In today’s on-demand e-commerce economy, the ‘last mile’ that gets goods to consumers may be critical but the ‘middle mile’ that gets goods to warehouses can’t be overlooked.
As American shoppers continue to order goods online, logistics firms are taking ‘middle mile’ delivery shipments off the road and turning to a mode of transportation that helped shape the United States economy during the original Industrial Revolution: railroads.
The amount of goods transported by rail in the U.S. rose sharply from 5.6 million containers and trailers in 1990 to a record 13.7 million units in 2017, according to data from the Association of American Railroads.
Allowing trains to do the heavy lifting to take goods to a midpoint, then having trucks make the final run, creates greater efficiency in the supply chain, says Aaron Ahlburn, Managing Director of Industrial and Logistics Research at JLL.
“In the midst of both capacity volatility and structural change in the trucking industry, intermodal continues to prove a stable and cost effective near and long-term shipping alternative,” he says.
The labor equation
This strategy can help offset the effects of labor challenges faced by the trucking industry. The truck driver shortage plaguing the industry is expected to reach 174,000 jobs in 2026, according to the American Trucking Association.
The impact of that shortage has been compounded by new regulations that make it harder for drivers to go as far in one shift as they used to. Mandated electronic logging devices are now ensuring drivers take the rest periods between long stretches of road that have long been limited by U.S. law – but used to be hard to track and enforce.
Analysts say the monitoring could decrease the miles some drivers cover per day, slowing deliveries and driving up costs.
Working on the railroad
Recent infrastructure and technology improvements to railroads increase their “middle mile” potential. In 2017 alone, U.S. freight railroads spent an estimated $22 billion on maintenance and upgrades, according to JLL’s research.
“These efforts, including signal, communications and track-and-line upgrades, are helping improve railroad service times, safety records capacity and reliability,” says George Cutro, Director of Industrial Research, JLL.
Technology upgrades have also made it possible to track where an item is on a train – an essential tool in a world where customers track their online packages digitally as they move across the country.
“In the past, railroads couldn’t track how fast an item was moving,” says Chad Buch, Senior Research Analyst, JLL. “Now, railroads are computerizing and monitoring container tracking down to individual items within that container.”
Real estate implications
If the shift toward railroads were to expand, it would have major implications for intermodal facilities—the industrial real estate locations where rail, road and ship converge.
“The expansion of both international and domestic intermodal services will lead to more industrial development near key inland port destinations and terminals,” Ahlburn says.
The growth of intermodal freight transport provides new opportunity for industrial real estate investors and developers, who can build industrial distribution parks that cater to intermodal freight transport by attracting the right mix of distribution centers, warehouses and manufacturing plants, he says.
“We’re especially likely to see growth in logistics parks strategically located on the periphery of major urban consumption zones and distribution nodes that operate as 24-7 hubs of global commerce,” Ahlburn says.