3. 2
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Executive Summary
Introduction. Today the FEC has about 600 employees and annual revenues of about $350
Million. The FEC carries a variety of products on its main line, ranging from Crushed rock, autos,
ethanol, food, and intermodal. The FEC
has become dependent on intermodal
volume more than other Class II railroads,
due to their high volume of intermodal movement (76%). The Florida East Coast Railway (FEC) is
looking to expand its reach in the market for intermodal transportation from South Florida to
Central Florida. The FEC sees the opportunity to expand into this market through intermodal
transportation of the commodities that come into the ports of Miami, Everglades and Savannah
from Asia, as well as the imports arriving from Los Angeles/Long Beach into Jacksonville.
Analysis.The five top criteria under which each option was evaluated are: profitability of each
option, the capacity each option has for future growth, the
amount of investment required for the implementation of each
option, and how this option will fit into the current culture and
mission of the Florida East Coast Railway. Option 1 includes a
mix of rail and truck movement costs. Option 1 leaves all freight in the existing international
containers (ISOs), for facilitated streamlining among the intermodal service. In terms of
profitability, both routes offered in Option 1 to Central Florida supplement enough operating
income on a unit-by-unit basis to be able to compete with the current rates offered by
competing drayage companies already in the market. Option 2 also includes a mix of rail and
truck movement costs, however, this option only services the port of Miami. Option 2 does not
leaves all freight in the existing international containers (ISOs), and utilizes the new
transloading facility in the Hialeah terminal; this is meant to facilitate the shipment of cargo
from Orlando to Jacksonville on the last leg of the planned route.
Recommendation.We recommend that Florida East Coast Railway
adopt and implement Option 1 presented by Adam Bridges, with an
added growth plan. Currently, Option 1 does not take into account
any traffic introduced by the Panama Canal in 2017, or the added
traffic from the newly acquired LNG plants and engine-
implementation around the same timeline.
Future Growth. Three very important growth factors need to be
considered when evaluating the routes recommended for service into
Central Florida. The first factor is the expected growth from the widening
of the Panama Canal. The second major growth factor to consider is the
pioneering the FEC is doing by being the first ever railroad to implement
freight locomotives designed by General Electric that utilize liquefied
natural gas (LNG) as the primary fuel. The third and final major growth
factor to be considered while expanding services to Central Florida is the
10 Trains 12 Trains
40,000 110 10.96 9.13
Units/ Train
Volume Units/day
4. 3
ability and necessity to attract diverted volumes from the current alternatives routes where
product from Asia is arriving to Orlando.
5. Introduction
History
The Florida East Coast Railway (FEC) is a Class II, or Regional railroad that currently operates
351 miles along the Florida coastline. The FEC has aided in the development of Southern Florida
since its founding in the late 1800s by Henry Flagler, a business man and whom was a former
partner in the Standard Oil with John D. Rockefeller. Because the implementation of serving
Southern Florida was such a large cost, the FEC hobbled along under bankruptcy until 1961. In
1983 the rail became part of Florida East Coast industries (FECI) and in 2007 FECI and Fortress
split off from RailAmerica, retained ownership of FEC and brought in Jim Hertwig as President in
order to bring the FEC rail line to its full potential.
FEC Currently
Today the FEC has about 600 employees and annual revenues of about $350 Million. The FEC
carries a variety of products on it main line, ranging from Crushed rock, autos, ethanol, food,
and intermodal. The FEC has become dependent on intermodal volume more than other Class II
railroads, due to their high volume of intermodal movement (76%). This situation distinguishes
the FEC from other rail operations because of their short length of haul and their ability to
compete in the drayage market. The FEC is directing its focus on growing intermodal to service
other regions in Florida, and with Hertwig as the new president, they have experienced
exponential success in terms of both volume and revenue per unit.
Proposal
The Florida East Coast Railway (FEC) is looking to expand its reach in the market for intermodal
transportation from South Florida to central Florida. The Central Floridian economy is
6. 5
supported by the thriving tourism industry created by Disney World, Universal, and Sea World.
As a result, this market is looking to diversify their sensitive income sources by growing into
other areas such as high-tech, military, and health care.
