A Guide to Intermodal Freight Shipping: Managing Costs & Understanding Rates

A Guide to Intermodal Freight Shipping: Managing Costs & Understanding Rates

Getting cargo from point A to point B often requires multiple modes of transportation, and intermodal transportation is a model that can save shippers up to 10–15% on transportation costs compared to direct shipping. However, navigating the complexities of intermodal transportation also entails plenty of challenges.

In this comprehensive guide to intermodal transport, we'll cover everything you need to know about intermodal freight shipping, including how intermodal transportation works, intermodal pricing and how to understand intermodal freight rates, and how to overcome the various challenges that intermodal transport entails.

What is Intermodal Freight Transportation and Shipping?

What does intermodal mean, and what is intermodal shipping? Answering these questions is an important place to start. In the simplest possible terms, intermodal transportation is any cargo shipped via multiple modes of transport. Shipping cargo for one leg of the journey via rail and then the final leg via truck is one example of intermodal transportation. It is also important to note that intermodal transport entails shipping cargo in intermodal containers, so the load does not have to be re-packaged when changing modes.

There are two main types of intermodal transport: Container-On-Flatcar (COFC) or Trailer-On-Flatcar (TOFC). The TOFC model loads an entire cargo trailer onto a well car. In the COFC model, individual containers are loaded onto a well car.

Door-to-door intermodal transportation is another important term to define, and this model provides shippers with a complete intermodal solution from pickup to delivery.

Comparing Intermodal Transportation Vs. Over-the-Road (OTR) Transportation

Over-the-road transportation means shipping freight entirely via a truck without any use of rail transportation. There are several important differences between OTR transportation and intermodal shipping that utilizes both rail and truck transportation, and each model has pros and cons. Some of the most critical differences between intermodal shipping and OTR shipping include:

  1. Cost – Since rail transport is more fuel efficient than truck transport, intermodal shipping is typically less expensive than OTR shipping.
  2. Transit – When moved on a single Class I railroad, transit times for intermodal freight are typically one day longer than transit times for OTR shipping and 2-3 days longer when freight is moved between two Class I railroads.
  3. Length of Haul – Intermodal transport is the more efficient option when the haul is 700 miles or more. For haul lengths that are less than 400 miles, OTR is the better choice.
  4. Weight – The weight restriction for intermodal containers is 2,500 pounds less than for containers only shipped via truck, limiting the available capacity when shipping intermodal.
  5. Value of Freight – Intermodal shipping is more secure than OTR since freight shipped via rail doesn't have nearly as many stops that present opportunities for cargo theft. Therefore, intermodal shipping is a better choice for high-value freight.
  6. Origin and Destination Pairs – Truck transportation provides access to more origin and destination pairs than intermodal shipping since the location of intermodal ramps does not limit trucks.
  7. Flexibility – More origin and destination pairs combined with the fact that trucks can be stopped, and trains cannot mean that truck shipping provides shippers with greater flexibility and agility.
  8. Scalability – Intermodal transport allows shippers to scale up their operations without hiring new drivers and purchasing new trucks, making it the more scalable of the two options.
  9. Sustainability – Rail transport produces fewer carbon emissions than truck transportation, making intermodal shipping more sustainable than OTR shipping.
  10. Complexity – Intermodal transportation is inherently more complex to manage since it relies on multiple modes of transport instead of just one.
  11. Congestion – By bypassing highway traffic, accidents, and construction, intermodal transport can reduce delays resulting from highway congestion. However, railways are now experiencing congestion issues of their own, so this isn't a clear advantage.

When to Use Intermodal Transport and its Role in End-to-End Supply Chain Management

Looking at the above differences between OTR and intermodal shipping, it's easy enough to spot the instances where intermodal shipping is more advantageous. For haul lengths over 700 miles, intermodal shipping will almost always be more cost-effective than OTR. Intermodal shipping is also ideal for securing high-value cargo, improving sustainability, and ensuring that your supply chain operations are easily scalable.

However, the challenges and drawbacks associated with intermodal transport are important to consider. The dray distance for intermodal ramps is a challenge that often makes drayage planning for intermodal transport a complex undertaking. Thankfully, this is a challenge that real-time container tracking solutions such as VIZION API can mitigate by providing reliable ETAs on when a container is ready to be transloaded onto a drayage truck. Shipping lane visibility and securing adequate capacity for intermodal freight is another crucial challenge of intermodal shipping supply chain partners must overcome.

Of course, there are other considerations, such as the weight of your freight, the importance of maintaining in-transit flexibility, and differing transit times between OTR and intermodal shipping. When you can use real-time container visibility solutions to eliminate some of the complexities of intermodal shipping, shipping freight via intermodal transport can offer benefits when it comes to end-to-end supply chain management.

