs. 40-foot slot capability. Shift toward digitally advanced ETA projection software solutions that telegraph incoming intermodal cargo for unloading, transloading and drayage for prepared-upon-arrival, next-journey distribution.

This will take time. But Memphis appears to have extended a welcome invitation. It would be practical, local business goodwill for the railroads to show up. I believe they would.

On high note to end this overview:

Why go to Memphis? Because, “If you love somebody enough, you’ll follow wherever they go. That’s how I got to Memphis” – Tom T. Hall

Independent railway economist and Railway Age Contributing Editor Jim Blaze has been in the railroad industry for more than 40 years. Trained in logistics, he served seven years with the Illinois DOT as a Chicago long-range freight planner and almost two years with the USRA technical staff in Washington, D.C. Jim then spent 21 years with Conrail in cross-functional strategic roles from branch line economics to mergers, IT, logistics, and corporate change. He followed this with 20 years of international consulting at rail engineering firm Zeta-Tech Associated. Jim is a Magna Cum Laude Graduate of St Anselm’s College with a master’s degree from the University of Chicago. Married with six children, he lives outside of Philadelphia. “This column reflects my continued passion for the future of railroading as a competitive industry,” says Jim. “Only by occasionally challenging our institutions can we probe for better quality and performance. My opinions are my own, independent of Railway Age. As always, contrary business opinions are welcome.”

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