By expanding their reach into Central Florida, they open up their market into the third
largest metro region in Florida, with a population of 2.8 million. The FEC sees the opportunity to
expand into this market through intermodal transportation of the commodities that come in to
the ports of Miami, Everglades and Savannah from Asia, as well as the imports arriving from Los
Angeles/Long Beach into Jacksonville. Since the demand of this region is mostly served by
inbound freight, the FEC is concerned about the utilization of the 75% northern bound empty
loads to Jacksonville which are being transported via intermodal currently, and how that would
be effected with an increase in import volume.
There are five major existing import traffic patterns reaching Orlando via truck or rail.
The first is intermodal services from the ports of Los Angeles/Long Beach, where the majority of
Asia cargo is transported to Jacksonville on rail lines like CSX or NS. Once the cargo arrives in
Jacksonville, it is grounded for the rest of the trip on truck services headed for Orlando. The
second pattern is either intermodal or trucking via the port of Houston arriving from the
Panama Canal. From there, rail lines like UP and NS work together to share the cargo until it
reaches Jacksonville, where it is then trucked to Central Florida. The third traffic pattern is the
trucking network of Savannah, GA, to Orlando. Savannah is another major port for the goods
imported from Asia, either passing through the Panama Canal or the Suez Canal. For the fourth
pattern, the port of Jacksonville uses mostly the services of trucking companies to pick up
goods arriving from Asia, to be delivered to Orlando. Unlike Savannah, Jacksonville also reaches
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the trade in South America and Puerto Rico. The fifth and final pattern is trucking service from
South Florida into Central Florida. A substantial amount of import volume is handled by the
Ports of Miami and Everglades bound for Orlando. The southern ports are also major players in
the South American and Puerto Rican trade networks.
Two options are available to the Florida East Coast railway for potential intermodal service to
the region of Central Florida. Both these options utilize a combination of rail movement with
drayage services to the hub of Orlando. The detailed breakdown of each option is listed below.
Option 1
Option 1 is based around the idea of “direct movement” from the Ports of Miami and Fort
Lauderdale to Orlando. Any cargo arriving to both ports would catch FEC trains northbound to
Jacksonville, and would be unloaded to the terminal of Cocoa Beach. This time of unloading
would take around 45 minutes, and would then be drayed from the port into Orlando. Empty
containers would be drayed back to Cocoa Beach, to catch a southbound train back to the
southern ports. Both ports would be using all international containers, which would need to be
stored at a container yard between movements.
Option 2
Option 2 provides the service of transloading international containers into domestic containers
at the new Hialeah Terminal. It works exclusively from the Port of Miami, shuttling over the
freight to be transloaded at Hialeah. All international containers would be loaded into domestic
containers for movement north to Cocoa Beach. From Cocoa Beach the freight would be loaded
onto a chassis, trucked to Orlando, returned back empty to Cocoa Beach, then sent north to
Jacksonville for use on the movement of cargo south.
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Analysis
The five top criteria under which each option was evaluated are: profitability of each option,
the capacity each option has for future growth, the amount of investment required for the
implementation of each option, and how this option will fit into the current culture and mission
of the Florida East Coast Railway. Profitability could not be calculated in this case, in the sense
of being able to access any financial information on the FEC. The 2013 operating ratio reported
by the FEC was used as a ballpark number to be able to grasp a vague idea of the percentage of
expenses incurred. The operating ratio was used a unit-by-unit basis to compare the ability of
the FEC to compete with the current drayage rates offered by the competition already servicing
the region of Central Florida. The capacity for growth focuses on the company’s infrastructure,
past growth patterns, and three major growth factors that the FEC can expect to directly impact
their freight volume (these three factors are outlined in further detail in the next section). The
amount of investment is dependent on each option’s capacity for growth, and the current
infrastructure. Finally, the Florida East Coast Railway has a very sustainable business model and
culture, both seen in their customer service dedication, as well as their history of investments
made for progressive growth.
Option 1
Option 1 includes a mix of rail and truck movement costs. Option 1 leaves all freight in the
existing international containers (ISOs), for facilitated streamlining among the intermodal
service. In terms of profitability, both routes offered in Option 1 to Central Florida supplement
enough operating income on a unit-by-unit basis to be able to compete with the current rates
offered by competing drayage companies already in the market. The tables below display a
9. 8
comparison of percentages between each service offered, as well at the rates from other
drayage firms.
