Introduction

Historically, management of Canada's transportation system has been linked to developments in the rail sector to service exports of natural resources. Much of this has changed as manufacturing and exports have become cornerstones of our economic growth. With the focus of exports on Canadian manufacturing, especially in the high-tech industry, shippers have had to find ways to provide fast, efficient door-to-door service with lower risk of damage in transit. These needs are increasingly being met by intermodal transportation, which takes advantage of the efficiencies and cost effectiveness of the various individual modes of transport, to provide smooth and seamless service for shippers.

The words "intermodal" and "multimodal" have come to mean different things to different people, both within the transportation industry and outside. In this report, "intermodal transport" refers to the movement of goods using two or more modes in an uninterrupted operation. Freight in containers or highway trailers (referred to as "unitized" freight) can be carried from door to door on a single bill of lading, an approach that offers flexibility, time savings and cost reductions.

Although there is no legislation or regulatory framework in Canada specifically dealing with intermodal transportation, there are regulations that have provided support for such operations. The National Transportation Act, 1967 and the Shipping Conferences Exemption Act, 1970 permitted agreed charges for overseas traffic to and from Canadian ports, including "joint" and "common" rail rates, ownership of trucking firms by railways, and quoting on intermodal traffic by marine carriers.

Under the new Canada Transportation Act, joint rates are still permitted, while common rates have been excluded. These now fall under the Competition Act. Ownership of trucking firms by railway companies is not prohibited; however, they are considered confidential contracts under which the same level of facilities or services must be offered to other carriers or shippers. Agreed charges and quoting of intermodal rates by marine companies are still permitted under the current marine legislation.

To fully appreciate the evolution of intermodal transport, it is necessary to understand the conditions required for the operational efficiency of cellular container ships and railway unit trains, the complementarity between railway and trucking services and container ports, and the role of overland transport and inland load centres.

Because both the rail and the marine industries have high fixed-to-variable costs, economies of scale can be achieved by increasing traffic density on a regular basis (thus the emphasis on international container shipping). Trucking, by comparison, with its small initial capital investment and proportionally higher variable costs, gains no cost advantage by increasing traffic density. In the rail industry, this has resulted in an increase in long-haul unitized container trains devoted to international movements. For truckers the emphasis has been on flexibility and lower operating costs in short-haul, domestic markets.

The economic factors related to the various transport systems are the major determinants in the creation and location of inland load centres. The development of these inland load centres has the advantage of allowing both to capitalize on their own market advantages, while complementing each other in their less cost-effective areas. To achieve economies of scale and reduce unit operating costs, the Canadian railways have rationalized their piggyback terminals. By 1996, Canadian National Railway (CN) had reduced its intermodal terminals to 11 (from 78 in 1976), and Canadian Pacific Railway (CP) was operating only 16. ^{note 1} Figures 12-1 and 12-2 chart the intermodal systems of CN and CP.

Trip distance is the principal determinant of when rail intermodal service can be substituted for trucking. The extra handling of the trailer/ container required for rail intermodal at the beginning and end of a trip adds time and cost, making trucks more cost-efficient for shorter distances. For longer trips, however, rail's lower linehaul cost offsets the cost of extra handling, making rail the lower-cost option. Similarly, rail's higher average speed over long distances can offset the extra handling time. Current rail intermodal equipment becomes competitive with over-the-road truck in terms of cost and time at a trip distance beyond 800 to 1,600 kilometres.

For intermodal transport to be successful domestically, it must compete with truck transport on the basis of price and, perhaps even more important, service. In the Quebec- Windsor corridor, Canada's major shipping market, the requirement for overnight delivery means that the transport company must have the capacity to move the goods on an as-needed basis.

