The 3G Intermodal White Paper Towards a 3rd Generation Intermodal Transportation Blueprint for the Nation Arno Hart,

RNO Group, LLC, www.rnogroup.com 3G Intermodal Blog, www.3gintermodal.com

Introduction Intermodal infrastructure development in the United States is at a juncture that could lead to the development of a third generation (3G) of intermodal systems and services. 3G intermodal will be in response to the widening of the Panama Canal, and will offer a triple-play of intermodal services truck, rail and barge. This paper examines the need for a 3G intermodal system in the United States. Recognizing that intermodal is a broadly used term, this paper is written in the context of the international container port and the intermodal infrastructure and offerings serving it. An Overview of Two Generations of Intermodal Development Ever since the development of the international shipping container, thanks to Malcolm Mclean and other innovators, the development of intermodal infrastructure has, broadly speaking, evolved through two generations of systems and services. These systems were designed in response to international shipping trends and the demand for intermodal services by shippers. y 1st Generation Intermodal In Response to the Standardized Container Box. The first generation of intermodal infrastructure development was in response to McLean s container box introduced in the 1950 s, and had a heavy focus on the truck s role. From McLean s initial product in 1956, which had an initial focus on roll-on/roll-off, and for several decades thereafter, the truck played a dominant role in intermodal transport. And even with the rapid adoption of the rail intermodal function at ports, the truck still played a strong role in draying containers between ports and rail intermodal yards. Markets within a 8-12 hour drive were conveniently served by truck, and more distant markets served by rail intermodal, with trucking playing a key drayage role at either end of the trip. As a result, the intermodal infrastructure at and around the port is characteristically truck oriented, with the role of rail geared to off- or near-dock. 2nd Generation Intermodal In Response to Asian Trade Growth The second generation of intermodal infrastructure was heavily influenced by the growth in Asian related trade. Demand for land-bridged intermodal services across the north American continent, between the east and west coasts as well as the industrial heartland, brought on a new generation of intermodal infrastructure systems and services which were heavily focused on the rail intermodal system. The long distances between the West Coast ports and markets in the heartland and along the eastern seaboard made rail intermodal service very competitive. In addition, the rail intermodal industry became more service oriented and introduced new innovations such as double stacking and time definite scheduled services. And they worked with the respective ports to build ondock rail terminals as well as inland ports to improve efficiencies. As a result, port related

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intermodal infrastructure development placed a heavy emphasis on moving the containers through the port as quickly and efficiently as possible, relying on both trucks and rail. In summary, first generation intermodal is characteristically mode single. Second generation intermodal is largely dual mode, specifically truck and rail. The Intermodal Policy Dilemma The demand for Asian trade has made publicly-driven intermodal policies a success. The significance of Asian trade densities and the operational dynamics of long-haul intermodal trips across the North American continent have largely been responsible for the dominant and profitable role of intermodal in the rail industry s business model. However, with the widening of the Panama Canal, the economics of all-water services to the East Coast are likely to become more viable. As a result, a portion of existing ships calling at West Coast ports, as well as a portion of future growth in trade, may be diverted to the East Coast. This will deal a blow to current intermodal policy in the sense that an increasing share of Asian trade will be handled by ports which are predominantly served by truck. While West Coast ports have a strong rail intermodal mode share, East Coast ports do not. For reasons explained later, East Coast ports are largely truck ports. Their markets are in close proximity and are ideal for truck service. Distances-to-market are too short to make rail intermodal viable, at least to date. The result is that intermodal policy is likely to take a step back, unless it shifts into a third generational mode. An Introduction to 3G Intermodal Development In Response to the Panama Canal 3G intermodal infrastructure is in response to the widening of the Panama Canal, and will evolve from the growth in triple-play intermodal services (containers on trucks, rail and barge ) at container gateway ports. The outcome of 3G intermodal development is largely dependent on the success of two aspects, specifically container-on-barge development (including short-sea-shipping) and short-haul intermodal rail. The former functioning as marine highways serving the nation s interior from Gulf Coast ports and the latter serving as reverse mini-landbridges from East Coast ports to inland markets. y Marine Highways This refers to the use of inland rivers and waterways (marine highways) to ship containers to and from inland markets. Now more than ever, marine highways offer an opportunity to support a third generation of intermodal terminals and services. They present a unique opportunity for developing container load centers that can offer a triple-play of intermodal services truck, rail and barge. Reverse Mini Rail Landbridges They serve the reverse role of the current trans-continental landbride for containers to/from Asia, except on a smaller scale. Instead of calling on West Coast ports, containers are shipped through the Panama Canal to the East Coast and then shipped by rail or truck to points west The challenge is in the cost competitiveness of the rail reverse mini landbridge, given the close proximity of the markets to the ports.

