Intermodal ... Asset and Non-Asset Providers Explained
Contrary to marketing material coming from asset intermodal service providers, asset versus non-asset intermodal transportation services providers cannot be delineated in the same way as asset and non-asset truckload providers can be viewed in the OTR market. The asset intermodal service providers work hard at planting the "broker" seed that cause some shippers to shy away from working with non-asset truckload providers. The long and short of it is, there is no one intermodal company that owns all the assets in an intermodal move, so to compare to a non-asset truckload provider is not an accurate way to portray the non-asset intermodal service provider. (more on that shortly)
The question shippers need to ask themselves is not asset or non-asset, but what provider will deliver the best service for our company. Both asset and non-asset have their niche where they have an edge over the other and in this blog we address the five subjects asset intermodal service providers use (asset ownership, service, rail relationships, financial commitment and experience) to sell against non-asset intermodal providers, while also sharing the areas to question to ensure the intermodal provider selected is the best fit for the shipper.
Before jumping into the subject of asset versus non-asset, let’s first cover Intermodal Marketing Companies (IMC's). Railroads made a decision early on that they did not want to retail their intermodal service directly to shippers. This decision led to the advent of the IMC to perform the sales and marketing for the Class I railroads. Over time, IMC's evolved to provide not only sales, marketing and pricing, but also:
- Secure container and/or dray capacity. (This is the only distinction between asset versus non-asset intermodal IMC's.)
- Provide a layer of customer service support and reporting shippers obtain from other transportation modes.
- Give shippers one call access to the West and East Coast railroads, since there is no one railroad that covers all the North American ramps.
Some asset IMC's market that having assets bring accountability and reliability that cannot be delivered via a non-asset intermodal IMC. While asset ownership is an aspect that differentiates IMC’s, this element is not the only deciding factor on which to select an IMC. Some points to amplify the point are:
- Several excellent non-asset IMCs move more intermodal volume than asset IMC's.
- There are only nine North American class I railroads, which translates that the long-haul portion of the intermodal move will be done on the same trains, whether a shipper uses an asset or non-asset IMC.
- Non-asset IMC's can actually have more access to assets than an asset provider because some asset providers only use their equipment. The assets the non-asset IMC uses are owned by the railroad.
- While an asset provider may say they are asset based, some operate a hybrid model of being an asset and non-asset intermodal IMC to tap into more capacity. Many times this is not advertised to the shipper, so if this is important we recommend asking the question.
Also, the thing to think about when it comes to an asset based IMC's is their concern with container turns. If the shipper has volume on "their" lanes, an asset IMC will do a tremendous job and may have an edge for the shipper. However, if the shipper is moving on lanes not important to the asset IMC or asking for more specialized services that slow container turns there is an opportunity for less than desired results and be a lane a non-asset IMC will perform at a higher level.
One piece of marketing coming from and asset IMC states that full door-to-door asset control provides a higher level of service than that of a non-asset IMC. This gets back to the previous point of asset ownership, which stated the only distinction of ownership is with containers and sometimes dray. Since asset IMC's do not own the rail, they do not have full asset control through the entire door-to-door intermodal service, as advertised.
To further this point, there is not a single intermodal service provider that controls the entire door-to-door move on their assets alone. The Class I railroads' door-to-door service model delivered through non-asset IMC's is the closest. Under this model, the railroads own the locomotives, the tracks, the ramps, and the people that operate them, plus they own the containers and have direct relationships and EDI connections with contracted draymen.
Here is the magical secret for intermodal and its success: The Class I railroads have incredibly consistent and reliable ramp-to-ramp KPI's, so the most likely place for service failure is either on the origin or destination dray. The IMC with the best railroad ramp process will deliver the superior service. With that said, a good non-asset IMC's using the railroads' door-to-door service has the potential to consistently deliver the best service. Again, under this model the railroads control the ramp, the train and the employees at the ramp, which ensures the best dray hand-off.
Asset IMC's like to communicate they have committed on-site representation and priority rail transit, which non-asset IMC's have within their service process. Well, here is another place where marketing got ahead of itself. Both asset and non-asset IMC's have railroad representation and guaranteed transits. In some lanes, there are even expedited transits and guaranteed capacity at peak. It is true there are freight brokers purchasing intermodal capacity through both asset and non-asset IMC's that do not have direct railroad relationships, but a true IMC has direct relationships with the railroads. So, the take-away here is the shipper needs to ask their intermodal provider whether they have direct relationships with the railroads.
Again, asset IMC's marketers would like shippers to believe something that is not true. These marketing groups tell shippers that since a non-asset IMC does not take a position with capital investment in equipment they do not have skin in the game. While there may be greater risk on the balance sheet with assets, this does not mean the non-asset intermodal provider does not have skin in the game. Every company has skin in the game to meet financial targets, whether to banks, owners or public shareholders.
In other words, both the asset or non-asset model has a financial responsibility to deliver the income and cash flows necessary to be a going concern. The difference is how the IMC goes about delivering the financial results with superior service for their shippers. One believes leveraging their balance sheet will deliver the best internal and external results, while the other does not. Neither is right or wrong, but just different.
Also, as shared earlier, many asset IMC's tap into the non-asset IMC model for additional capacity, so they too are not all in on the capital side of the financial equation.
Whether asset or non-asset based, experience varies widely within the intermodal market. This is something every shipper will have to evaluate as they go through their selection process to ensure they are comfortable with the experience and capabilities of the IMC chosen.
To summarize, service is the critical differentiating factor for an IMC. With only nine North American railroads, every IMC is using the same railroad for their long-haul, whether asset or non-asset based. With that said, asset versus non-asset is not the question a shipper should be asking. Dray and communication are the linchpins in any intermodal shipment process. To further the point of questioning in these two areas, shippers should ask whether the IMC has a direct relationship with the railroads; are there key lanes the IMC likes to run; how does the IMC handle their dray and what type of customer support is available. These four questions will give shippers more data to better discover what type of IMC will deliver the best service for their company.
For more information, please read our blog entitled "Defining Asset and Non-Asset Intermodal Providers", where we discuss and compare asset truckload intermodal carriers, asset IMC's, non-asset IMC's, rail retail and brokers.
Visit the InTek Freight & Logistics website for more information.
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