A 1994 Intermodal Association of North America survey indicated that shippers considered rail intermodal's strength to be in the area of long-haul transportation. Only 20 per cent of the shippers surveyed considered rail intermodal service "good" for distances of less than 800 kilometres, compared to 83 per cent for over-the-road truck. The rating rose as distance increased, with 81 per cent of shippers classifying rail intermodal service as "good" at a distance of 3,200 kilometres (compared to 73 per cent for truck). A 1994 working paper by Transport Canada also highlighted the long-haul cost reduction for truck carriers using intermodal in place of over-the-road truck, keeping in mind the additional cost and time of intermodal transfer and the service and suitability requirements for rail equipment. ^{note 2}

Several transport professionals interviewed by the Research and Traffic Group for a 1996 study on domestic intermodal service in Ontario and Quebec stated that intermodal rates should be set below truck rates to compensate for the better direct service provided by truck. ^{note 3} In the Montreal-Toronto corridor, for example, the "trailer on flat car" (TOFC) cost of more than $750 includes local pick-up and delivery costs of $170 and $160 respectively ($330 total). Interviewees suggested that the real costs of these services were more in the order of $75 at each end ($150 total), the additional cost being due to delays at intermodal terminals. The cost of TOFC transport could effectively be reduced to a more competitive $600 if these delays could be eliminated.

This is confirmed by a KPMG Management Consulting ^{note 4} study which found TOFC transport to be competitive with truckload traffic at distances beyond 750 miles, with a reduction of the competitive threshold to 500 miles upon introduction of other intermodal technologies such as "roadrailer" and "double stacking" (see Figure 12-3).

The renewed interest of truck car-riers in the rail intermodal option is shaped by several factors. First, the product has improved considerably in the past decade and cost has been further reduced by the ability to load containers two-high on rail cars. Second, the smoother ride provided by new rail-car technology has reduced damage rates. Finally, delivery reliability has improved, as railways re-orient their operating strategies, putting even more priority on responding to customers' needs.

Increases in the efficiency of over-the-road truck operations are more difficult to achieve, and changing conditions are increasing costs and limiting capacity. The competition and restructuring resulting from deregulation have lowered costs and improved services for customers, but few opportunities for enhancement remain open to carriers. The current difficulty in attracting and retaining good drivers for long-haul routes has resulted in carriers having to park trucks and turn down freight. Road congestion is reducing the productivity of equipment and drivers, and physical deterioration of road surfaces is increasing the possibility of damage to equipment and freight.

The result is an atmosphere more conducive to co-operation between railways and truck carriers. Their relationship is less adversarial than in the past, when fierce competition made working together difficult. A catalyst for the change has been the success of railway-truck carrier agreements in the United States, under which truck carriers have shifted significant freight volumes from over-the-road delivery to rail intermodal. Canadian railways and truck carriers may now be more prepared to enter into such co-operative arrangements than they were in the past.

The intermodal freight market is composed of two sectors: trailers on flat cars (TOFC) and containers on flat cars (COFC).

TOFC has exhibited a steady decline since 1984, at a rate of 5.6 per cent per annum between 1984 and 1995. COFC traffic, on the other hand, has been increasing at a rate of more than six per cent annually, taking the lion's share of the market from TOFC carriers. In 1984, 40 per cent of the intermodal traffic was moved by TOFC, compared to 60 per cent by COFC. By 1995, TOFC traffic had fallen to only 15 per cent, while COFC dominated with 85 per cent of intermodal traffic. Figure 12-5 illustrates market share over the 1984-1995 period.

Trailers have been used almost exclusively for moving domestic and transborder traffic. However, their use for domestic shipments has been declining, while use for transborder traffic has grown (see Figure 12-6). Domestically, TOFC market share was negatively affected by CN's shifting of its retail intermodal service to COFC in the early 1980s. In the transborder market, however, TOFC traffic has been boosted by increasing use of intermodal freight by large US trucking firms.

The move towards increased transborder trade and the development of Chicago as an intermodal hub may still breathe new life into the use of TOFC as the mode of choice for shippers doing business in the United States and Mexico under the North American Free Trade Agreement (NAFTA). In a bid to expand their market presence in the US, Canadian railways have turned to third-party wholesalers to sell their services south of the border. They are also introducing new technologies such as "Iron Highway" and "Ecorail", which are innovations of the "Roadrailer" concept introduced in the 1980s. These technologies are discussed in more detail in the section entitled "New Technologies in Intermodal Freight Transport" later in this chapter.

