Union Pacific (NYSE: UNP) announced which intermodal terminals it would close around Chicago, Illinois, weeks after hinting on its first quarter earnings call that it planned to consolidate operations there.
The railroad said on May 2 that the changes are a result of its efforts to “simplify” its supply chain along its intermodal network and brought on by the company’s transition to precision scheduled railroading, an operating model which schedules railcars on a fixed schedule.
The company currently has six intermodal facilities around Chicago that serve domestic and international business. Union Pacific plans to idle the Global 3 intermodal ramp and the Canal Street Container Depot in July. It also plans to move international intermodal volume out of the Global 2 facility so that it can focus on domestic intermodal shipments. Meanwhile, the Global 4 facility will handle international intermodal shipments, while the Yard Center will handle auto parts and north-south shipments.
Having six facilities created complexity for UNP in terms of equipment issues and additional switching, while customers faced complex drayage arrangements and vendor management, the company said. The changes will reduce car dwell (the time a railcar sits in a rail yard or on a siding) and allow UNP to deploy strategic capital investments to make the facilities state-of-the-art, according to Kenny Rocker, UNP’s executive vice president for marketing and sales.
“While these changes to the Chicago intermodal complex allow us to streamline operations and offer faster loading and unloading of containers, they will also result in benefits to our customers,” Rocker said.
“Currently, many customers must arrange drayage and pick up loads at multiple ramps. By condensing specific shipment types to a single facility, customers will likely benefit from fewer vendors to manage, simplified billing, and it some cases, reduced chassis repositioning costs,” he said.
Union Pacific’s decision could help improve operations if the facilities have the ability to handle the volumes, a transportation consultant said.
“The consolidation of the UNP intermodal terminals in Chicago makes sense if the remaining ones can handle the volume. Separating domestic and intermodal also makes sense since they usually move on different trains,” the consultant said.
Meanwhile, city officials of Rochelle, Illinois, where the Global 3 intermodal ramp is located, were disappointed in UNP’s announcement, but they hoped to recover some of the lost business with the development of the city’s own intermodal facility. The City of Rochelle Railroad is poised to open its new transloading and unit train switching service, which will allow shippers direct access to both UNP and BNSF (NYSE: BRK). The double track transloading yard will have the ability to load and unload bulk shipments, box cars, flat cars and tanker cars.
The city will consider whether to provide intermodal services as part of the next phase of the project. The city’s railroad currently serves over 2 million square feet of Class A warehouses, with more than 1 million square feet of that as freezer and cooler facilities.
“Phase II of the multi-modal project is being designed and the CIty will begin to study the feasibility of incorporating intermodal container transloading to fill the vacuum left behind by the closing” of Global 3, said Jason Anderson, the city’s economic and railroad director.
Changes at its Santa Teresa facility
In addition to announcing its plans for its Chicago intermodal terminals, Union Pacific also detailed operational changes at its Santa Teresa intermodal facility in New Mexico, which the company also alluded to in its first quarter earnings call.
The company will add a block swap yard so that containers from inland ramps destined to southern California will launch more frequently. The yard and the change will reduce dwell time and congestion overall, which will in turn reduce overall transit time. Union Pacific will also extend sidings along its 760-mile Sunset Corridor from El Paso, Texas, to Los Angeles, to allow for longer trains.
Project costs are estimated at $20 million.