The capacity for growth in this option relies very much on the investment necessitated
for a Cocoa Beach renovation. Currently this terminal can only handle around 100 units a day,
which would be completely overwhelmed with any degree of success. Since there is no room
for expansion in the current real estate at Cocoa Beach, it would be recommended to look at
building a new terminal somewhere close to the port area. Investment for this terminal is
ranging anywhere from 5-10 million dollars, along with additional investments needed for
tractors and a potential container yard for temporary storage.
Option 1 is in slight conflict with the desired company culture within the FEC. Operating
both the ports of Miami and Fort Lauderdale with freight headed to Orlando could cause the
FEC to expand at a rate higher than it is currently used to. Keeping the customer service model
where each customer being service by the railroad is known by name might be a little difficult
once this new service is implemented. To maintain this company culture would require a
growth in the current labor force, as well as a strict training program installed for professional
development.
Option 2
Option 2 also includes a mix of rail and truck movement costs, however, this option only
services the port of Miami. Option 2 does not leaves all freight in the existing international
containers (ISOs), and utilizes the new transloading facility in the Hialeah terminal; this is meant
to facilitate the shipment of cargo from Orlando to Jacksonville on the last leg of the planned
route. In terms of profitability, the route in Option 2 to Central Florida does not supplement
10. 9
enough operating income on a unit-by-unit basis to be able to compete with the current rates
offered by competing drayage companies already in the market. The tables below display a
comparison of percentages between the planned service offered, as well at the rates from
other drayage firms.
The capacity for growth in this option relies very much on the investment necessitated
for a Cocoa Beach renovation. Currently this terminal can only handle around 100 units a day,
which would be completely overwhelmed with any degree of success. Since there is no room
for expansion in the current real estate at Cocoa Beach, it would be recommended to look at
building a new terminal somewhere close to the port area. Investment for this terminal is
ranging anywhere from 5-10 million dollars, along with additional investments needed for
tractors and a potential container yard for temporary storage. Another factor in the ability for
Option 2 to be able to handle growth is the transloading facility in Hialeah. Currently, this
terminal can transload an international container to a domestic container in a minimum of a
few hours, to a few days. This is costly, and labor-intensive; the terminal may not be able to
handle a major influx in the volume of freight sent through from the port of Miami.
Option 2 is more balanced with the FEC’s company culture and mission. Keeping the
customer service model where each customer being service by the railroad is known by name
would be slightly easier in this option than the previous, due to the nature of the growth rate
this option would create. To maintain this company culture once volume from other routes
began to divert towards the rail would require a growth in the current labor force, as well as a
strict training program installed for professional development.
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Recommendation
We recommend that Florida East Coast Railway adopt and implement Option 1 presented by
Adam Bridges, with an added growth plan. Currently, Option 1 does not take into account any
traffic introduced by the Panama Canal in 2017, or the added traffic from the newly acquired
LNG plants and engine-implementation around the same timeline.
Breakdown
The breakdown of Option 1 with our recommended added growth plan is as follows.
International containers loaded and heading for Orlando would be pulled from the Ports of
Miami and Lauderdale on the next northbound train. These loads would be organized into easy
“blocks” for facilitated pick-up and drop-offs. Remaining in international containers, the
northbound train would make a 45 minute stop at the terminal of Cocoa Beach. During these
45 minutes the assembled blocks would be unhooked, allowing the northbound train to
continue to Jacksonville with the remainder of the freight. From Cocoa Beach, FEC operated
highway services would pick up freight to be trucked to the newly invested container yard for
holding. A contracted drayage service provider would then handle the remainder of the trip to
and from Orlando. On the way back from Orlando, the international containers would be
loaded with freight heading to Miami and Fort Lauderdale, which would fulfil the goal of having
an optimal load-to-load economy. The loaded containers would be dropped off at the Cocoa
Beach terminal container yard, then built again into easy load “blocks” for attachment to the
next southbound train to the southern ports. This option would solve the issues the FEC is
facing of transporting containers for use back north to Jacksonville, service the Central Florida
area, and obtain a load-to-load economy.
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Investment
Utilizing and implementing Option 1 with an added growth plan comes with some necessary
investments. The current Cocoa Beach terminal can only handle around 100 units a day, with
about an average handling capacity of 50 units at a time. Since, when considering future
growth, an outlined goal of the FEC is to lower average unit cost by 2% through increasing total
annual volume by 10%, then it would make sense to ensure an annual increase of intermodal
units yearly by 40,000 (400,000 intermodal loads from 2014 multiplied by an increase of 10%).