Without a 3G intermodal system that is focused on introducing these two key initiatives, it is likely that intermodal mode share will shift back towards trucks. The Panama Canal Window The widening of the Panama Canal presents a unique window within which to target a 3G intermodal development strategy. The likely repositioning of trade lanes and load centers as a result of the canal s widening presents that best case for developing 3G intermodal systems that offer a triple-play of intermodal services. Moreover, the intermodal strategies and investments currently being put in place 3G Intermodal - 2010 RNO Group, LLC Page 2

will remain for decades, so the cost of missing this window of opportunity is significant. There will not be as major a development in the industry for the foreseeable future. The time to put 3G intermodal into place is now. The Third Generation of Intermodal Policy To date there are very few coastal container load centers that will support the development of 3G intermodal. The public policy debate around the success of container-on-barge and short-haul rail has largely focused on the obvious cost and environmental benefits of the modes, with the skeptics focusing on the cost and operational challenges of the respective services. However, it is critical that the debate be viewed from a broader public policy viewpoint, focused on the evolution of intermodal transportation as opposed to the feasibility of the services themselves. The public policy debate should focus instead on the development of the third generation of infrastructure that is critical to the success of the services. y Policies Towards Marine Highways - The intermodal policy debate should focus on policies and funding options that will result in: o The design and development of coastal load centers that are connected to major waterways that serve the nation s heartland, specifically container load centers along the Gulf Coast, in close proximity to the base of the Mobile and Mississippi Rivers. o Increased focus on new vessel technologies that are more suited for a cargo that cubes out before it weighs out, with a hull design focused less on maximizing displacement and more on speed and agility, and alternative energy configurations including dieselelectric and LNG-electric power-plants. Policies Toward Reverse Mini Rail Landbridges - Policies and investments should be directed at the development of express rail services between selected Atlantic ports and the largest inland markets. In addition, innovations should be introduced that are aimed at reducing the cost impediments of short-haul rail intermodal.

The Transportation Geography of Intermodal Development The transportation geography of intermodal development has been distinct and unique within each of the generations. Again, speaking broadly, the truck focused container gateway ports have been a largely East Coast practice, although on-dock rail is a far more common practice of late at East Coast ports. The truck focus is largely a result of market dynamics. East Coast ports predominantly serve their local markets within a 8-12 hour drive, and hence the heavy role for truck (this is not a rule and there are exceptions). Second generation intermodal development has a had a much larger influence on the West Coast due to the role of Asian trade and the need to serve markets east. As a result, the mode share ratio between West Coast ports and East Coast ports is markedly different. 3G intermodal development will also have a distinct geographic footprint. MARAD s newly published Marine Highway corridors is a good indication of the potential marine highways geographic footprint. For reverse mini landbridges, the geographic footprint will have a focus on major East Coast container load centers with rapid and direct rail access to major inland markets. The Heartland and Crescent corridors (Norfolk Southern) as well as the Southeast Triangle (CSX) are core examples.

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A Potential Geographic Blueprint for 3G Intermodal Development

Source: Maritime Administration, July 2010 A Strategic Blueprint Forward The public policy path toward 3G intermodal development should concentrate on five core areas: 1) The development of international container load centers within proximity of major inland waterway systems, specifically waterways that lead to large interior markets. 2) The development of terminal infrastructure designed to accommodate a triple-play of intermodal services intermodal barge, rail and truck. 3) Enhanced mode share policies and incentives that encourage port terminal operators and third party service providers to offer a balanced range of intermodal services. 4) The revision of policies that prevent the development of agile vessel technologies more suited for the higher service demands of the global supply chain. 5) Investment in rail operations and systems which, accelerate the transfer of containers from ship to rail, and reduce the cost of handling.

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