By weight, container traffic makes up a relatively small part of marine traffic, accounting for less than 10 per cent of total tonnage through Canadian ports in 1996. By value, however, its proportion is much higher. Containers are used principally in international trade - 66.9 per cent of total container tonnage in 1994, compared to 26.9 per cent in domestic trade and 6.2 per cent in transborder routings. Total container traffic in Canada has grown in recent years, increasing at an annualized rate of 4.6 per cent from 1987 to 1996. Specifically, international traffic was up six per cent, domestic container movements more than nine per cent, and transborder movements 4.8 per cent annually. ^{note 5}

While Montreal remains Canada's largest container shipping port, followed by Vancouver and Halifax (see Table 12-1), container traffic growth in Vancouver has almost doubled that of Montreal in recent years on the strength of Asia-Pacific trade. The volume of traffic handled at Vancouver increased nine per cent per annum over the period from 1987 to 1996, while Montreal traffic grew by only four per cent per annum. Halifax lost a number of shipping lines in 1991 and 1992, and traffic declined as a result, from its peak in 1990 of 3.9 million tonnes to less than 2.5 million in 1992. Traffic has since increased but has not returned to its previous levels.

Both Montreal and Vancouver have become more efficient, reducing their "per cent empty" ratios from 18.8 and 13.5 per cent to 5.7 and 8.2 per cent, respectively, between 1985 and 1994. For Halifax, the percentage empty ratio has remained relatively high, actually showing an increase in 1994 (14.7 per cent, up from 13.5 per cent in 1985). Unevenness in export and import traffic makes it difficult to balance loadings and unloadings.

Containers are being used more frequently to ship products for which they were not previously considered suitable. Products requiring fast door-to-door service, such as perishable fruits and vegetables; industrial products such as newsprint, steel and alloys; and even cement and related concrete products (see Table 12-2) are now being shipped in containers. This has been made practical by reduced rates for utilizing what would otherwise be an empty container on the return trip.

The continentalization of transport and trade routes has resulted in a certain amount of transshipment of traffic: Canadian traffic moving through the United States and using American ports for containerized exports and imports, and US traffic doing the same in Canada.

Transshipment of Canadian container traffic through the US amounted to approximately 22 per cent of total traffic with Canadian origin or destination in 1994, a decline from more than 25 per cent in 1989. The estimated total tonnage transshipped in containers has increased from 2.3 million tonnes in 1989 to 3.2 million tonnes in 1995, a growth of 5.8 per cent per annum. About 20 per cent of Canadian exports and 26 per cent of imports were transshipped via the US in 1994. The Canadian container traffic transshipped through US ports and the corresponding rates of total Canadian traffic for the years 1989-95 are shown in Table 12-3. Japan, Korea, Hong Kong, Taiwan, and China together account for over 50 per cent of Canadian container traffic routed through US ports.

The major points of entry and exit for Canadian containerized transshipments are Tacoma, Seattle and New York, which together accounted for more than 70 per cent of total Canadian trans- shipments in 1994, measured in "twenty-foot equivalents," or TEUs.

Approximately 80 per cent of Canadian transshipped imports and 62 per cent of exports travelled through these US ports in that year.

The already massive economies of scale associated with container shipping are continuing to grow with the introduction of ever-larger container vessels such as the Panamax ships and post-Panamax ships coming into operation today. To reduce costs on a per-unit basis, Canadian ports must be in a position to load and unload containers in sufficient quantities to make it worthwhile for carriers to continue operating the route. To gain some perspective on this, one need only look at a comparison of Canadian container traffic with that of other major world traders. (see Table 12-4).

The challenge Canada faces in competing with other ports inter-nationally is apparent in the volume of traffic throughput between the major ports of the world and Montreal, which is Canada's largest container port (see Table 12-5).

Intermodal transportation is also used to ship US traffic through Canadian ports. Although accounting for only 4.3 per cent of the total liner traffic originating from or destined for the United States in 1994, US traffic transshipped through Canadian ports amounted to 5.2 million tonnes, an increase of six per cent per annum since 1985, when total transshipped tonnage amounted to 3.1 million tonnes. ^{note 6}

Exports transshipped through Canadian ports from the US in 1994 amounted to 2.4 million tonnes, an increase of 13.8 per cent over 1993. US exports through Canadian ports have increased at a rate of seven per cent per annum since 1985, when exports weighed in at 1.3 million tonnes.

US imports transshipped through Canadian ports in 1994 amounted to 2.8 million tonnes, an increase of 28.4 per cent over 1993. US imports through Canadian ports have increased at a per-annum rate of five per cent since 1985, when they tipped the scales at 1.8 million tonnes.