Other Options to Consider Related to Intermodal Transport

Along with intermodal transport, there are other similar options for shippers to consider, including options such as:

  1. Transloading – Transloading is similar to intermodal shipping, but with transloading, freight is moved between conveyances rather than staying in the same container for the entire journey.
  2. Consolidation and Pooling – Freight consolidation entails bundling freight from multiple shippers onto a single truckload. Pool distribution allows shippers to ship freight to a centralized location for a shorter final destination transit.
  3. Forward Positioning Inventory – Forward positioning inventory entails storing inventory in a "forward" location closer to the customer to reduce shipping costs and improve efficiency.

Common Challenges with Intermodal Shipping

Due mainly to its inherent complexity, several pressing challenges come with shipping freight intermodal. Some of the most common challenges with intermodal shipping include:

Long Transit Times

We've mentioned already that intermodal transport typically takes a day longer than OTR when freight is shipped via a single railway and 2–3 days longer when two or more railways are required. These increased transit times are an obstacle you must consider before transitioning to intermodal shipping.

Unreliable at Times

Intermodal transport can sometimes be prone to delays, but not more so than other transportation options. In fact, it is worth noting that intermodal freight lanes tend to have better on-time delivery rates than truckload carriers, thanks to the precision of rail transit schedules.

Lack of Competition Keeps Prices Elevated

There are only seven Class I railroads in the United States and ten intermodal carriers compared to thousands of interstate motor carriers. While intermodal transport is typically still more affordable than direct transport, this lack of competition means that intermodal rates probably aren't as low as they should be.

Damage and Loss

There is a common misconception that intermodal freight is more prone to damage and loss. While harmonic vibrations can indeed sometimes damage fragile freight, this isn't an issue when the load is secured correctly. And when it comes to preventing cargo theft, rail transport is more secure since cargo transported via rail is kept moving throughout its journey.

Operationally Complicated Without the Right Visibility and Data

Intermodal shipping requires you to manage multiple modes of transport, which can be challenging without the right supply chain visibility solutions. With VIZION's real-time container tracking solution, shippers can easily access the timely and accurate data they need to efficiently manage their intermodal shipping operations.

Benefits of Intermodal Freight Transportation

While intermodal shipping presents several complexities and challenges, its benefits are often more than enough to counterbalance these concerns. Some of the top benefits of shipping freight intermodal include:

Lower cost alternative to truckload

Despite the lack of competition that keeps rates higher than they would otherwise be, intermodal shipping is still a more cost-effective option than direct transport, thanks to the economy of scale and the fuel efficiency of rail transport.

Sustainability

In addition to lowering transportation costs, rail transport is more fuel efficient, which means intermodal shipping is more eco-friendly than OTR shipping. If you are looking for ways to reduce the carbon footprint of your supply chain, utilizing intermodal transportation is a great option to consider.

Increased Level of Security

Freight that constantly moves for the large majority of its journey is much less prone to theft and loss than freight that makes numerous stops along the way, and -unlike trucks - trains don't make frequent stops. While the dray segments of intermodal shipping are over-the-road, these segments are typically short and don't provide many opportunities for cargo to be stolen or lost.

Reduces Highway Congestion

Rail transportation may have its issues, but traffic jams are not one of them. By drastically limiting the time that cargo is on the road, intermodal transport lanes can bypass highway congestion.

Reliable Capacity

Securing railway capacity tends to be much more reliable than booking truckload capacity because there's more space available on a train than in a truck. With that said, recent labor and chassis shortages have made it a little more challenging to secure intermodal freight capacity than it used to be.

Optimizes the Efficiency of Truck and Rail

An intermodal shipping strategy allows shippers to enjoy the benefits of both rail and truck transportation. Using the efficiency of rail transportation for most of the haul reduces shipping costs and improves sustainability. The flexibility of truck transportation in the final leg gets cargo to its destination whether there's a railway leading there or not.

Improves Safety

In 2020, 4,965 people in the United States died in large-truck crashes. That same year, only 744 people died in railway-related accidents — and 519 of those deaths were trespassers who snuck onto the train illegally.

Easy to Monitor

Intermodal shipping might present some increased complexities, but it does make it easier to monitor the location of your shipments. Rail transit schedules are precise and easy to find, ensuring that you always know where your cargo is in its journey.

How Intermodal Pricing and Costs Per Mile Work

Before transitioning from OTR shipping to intermodal shipping, it is essential to compare the overall costs of the two options. In most cases, intermodal shipping and OTR shipping have similar cost components.

Intermodal rates per mile are a combination of linehaul costs plus fuel costs. Linehaul includes expenses such as dray from the origin warehouse/manufacturing site to the intermodal ramp, rail line haul costs, and interline fees if the freight is transported across multiple railroads and dray from the destination intermodal ramp to the final customer(s). Fuel costs, meanwhile, are typically calculated using a matrix developed by the intermodal carrier and tied to the EIA's national diesel rates.

