Intermodal: What Is It and Why Should You Care?

January 6, 2025

Commercial & Investment Real Estate, Transportation and Infrastructure, Industrial & Warehouse, Retail Properties, Sustainability

By: Rob Nahigian

Supply-chain considerations play a key part in clients’ site selection and negotiations.

Logistics and supply chains became hot topics in real estate beginning in the early 2000s, as offshore manufacturing accelerated. For many brokers working with domestic clients, especially those specializing in industrial and retail sales and leasing, questions about international imports arose: How does a product get from Shanghai to the United States? How expensive is it to transport goods? What U.S. port does a corporation select for its port entry, and how do products flow through the U.S. to the consumer’s shelf?

Today, understanding supply-chain management is critical to commercial real estate brokers who want to help clients make real estate decisions that support the efficient distribution of goods. This year, I’ll be producing a series for CREATE Magazine on different aspects of transportation that you should be aware of in your work with industrial, wholesale and retail clients.

Let’s start with the basic question: What is the definition of “intermodal”? Simply, it is the transfer of products involving multiple modes of transportation. In the logistics world, there are four main modes of transportation: air, truck, rail and ship. A company that engages more than one of these modes is said to be “intermodal.”

Yes, there are other forms of transportation; the Keystone Pipeline, for example, moves oil from Canada to the U.S. In congested cities, vans and even bicycles may be a company’s preferred mode of transportation. And, of course, Amazon is experimenting with drones to reduce delivery to one or two hours “click to pick.” (That term refers to the time between when you purchase and when the product arrives at your door.)

A Hefty Cost

Sometimes, an intermodal client looking for space in an area will rely on a broker to contact the representatives of transportation companies to talk about shipping scheduling and delivery. Whether or not you’re involved in those kinds of activities, you should know the basic terminology, as well as the basic economics of supply-chain management.

Over the past 15 years, I’ve studied reports on supply-chain costs and toured numerous ports. Based on my reading and conversations with clients, I estimate that, for companies that transport goods overseas from China, transportation typically accounts for about 60% of total operating costs. A December 2023 article by St. Louis–based Anders CPAs + Advisors indicated that transportation can range as high as 86% of operating costs.

You don’t need to be a transportation expert to understand that transportation takes a big piece of the pie. Add in the cost of inventory, labor and customer service, and that does not leave much in the budget for rent. By the time a real estate director approaches you about space availability, the company has likely committed 90% or more of its budget. Budgeted rent costs in the logistics industry tend to range between 4% and 6% of total supply-chain costs. Rent is important, but the cost and mode of transportation highly affects real estate site selection and lease negotiations.

Transportation costs vary depending on the mode. Below, take a closer look at the four main modes of transporting goods from most expensive (air) to least expensive (ship). Because this article is about intermodal, the analysis is geared toward companies that import goods from overseas.

Be a One-stop Shop

Today, if you’re working with clients who ship goods from overseas, your professional services should go beyond knowledge of warehouse availability and rental rates. It’s useful to know the answer to questions such as:

Which port(s) of entry do they use?
Are there adequate warehouse facilities nearby?
Are there adequate transportation options (rail or truck) from ship to warehouse?
Does the final customer base its port decision on geography of its client location?
Does the port have rail or highway access?
Where is the destination?

All these questions involve intermodal transportation, and an end user expects a real estate broker to be ready with the answers. By understanding your client’s transportation requirements, having a strong network of contacts within all four modes of transportation, and knowing the availability of the intermodal transportation for selected buildings you can be a valuable partner to your client’s real estate team.

Air

Great for: Getting product delivered to customers ASAP. Seasonal product can be transported from South Korea to Columbus, Ohio, in 14 hours and 2 minutes, according to TravelMath. By contrast, products take approximately 13 days to get from Shanghai to Long Beach by ship and another six days to get from Long Beach to Columbus by rail, truck or both. Products moving through the Panama Canal from Shanghai to New York City take about 26 days.

Disadvantage: Besides being the most expensive mode of transportation, cargo planes generally require at least 7,900 linear feet for a runway. That will eliminate many smaller airport choices.