US transshipped traffic accounts for approximately 35 per cent of total container movements through all Canadian ports. Most US transshipments move through Eastern Canada on their way to and from Europe. Transshipments from the United States to Europe accounted for 88.2 per cent of all US trans-shipments through Canadian ports in 1994. In fact, US transshipments bound for or coming from Europe make up more than 50 per cent of all European traffic through Eastern Canadian ports. West Coast movements account for only a small percentage of US trade.

A significant amount of the intercity truck freight hauled by Canadian truck carriers moves long distance. In 1995, 15 million tonnes moved 1,500 kilometres or farther, and another 28 million tonnes moved between 750 and 1,499 kilometres. These volumes together exceeded the 21 million tonnes of freight handled by rail intermodal in the same year. However, most of the intercity truck freight (79.3 per cent) moves shorter distances, such as that in high- density markets like the Toronto- Montreal corridor (550 kilometres). ^{note 7}

New rail intermodal systems targeted at efficient operations over such distances are under development. By simplifying the loading/unloading process and carrying fewer loads per train, these new systems will be able to reduce the time and cost of the mode-to-mode transfer.

The current rail intermodal network was designed to generate the high freight volumes needed to make the system efficient. Congestion both on the access roads and within the terminals is a serious problem at many terminals.

Since the new systems use a shorter train, do not require the trailer to be lifted, and can haul point-to-point (i.e., with no interchange between trains), carriers will soon be able to handle transfers at small, inexpensive terminals (as simple as a piece of track with surrounding land to maneuver and park trailers). The new systems are expected to be attractive to truck carriers because they are designed around trucking requirements.

In Canada there are two systems undergoing tests:

 

• Ecorail, a CN subsidiary, is developing a system based on a bimodal trailer. A standard truck trailer is modified so it can be attached to rail wheels and pulled by a locomotive in strings of as many as 40 units. This system targets freight moving 300 to 800 kilometres. An Ecorail service has operated between Toronto and Drummondville since the fall of 1995, where it has been moving one 14- to 20-trailer train per day in each direction. Problems with the equipment are still being identified and resolved.

   

• Canadian Pacific is investigating a system called the "Iron Highway." This unit train is basically a 380-metre-long continuous platform onto which trailers are driven and parked. It can handle standard truck trailers of any length (20 trailers in total if each is 16 metres long). This system targets freight moving 400 to 1,600 kilometres. Canadian Pacific began operating between Montreal and Toronto in the fall of 1996, making two trips per day in each direction.

  These systems are still being assessed. Their potential to serve as alternatives to over-the-road truck will not be known for a year or more.

  The 1990s have seen an increase in the amount of freight that truck carriers move by rail intermodal. Several Canadian carriers have become rail intermodal users, and some US carriers are shifting transborder freight to rail intermodal. Rail intermodal can offer advantages in particular situations, and several individual truck carriers are willing to experiment.

  Information Technology in Intermodal Freight Transportation

  The co-ordination of transportation requires an immense amount of planning and information flow. For intermodal transport, these flows of information are expanded two- or even threefold. Shippers require information on the pick-up and delivery of their goods. Operators and terminal managers require information to allow them to proceed through the terminal without delay. Company dispatchers require current information on the location of their equipment. Various systems have been introduced to address these issues.

  Electronic Data Interchange

  Automatic equipment identification is now commonly used throughout the North American rail industry, and larger trucking firms use vehicle positioning systems to track their rigs. Electronic data interchange (EDI) is used by some in the rail industry and by about 25 per cent of trucking firms to address the paper burden through electronic exchange of bills of lading and invoices. ^{note 8}

  For intermodal transport, EDI is a necessity because of the requirement for fast, efficient service with movement through many terminals. EDI expedites the smooth passage of goods by giving advance notice of the expected time of arrival at the door of the shipper, receiver or transfer terminal, thus reducing waiting time. By facilitating paper processing, the system also reduces the time required for the physical movement of goods within the terminal. It was first used in Canadian transportation by the major ports - Halifax, Montreal and Vancouver - to reduce the time spent by individual ships in port.

