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Steelmakers moving slowly on morphing transportation

Jun 30, 2014 | 08:00 PM | Myra Pinkham

While several recent trends--most notably the impact of this year’s long, brutal winter--prompted many companies to re-evaluate the modes of transportation they use to move steel and raw materials, U.S. steelmakers remain slow to take advantage of new products and technologies to enable them to make use of the growing intermodal rail network.

Jim Schaaf, vice president for metals and construction at Norfolk Southern Corp., said that the prolonged winter severely impacted not only steelmakers--forcing many integrated producers short of iron ore to look for supplies of slab and billet--but also transportation providers, including most Class 1 railroads, barge lines and trucking companies.

Christopher Plummer, managing director of West Chester, Pa.-based Metal Strategies Inc., said first-quarter shipments of primary metal products (largely steel) via conventional rail were down 7.2 percent from a year earlier, while rail shipments of iron and steel scrap were up 4.3 percent, because the series of storms that blew through the North, and even through the South and Southwest, caused disruptions for numerous railyards, with crews unable to work as efficiently as normal.

The result was hampered freight movement, not only via rail but also by truck and barge. With the Great Lakes and other inland waterways frozen, several barges were trapped on the Mississippi and Ohio rivers. Mike Moss, vice president of supply chain operations at PLS Logistics Services Inc., Cranberry Township, Pa., said that freight was offloaded at the closest terminal that the barges could reach by cutting through the ice. Some of that material was trucked and some moved by rail, but with those modes of transportation also experiencing problems, a lot of freight just sat in warehouses or on barges until it could be offloaded.

“It is fair to say that the railroads had equipment supply problems,” Schaaf acknowledged. “But as the weather has improved, so has the velocity of railroads and the availability of rail equipment.”

Charles Clowdis, managing director of global trade and transportation at IHS Economics, said that the winter threw the railroads off schedule by about three weeks and they are still digging themselves out. “It was not just that steel couldn’t be transported, but that rail cars were not able to get loaded, unloaded and delivered. No one was there. People couldn’t get out of their driveways,” he said.

However, the railroads are in a better position now than in the first quarter, Schaaf said.

But rail car availability remains tight. Philip K. Bell, president of the Washington-based Steel Manufacturers Association, said that many of the problems with the availability of rail cars to transport steel have been weather related. “Also, the railroads are not investing that much in the types of rail cars that can transport steel. Their concentration is on intermodal cars and tank cars. Flatbed cars, scrap gondolas and coil cars have been tight and continue to be so,” he said.

Damon Gunter, a partner at MoveTran LLC, Baltimore, said some of this tightness could be due to some shifts by steel shippers to rail and intermodal--brought on not only by weather issues but also by increasingly tight truck capacity due to a combination of new hours-of-service regulations and the truck driver shortage.

On the other hand, Bell said there could be some shifting to truck from rail, given that rail freight rates have increased by 75 percent since 2001, with 78 percent of rail volumes being moved by “captive” railroads.

Paul D. Sever, executive vice president and general manager of CMI Logistics LLC, Orland Park, Ill., said his company, reportedly the largest intermodal transporter of metal products, has seen substantial increases in volume due to trucking issues. “With the new (truck) regulations, intermodal transit times are often consistent with, and in some cases better than, trucking. This enables our customers to have a cost benefit over trucking their product without sacrificing transit times.”

In addition to its lower, more-stable pricing, the intermodal transportation network offers a more scheduled service, which means that steel shippers don’t need to deal with spotty truck availability, said Rick Jocson, chief executive officer of Raildecks Inc., Calgary, Alberta. “When shippers commit volumes, service providers are more likely to open new lanes.”

Bell noted that intermodal transportation of steel is still in its early stages, with most intermodal transportation of steel being imports rather than domestic steel. He said one problem is that the products developed to make intermodal transportation of steel possible all mean increased capital costs to steelmakers. “Steelmakers need to get their costs in line to stay in business in the current very competitive business environment,” he said.

Dan Keen, an economist with the Washington-based Association of American Railroads, said that railroads have been investing more in infrastructure and equipment than ever before--more than $25 million per year over the past several years. While a lot of this has been spent to upgrade the intermodal network, it hasn’t been at the expense of other equipment,

“We believe that we are amply supplied with equipment to handle the various steel products that we transport and I don’t see a problem with respect to equipment supply on a go-forward basis, although we will continue to look at our fleet and make some adjustments,” Schaaf said. “Steel is a core business for Norfolk Southern and we will continue to invest in this business, including rightsizing our fleets, to meet our steel customers’ demand.” He said that given the opportunities for growth in intermodal, his company is looking at various options to aid intermodal transportation of various commodities, including steel.

Norfolk, Va.-based Norfolk Southern also is expanding its coil car fleet, Schaaf said, and while the railroad has a “very robust” fleet of gondola cars, it will continue to do what is necessary to meet demand.

Plummer said it is a chronic complaint that there aren’t enough gondola cars for scrap, with the railroads not wanting to be caught with peaking levels of gondolas.

Schaaf acknowledged that flat car availability is a complicated situation. “With the aging of the flat car fleet we need to make some longer-term decisions,” including greater involvement with companies such as TTX Co., a Chicago-based rail car pooling company. “All of the railroads are looking at their flat car supply at this time and making some determinations on a go-forward basis,” he said.

Moss said that railroads are trying to encourage customers to load and unload cars faster through positive incentives for cycling cars, including rate breaks, as opposed to the demurrage penalties of the past. “That gives steel shippers more access to equipment, faster, by just turning around the equipment that is already available,” he said.

“I see rail getting busier and busier, including for steel shipments, as trucking gets more difficult due to the new rules and regulations there,” Gunter said.

While conventional rail will continue to be an efficient, practical way for steelmakers to move their products to inland customers, Clowdis said that as the challenges are overcome for those types of steel that make sense rail intermodal volumes should increase as well.

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