Truck

Great for: Transporting product just about anywhere there are streets and highways.

Disadvantages: Trucks generally carry only one container. In addition, a driver’s life is grueling, so it’s difficult to find workers willing to drive trucks. The American Trucking Association says the U.S. was short 60,000 drivers in 2023. As a result, the cost of hiring drivers is high. Job search site Indeed has openings at companies like Walmart that are paying up to $110,000 per year. A third disadvantage is urban traffic and bridges. Traffic congestion creates a tremendous loss of time, and many cities don’t have truck clearance on their secondary bridges. Some cities, such as New York, charge congestion fees to trucks traveling in peak hours. Interesting aside: Truck transportation can be circuitous. In addition to avoiding areas of low bridge clearance, truck drivers sometimes go out of their way to avoid left turns. United Parcel Service even began discouraging left turns where possible after the National Highway Traffic Safety Administration published crash data in 2010 showing that left-hand turns were the number one causal factor in crashes. In intersections, left turns lead to far more accidents than crossings and right turns.

Glossary

Intermodal: An adjective describing companies that use more than one mode of transportation to move goods.
Logistics: The process for transporting goods from the point of origin to the point of consumption (and back, in the case of returns).
Supply chain: Encompasses every step in getting goods from the source to the end user, including not just delivery but also the growth or mining of raw materials, manufacturing and final assembly.
TEU: A transportation industry acronym for “twenty- equivalent units,” referring to a standard marine shipping container that measures 20 feet long, 8 feet wide and 8.6 feet tall.

Rail

Great for: Transporting hundreds or thousands of containers over land.

Rail service saves time and money. Railroad companies can double-stack containers, allowing for more capacity on a train, and highway traffic is not an issue. Rail cars travel affordably at all hours of the day. According to Pat Byrne, a former regional manager for CSX, rail can achieve over 400 miles to the gallon of fuel (primarily diesel fuel with coolant and engine oil). Chicago is the largest hub for rail, and Kansas City is the second largest hub. Chicago, therefore, has the most industrial square footage in the country. Its central location allows for relatively easy distribution to the coasts.

Disadvantages: Not all railroad tunnels are tall enough for double-stacking, which may force a redirection of rail cars. With rail, there’s also demurrage— the cost associated with reserving too many rail cars and the cost that accrues when product is left sitting in the rail yard. In addition, rail does not flow to everyone’s backyard. Site selection can be challenging if a client wants both rail service and a location next to a highway ramp. That’s because rail was originally developed to travel through the middle of a town or city, while the highway is often on the outskirts.

Ship

Great for: High-volume transport overseas. Cargo ships carry thousands of containers. Interesting aside: You can track the location of ships en route using Vesselfinder.com.

Disadvantages: It can take 13 days, according to Prologis, to ship from Shanghai to Long Beach, Calif., the largest U.S. port. In addition, shipping has dangers. Ships can have accidents on the high seas, resulting in fire casualties or containers falling into the ocean.

Ships also need to reserve berths at ports and may have to wait many days out on the ocean if the port is overbooked. Waiting racks up additional costs, including those of the ship’s crew, rescheduling rail or truck pickup, and paying penalties to customers for delayed deliveries. Even when there are no delays, companies also must pay for cranes to unload containers for storage on the pier or placement directly onto a rail car or a truck. This cost is known as drayage or, sometimes, pier costs. Nothing is free at the port.

There’s also the risk of strikes, such as the one that occurred in September 2024. If a port or entire coast has a strike, a product may never make it to the client or consumer or may be delayed for weeks. In that case, especially where a distributor needs to get seasonal goods to market, it may be useful to have redundancy with locations at several ports on the East, West and Gulf coasts.

Author Rob Nahigian, SIOR, CRE, is president of Auburndale Realty in Newton, Mass. In his career, which spans more than 50 years, he has handled approximately $7.2 billion of real estate totaling 44 million square feet. Since the 1980s, he has been teaching industrial real estate topics for the Society of Industrial and Office REALTORS®, and he is a frequent speaker and author on transportation and its impact on real estate site selection.

Content by Rob Nahigian

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