   

  EDI technology is an important innovation that has allowed companies to lower their inventories and other related costs and has thus led to improved productivity. Even small transportation companies can benefit from EDI technology; initial costs are moderate and can often be recovered within two to three years. To obtain a competitive edge and provide better service to shippers, carriers are investing heavily in computerizing their operations. EDI is being used increasingly to facilitate border crossings, an important component of the intermodal move. Revenue Canada recently implemented the Accelerated Commercial Release Operations Support System (ACROSS), allowing the importer or broker to transmit release and invoice information using EDI. ^{note 9} The system, which began operation in April 1996, was designed to accommodate the growth of electronic commerce by clients and to provide associated savings to Revenue Canada. The start-up target of one hour for release processing has already been reached by some 75 per cent of electronic releases using ACROSS. Such time savings are important for intermodal transport, where most domestic and transborder shipments must reach their destination within 24 to 36 hours.

  Cross-border shipping has been targeted for further improvements. New systems at various stages of development include the Canadian Society of Customs Brokers Gateway (CSCB Gateway) and "Insight", a system that electronically links Canadian importers with vendors, customs officials and the software design company's database. Clients can access data about their goods and prices, and about duties payable, from a single file rather than being required to call the broker, the transport company and customs officials for the information.

  Radio transponders are also being tested as a means of increasing productivity by making cargo identification and tracking easier. Onboard transponders are already an important part of Intelligent Transportation Systems, and the demand for satellite tracking is expected to soar by the end of the decade. (This system is discussed in more detail below.)

  Internet Services

  At the same time, systems are being developed that will enable shippers and transportation providers to do business directly on the Internet. Shippers can define and post a basic shipping movement, including weight and pickup and delivery times. A transport company can then review and download the posted shipments and make a bid directly to the shipper. Instead of spending hours on the phone looking for a carrier to handle a shipment, the shipper can dial into the Internet and post its shipping requirements either publicly or directly into a transportation company's web site. CN has recently established such a link on its website and other carriers are expected to follow in the near future.

  Logistics

  The management of the delivery of raw products and finished goods to customers, including sourcing, inventory, transport, and distribution, is called logistics. More and more companies are evaluating the possibility of a third party handling part or all of the process of moving their products to the consumer. Contracting out the shipping function is often cheaper and frequently results in better service. It also allows both the customer and the provider to focus on their own core competencies.

  The growth of global competition has forced businesses to look for cost savings everywhere, including in their own inventories. The more sophisticated inventory and distribution systems today use high-tech equipment like bar-code scanners and computer logging and tracking systems, which represent a significant investment. The cost of setting up a sophisticated logistics system seems to pay off best for those industries handling a high volume of relatively low-value products. The move to third-party logistics providers will facilitate the shift towards inter-modal shipping.

  Intelligent Transportation Systems

  A technological breakthrough that promises further benefits to intermodal transport was mentioned earlier. Known as Intelligent Transportation Systems, or ITS, this technology brings together the road user, the vehicle and the road infrastructure in a single communications system that operates in four performance areas: location, identification, assessment and control. More than 100,000 North American tractor units in the trucking industry are already equipped with transponders that can allow the vehicle to be located and provide in-vehicle navigation and routing advice. ^{note 10} By making possible fleet tracking, centralized dispatching and voice-data links with the home office, this fleet management tool has achieved both productivity gains for carriers and service improvements for shippers.

  All over Canada, the United States and Mexico, government transportation agencies and business associations are forming alliances and coalitions to upgrade and expand road systems and install new technology, in an effort to foster trade by facilitating transportation through their individual regions. Broader trade under NAFTA and the federal funding provisions of the US Intermodal Surface Transportation Efficiency Act, 1991 have provided strong impetus for the development of corridors to ease border congestion and for the funding of demonstration projects involving the advanced navigation, route guidance, communication, sensor and computer technologies collectively referred to as ITS.

  Other ITS-related initiatives are in the conceptual or testing stages across North America. They include such projects as automated toll collection at bridges and tunnels, automated customs clearance for commercial vehicles and automated immigration clearance for pre-screened truck drivers.

  To obtain a competitive edge by providing better service to shippers, carriers are computerizing their operations: installing computer hardware and software for the office, communications links for dispatch and satellite tracking of vehicles and freight.

  Once inter-operability problems have been resolved, further improvements are expected to facilitate cargo and fleet tracking in intermodal applications, border crossings, and driver and cargo security monitoring through the development of a single communicating network as part of the overall ITS infrastructure framework. ^{note 11}