That said, intermodal cost per mile tends to be 10% to 15% lower than the per-mile cost of OTR shipping.

Types of Intermodal Freight Pricing

Pricing models for intermodal transport generally fall into three types:

  1. Contract Pricing – Contract pricing entails negotiating intermodal contracts with an intermodal carrier where the carrier promises to deliver freight at a set rate for a set period. This model enables shippers to lock in pricing and capacity for the contract's duration.
  2. Spot Rate Pricing – This model involves shippers negotiating a rate based on spot freight market prices when they need freight moved.
  3. Project Pricing – Project pricing is put in place for "special projects" — such as when a shipment's volume falls outside the norm of expected quantities. Project pricing provides shippers the opportunity to negotiate favorable, one-time rates by promising an intermodal carrier large volume to ship.

How the Intermodal Shipping Process Works

Once an agreement with an intermodal carrier has been arranged, the intermodal shipping process typically follows these steps:

  1. The shipper tenders the cargo to the intermodal carrier.
  2. The carrier picks up the load from the shipper's dock and drays it to the origin ramp.
  3. The cargo is lifted off the chassis and loaded onto a rail well car (and is sometimes weighed beforehand).
  4. The train departs as the rail segment of the haul begins.
  5. Along the rail route, the cargo will pass various points where it will signal tracking and status updates back to the carrier.
  6. Upon arrival at the destination ramp, the intermodal carrier will coordinate the cargo's dray pickup and final delivery

Management and Execution of Intermodal Shipping

Following the proper steps and best practices is essential to ensure a smooth transition from OTR to intermodal shipping. Here are our recommended steps for the management and execution of intermodal shipping:

Begin the Education Process

Before you transition to intermodal shipping, it is essential to research as much as possible about the intermodal process and market. Learning as much as possible about intermodal shipping will help you make informed decisions and avoid costly mistakes.

Define Success and Obtain Buy-In

To overcome the obstacles that transitioning to intermodal shipping is bound to present, you must complete buy-in from your organization's management. This starts by defining success and setting goals for the transition to showcase the benefits that it will provide.

Research and Evaluate Potential Providers

Given the limited competition in the sector, you might not have many intermodal providers to choose from, but it is still essential to research and evaluate your options. Pricing, capacity, and on-time delivery rates are the most important metrics to consider when evaluating potential intermodal providers.

Undergo a Freight Analysis

Before agreeing to transport your freight, an intermodal provider will need to conduct a freight analysis of your operations. This analysis is intended to evaluate dock operations and equipment requirements at both the point of origin and destination and evaluate your shipping lanes and their proximity to intermodal ramps.

Obtain Pricing and Transits in Freight RFP

Once you have found one or more carriers that you would potentially like to work with, the next step is to request an intermodal freight quote or RFP (request for proposal). Since not all intermodal carriers operate in the same lane, sending freight RFPs to multiple carriers during this step is good for casting a wide net and exploring your options.

Implement an Intermodal Solution

It's typically best to let your intermodal provider take the reins during this process phase, as they will know the best shipping lanes to choose for your operation. Shippers should also implement an intermodal solution in phases, starting with the simplest shipping lane and dock requirements and ironing out the kinks before moving on to full implementation.

Evaluate the Outcome Against a Success Goal

After implementing your intermodal solution, it's time to evaluate its results against your previous success goals. You'll need to take corrective measures if the results fall short of your expectations. Even if you've achieved your goals, it is still important to continue evaluating your process and searching for ways to optimize it.

Comparing the Types of Intermodal Providers

There are numerous types of intermodal providers, including:

  1. Bi-Modal
  2. Asset-Lite
  3. Non-Asset
  4. Rail Retailers
  5. Freight Brokers

The two most common types of intermodal providers (and thus the most important comparison) are bi-modal and non-asset providers. Bi-modal intermodal providers, also known as intermodal asset providers, own their assets. This includes assets such as chassis, containers, and trucks. JB Hunt is one example of a bi-modal intermodal provider that owns most of its assets.

Non-asset providers rely on the rail company's assets and assets of various dray services, though some non-asset providers will purchase a small amount of their own dray equipment. InTek Freight & Logistics is one example of a non-asset intermodal provider.

VIZION Can Help You Maximize the Efficiency and Benefits of Intermodal Shipping

There are a lot of important factors to consider in the OTR vs. intermodal debate. When you can mitigate the complexities of intermodal shipping with the right container visibility solution, the benefits tend to outweigh the drawbacks.

At VIZION, we empower shippers to achieve complete supply chain visibility and all of its advantages via our industry-leading real-time container tracking API. Contact us today to learn more about how VIZION API can help you implement an optimized intermodal shipping solution!

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