Looking at the maximum daily capacity of the current Cocoa Beach terminal, a yearly handling
of 36,500 would be expected, and is not enough to ensure the lowering of average unit cost.
Therefore, we recommend investing an additional $5-10 million to expand the terminal, add
more labor, and amplify the handling capability at the terminal. Knowing that FEC would need
a container yard for temporary storage of loads needing to be drayed to and from Orlando, this
would necessitate an additional cost of $100,000. The last considerable high investment would
be to purchase the necessary tractors to operate the transportation from the intermodal
terminal to the container yard. Looking again at the minimum requirement of loads needed to
increase annual volume by 10% (40,000 yearly), a minimum of 10 tractors would be needed to
operate the unloading of the blocks attached to the incoming trains, as well as bringing the
blocks to be loaded south from the container yard. A total cost chart is inserted below.
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Future Growth
Three veryimportantgrowthfactorsneedtobe consideredwhenevaluatingthe routesrecommended
for service intoCentral Florida.
The firstfactor is the expectedgrowthfromthe wideningof the PanamaCanal.Panamahas spentover5
billiondollarstowidenanddredge the PanamaCanal toaccommodate whatis knownasthe “Post
Panamax”shipswhichcan carry twice the cargo as the onesusedduringthe firstdredgingof the canal.
As of rightnow,North Americahasreliedonthe LosAngeles/LongBeachportsforthe importationof
productsfrom Asia.Butnow,witha combinationof portlaborstrikesonthe westcoast ports andthe
wideningof the canal,itisexpectedthatamuch higherproportionof freightwill flow throughthe canal
intoalternative portsonthe eastcoast. Inanticipation,manyeastcoastports,includingthe FECports,
have beguninvestingmajorcapital tobe able to handle the increasedcapacity.Thisisaveryimportant
factor to considerwhenevaluatingthe caliberof renovationstomake tothe current Cocoa Beach. The
FloridaEast CoastRailwayisa culture of sustainable businesspractices,whichmeansconsideringevery
investment’simpactsevengenerationsdownthe road.Investinginthe upgradingof CocoaBeach
properlywouldpreventthe FECfromhavingto playthe catch up game lateronce theirvolumesincrease
dramaticallywithanysuccessonthe new Central Floridaservice.
The secondmajor growthfactor to consideristhe pioneeringthe FECisdoingbybeingthe firstever
railroadto implementfreightlocomotivesdesignedbyGeneral Electricthatutilizeliquefiednatural gas
(LNG) as the primaryfuel. Thisinvestmentincludes24all new enginesthatleave FECoperatorswiththe
choice to alternative betweenLNGanddiesel wheneverconvenient.These new locomotiveswillbe used
to move all typesof products,as well atthe fuel producedatthe two plannedLNGplantsalongthe
currentFEC rail line.Withone tankof LNG being able tocarry the trainloadsround trip(around800
miles),thisfuel costsavingswouldbe reflectedinloweredratesavailabletoFECcustomers.Thiswould
14. 13
naturallyattract more divertedvolume fromoverthe roadtrucking,aswell asthe load capacity needed
to accommodate the LNG trafficfromthe plants.
The third andfinal majorgrowthfactor to be consideredwhileexpandingservicestoCentral Floridais
the abilityandnecessitytoattractdivertedvolumesfromthe currentalternativesrouteswhere product
fromAsiais arrivingtoOrlando.Ascomparedinthe previoussection,the maintrafficpatternsthat
service Orlandoincombinationwithcompetitordrayage servicesinthe state are offeredata much
higherrate than the FEC’sintermodal service.Thissituationrepresentsplentyof opportunitieswhere
the FloridaEast CoastRailwaycouldattract a higherproportionof freightfromthese drayage and
intermodal routes,andachievetheirgoal of anoptimal load-to-loadeconomy.If done throughthe
propermediums(Intermodal MarketingCompanies,3PLs,FreightForwarders,etc.),the FECcould
experience amajorflux of freightmovementwhichwouldrequire themtoassessandinvestinthe right
infrastructure tobe able to ensure theirsame level of customerservice.
