IWLA formed its Rail Council with two original goals: fight demurrage charges and educate members on moving goods by rail. Those are apt reasons, given that IWLA’s forerunner, the American Warehouse Association began in the late 19th century with similar aims.
While the role of railways in the supply chain remains constant, rail service and the industry structure have seen dramatic changes. Class I railroads have some of the most sophisticated operations, efficient transportation routes, and online load/tracking technologies. With all of that, the railroads have one of the largest lobbying forces in D.C.
“I have worked with the railroads for almost 40 years and I have been in transportation in general since the early 1970s,” says Gary Minardi, IWLA Transportation Advisory Council Board Liaison and president of San Jose Distribution Services Inc., headquartered in San Jose, Calif. “There is a lot of opportunity out there for using rail as the railroads are getting more efficient at transit times and are developing tracks and industrial areas to have direct access to major metropolitan areas.”
This direct access to cities only gets goods so far: It only provides half the journey in a same-day delivery era.
“There is a huge future in transload from intermodal and boxcar to last-mile delivery,” Minardi says. “The [railroads] are starting to realize the value of a partner who can take their rail shipments to the last mile as efficiently as they do long-haul.”
The rise of intermodal and outsourced, third-party warehousing brings a shift to the IWLA Rail Council. As the group’s focus broadens, the association recently changed the name and focus to the IWLA Transportation Advisory Council. The council monitors regulations, shapes trends and educates member on all transportation-oriented issues.
“The IWLA member infrastructure is throughout the United States and Canada. It is one of the most diversified transportation groups in both countries. We really needed a council that addresses transportation on every level,” Minardi says.
What is going on with the STB and rail demurrage?
Since early summer, IWLA members have been assessing the impact of a surprising decision by the U.S. Surface Transportation Board. The decision allows railroads to set their own demurrage rates/specifications pending written or online notification to all rail customers and/or drop-off points.
The ruling is a marked change from how demurrage has been handled on past key cases. Prior to this ruling, IWLA members worked to show the STB and the railroads the importance of third-party warehousing and how warehouse logistics operations compare to big bulk rail users (which is where demurrage originated and where delays in rail often originate).
“The railroads have always looked at IWLA members as customers, not partners. We don’t get paid until the rail cars are unloaded. In reality, the railroad is our customer, and it’s in a 3PL’s best interest to load and unload as quickly as possible in order to collect payment,” Minardi explains.
The demurrage issue is in the center of a perfect storm: Contracts are not negotiated between railroads and 3PLs. Rates are not regulated by the STB. Railroads have no competition as they service the points along the tracks that they own. Shortlines have little incentive to place cars reasonably since all of the money is already gained in the long-haul.
The new decision lumps third-party warehouse logistics providers with main (bulk) receivers and has taken away many protections that were specific to 3PLs. In response, The IWLA Transportation Advisory Council is working on a contractual strategy with railroads that will focus on actual placement agreements. The group believes IWLA members’ relationships with their rail providers and mutual benefits of an actual placement agreement will motivate the railroads to accept.
Are there times that demurrage is a necessary part of doing business? Indeed, Minardi says. “The original purpose of demurrage was to prevent car delays back into the railroads’ equipment pools. IWLA members have never been the culprit of cars delays. Demurrage serves a useful purpose for shippers and receivers that deliberately delay cars.
“Overall, the railroads operate efficiently and their web portals track cars very well,” Minardi adds. “We can track and file service complaints through the web portals to stop the problem before it festers. It’s more paperwork on our end, but we are happy to do it to avoid disputes down the line.”
Trucking Provides No Relief to the Rail Debacle
The trucking industry has experienced its own turmoil that is not making things any easier.
Driver shortages are making many members nervous that they will not be able to fill positions without competitive bidding wars for qualified truck drivers. Or they may be forced to hire unqualified truck drivers and increase liability risk.
The shortage problem is a situation without a real solution.
Over-the-road truckload shipments are not as lucrative now that the U.S. Department of Transportation under the Federal Motor Carrier Safety Administration placed a 34-hour restart limit on drivers every seven days or 168 hours. The break must include two periods from 1 a.m. to 5 a.m., and it mandates a 30-minute rest period for every eight hours of driving. (This legislation may be delayed pending vote in the Senate to conduct an objective study of the effectiveness of the restart limitations using electronic logging devices.)
According to Minardi, the HOS rule has a direct effect on huge intermodal gains: This mode is getting more and more efficient moving shipments from point A to point C.
These recent rulings beg the question, Minardi says: Are regulatory agencies working together to truly understand the complete picture, rather than have a single goal in mind?
Finally, there is much to debate about the cost of fuel from everyone inside and outside of the industry.
California recently passed a hidden fuel tax that was approved by the California Air Resources Board (CARB), and is expected to hike up gas by at least 12 cents by January 2015. The move is designed to reduce greenhouse gases by moving fuels to a state-run carbon market where providers buy “carbon allowances.” This carbon-market is also open to third-party traders, which opens the door for widely fluctuating price increases.
This state-specific case is in addition to a federal fuel tax under consideration: A new Senate proposal to support a “long-term, stable funding mechanism for our nation’s critical highway and transit projects” would mean a new tax. The plan would raise the gas tax by 12 cents over the next two years, raising $164 billion in the next decade and covering the shortfall in the Highway Trust Fund.
No doubt these infrastructure improvements are needed and may have a positive long-term impact on the warehouse logistics industry. Minardi says. However, the bill does not include restrictions on diversions, the government’s practice of shifting funds from one trust to cover a different cost in the budget. Today’s infrastructure problems have a lot to do with diversions.
IWLA Transportation Advisory Council: Much to Consider
It’s the domino effect: Trucking issues affect rail issues. They all affect the ability of warehouses to deliver efficiently and effectively for their customers. This pressure to deliver even with changing obstacles led IWLA to create a council that is focused on finding a solution.
With the extra knowledge the council and its peer-to-peer network provides, customers will see that using an IWLA member means no surprises. These active members can handle all of the little details that customers don’t want to deal with.
“IWLA members have a diverse knowledge of the whole Supply Chain. We have knowledge on how everything works and integrates,” Minardi says.
And the council hopes to increase knowledge and awareness with regulators and legislators. The unique role of warehouse logistics organizations brings with it unique areas of knowledge and specialization. The IWLA Transportation Advisory Council is working to educate lawmakers about 3PLs, their place in the supply chain, and the importance of efficient, affordable modes of transportation.
If you use rail in your warehouse locations or if you have trucks or deal with delivery, you will benefit from participation in the IWLA Transportation Advisory Council. You can join the council any time and be a part of the real solution. To sign up contact IWLA Headquarters at email@IWLA.com or 847-813-4699.
Morgan Zenner is IWLA’s senior coordinator, marketing & public relations. Contact her at mzenner@IWLA.com.
This article originally published in the Summer 2014 issue of 3PL Americas magazine.