© 2012 Veritec Solutions Incorporated. All Rights Reserved. RAS Roundtable Analytics and Intermodal Opportunities from a Business Perspective Bruce Patty

© 2012 Veritec Solutions Incorporated. All Rights Reserved.


RAS Roundtable Analytics and Intermodal

Opportunities from a Business Perspective

Bruce PattyFormer AVP of Equipment Strategy and Planning

Pacer Stacktrain

INFORMS Conference – PhoenixOctober 2012


© 2012 Veritec Solutions Inc. All Rights Reserved. 2

Introduction Most of us are used to working on models that deal with

operational issues at railroads- Locomotive Scheduling- Train Scheduling- Meet/Pass Planning

The opportunity that I want to discuss briefly today is another kind of analytical model, one that involves the economics of alternative approaches for being a player in the intermodal market

Addressing this question correctly is as critical to the success of a company as any they make in this arena



Background In the domestic intermodal market, there are two primary ways

that one can gain access to equipment in which to move freight- Own (or long term lease) your own containers and negotiate

rates with the railroads• UP, CSX, JB Hunt, Hub, Pacer, APL, etc. have followed this model

- Use the containers provided by a wholesaler who has also negotiated rates with the railroads• Most IMCs have followed this model

If you are a new entrant to the domestic intermodal market, how do you determine which approach is best for you?



Factors to Consider To determine which approach is best, several factors must be

considered for each approach• Cost of acquisition of containers – lease vs. buy, including accounting treatment• Maintenance costs• Value of the equipment upon retirement• Risk of obsolescence• Repositioning costs if network flows are not balanced• Storage costs when equipment is in excess of what is needed• Charges to use equipment provided by wholesalers• Rail rates• Access to equipment during peak periods• Chassis costs



Railroad Strategies One of the key factors to take into account is that the two western railroads,

UP and BNSF, have taken radically different approaches to this issue- BNSF

• No longer has a domestic intermodal equipment fleet• Provides line haul rates to companies who do have container fleets, regardless of the size of the

fleet• Has outsourced the chassis provisioning to TRAC Intermodal• Does not directly provide the capability to an IMC who wants to move freight intermodally -- does

not have its own domestic container program- Union Pacific

• Has two large domestic container programs, EMP and UMAX• Only IMCs with large container fleets, Hub and Pacer, are offered line-haul rates• At most locations, owns and operates its own chassis fleet

The net result of these two approaches is that the decision as to which railroad one works with goes hand in hand with the decision as to whether or not to have your own container fleet



Conclusion Assuming the trend continues, more and more freight will be

moved via intermodal, and trucking companies will need to determine how to respond

In order to make the right decision with regard to equipment, they’ll need access to models which will allow them to understand the tradeoffs of the two divergent approaches

This will be an opportunity area for the people in this room because of the interaction of the various factors and the complexity of the models

Documents

© 2012 Veritec Solutions Incorporated. All Rights Reserved. RAS Roundtable Analytics and Intermodal Opportunities from a Business Perspective Bruce Patty