Boxed in

An intractable worldwide container imbalance has shippers and carriers looking for new ways out of an old dilemma.

By Toby B. Gooley -- Logistics Management, 3/1/2000

At the height of Asia's economic crisis, demand for Asian-made goods skyrocketed. At the same time, U.S., Canadian, and European exports to Asia collapsed. Suddenly, Asian manufacturers found themselves in serious trouble: They had more orders than they could handle and they had mountains of merchandise ready to go. What they didn't have were containers to ship it all in.

Where were they? While Asian exporters were fighting to get their hands on empty boxes, container terminals in North America and Europe were overflowing with them. The number of containers entering the United States from Asia in 1998 was nearly three times the number heading back across the Pacific.

The main culprit was the currency imbalance between Asia and Western nations. Although Asian goods became very inexpensive for North American and European buyers--prices in some cases dropped by half--the opposite was true in Asia, where the price of North American- and European-made goods doubled. Bankruptcies and unemployment also reduced demand for North American and European products. Bottlenecks caused by rail service problems on the U.S. West and Gulf Coasts during the peak shipping season made the situation even worse.

Today, things have improved somewhat as Asia's economy rebounds, but the ratio of inbound to outbound containers in the trans-Pacific trade remains a troubling two to one. Chronic shortages continue on other trade lanes as well. In the U.S.-Australia/New Zealand trade, for example, the volume of shipments northbound to the United States is twice that of southbound traffic to Australia and New Zealand, notes Jeff Parker, vice president, Pacific Service for Columbus Line. Australia and New Zealand mostly export agricultural products, particularly meat, while imports from the United States tend to be manufactured and consumer goods for Australia's and New Zealand's relatively small markets. Complicating matters, most northbound shipments require 20-foot refrigerated containers, but southbound cargoes generally move in 40-foot standard and high-cube dry containers. The result, Parker says, is that "at each end of the trade lane, there are too many boxes of the type needed at the other end."

A similar situation exists between the United States and the East Coast of South America, says Jose Roberto Salgado, general manager, North America for Brazil's Alianca Line. On that route, southbound cargoes mostly consist of auto parts, finished goods, and consumer items for retail sale moving in 40-foot containers. Northbound, dense commodities like agricultural products and machinery parts move in 20-foot boxes, including refrigerated equipment. Even when there is demand for 40-foot containers to move northbound, Salgado says, the empties are thousands of miles away from where the demand is.

These equipment imbalances have burdened shippers, carriers, and container leasing companies with enormous costs. Carriers and leasing companies have paid out hundreds of millions of dollars in the last three years to reposition empty containers. In an attempt to recover just a part of those costs, carriers in many trade lanes are assessing surcharges of hundreds of dollars per unit. Shippers also lose out if they cannot meet required ship dates because the containers they need are unavailable.

This costly problem, say industry insiders, is here to stay, leaving shippers, carriers, and container leasing companies desperately looking for a way to get containers to the right place at the right time--without losing their shirts in the process.

New Approaches Gain Support

The traditional means of acquiring containers where you don't have them is to lease them. Carriers pay a per-day fee plus a repositioning fee if the leasing company must move the empty container any great distance.

But that strategy is no longer adequate given the severity of the problem today. Instead, carriers and leasing companies are coming up with some creative ideas that haven't been tried before.

One interesting proposal has been floated by the Institute of Container Lessors (IICL). Many ocean carriers and leasing companies have been forced to charter entire ships to carry empty containers to high-demand locations. A single voyage can cost hundreds of thousands of dollars. But what if an independent container repositioning service chartered ships and everyone shared the cost? IICL President Henry F. White says that would be more cost-effective than some of the money-losing measures carriers and lessors are taking now. "Right now there is such demand for empty 40-foot containers [in Asia] that carriers are shutting out low-rated cargo on the West Coast so they can ship empties. They're losing revenue to ship empty containers," he says.

White's plan calls for leasing companies to form an independent ship-management company that would charter older, slower vessels that are available at reasonable rates and are inexpensive to operate. Unlike scheduled liner services, which must call at ports near major population centers, these ships would travel to ports where empty containers are in greatest demand. The independent ships also could change destinations on short notice, something that scheduled liner services can't do.

White says that support for the shared-vessel concept is building. Not only leasing companies but also ocean carriers have expressed interest, because they could move equipment on those ships rather than tie up revenue-producing space on their own vessels. Whether competitors in the very conservative maritime industry would be willing to collaborate so closely, though, is a big question. "The issue now," White says, "is someone's putting money on the table and doing something new and bold."

A decidedly more high-tech approach to the container imbalance problem involves the Internet. Three container-matching services--Greybox, SynchroNet, and Interbox--are helping ocean carriers and leasing companies match surplus empty containers with those who need them. These services are relatively new: SynchroNet was established in 1996, and Greybox and Interbox were launched in 1997 and 1999, respectively.

The idea behind all of these services is to give ocean carriers access to information about each other's empty containers. Traditionally, each carrier or a consortium of carriers on a single trade route dealt with equipment imbalances on its own. These electronic trading systems, by contrast, allow ocean carriers to view the availability of surplus equipment from any other member of the exchange. For example, a carrier in the U.S. West Coast-Asia trade might obtain empty containers in Los Angeles from a carrier that serves South America--a company it would otherwise never come in contact with.

Each of the three container exchanges operates differently. Greybox, a subsidiary of Transamerica Leasing, takes information by telephone, fax, Internet, or electronic data interchange (EDI), and relies on human decision-making for spot requests. Greybox also alerts customers by e-mail of potential matches. Customers pay a small per diem fee and commission for each container, and both carriers also pay a transaction fee. Greybox manages all payments and disbursements.

SynchroNet receives weekly and monthly data about container supply and demand in a variety of formats from its members. A complex software program identifies possible matches, which carriers can view in their own secure locations on Synchronet's intranet. The parties then make their own arrangements, and both pay a transaction fee to SynchroNet. They do not charge each other for container usage, unless the user keeps a box beyond the agreed return date.

Interbox lets its members post detailed information about their container surpluses or needs. They also post the terms or conditions they want and any incentives they are prepared to offer. Interbox then matches carriers based on origin and destination, and lets them see the offer but not which carrier is involved. The parties then make blind offers and counteroffers through Interbox, which notifies them by e-mail when any activity occurs for their account. The parties' identities are not revealed until both agree to a deal, says Paul Crinks, president of Interbox's parent, International Asset Systems. They can, however, specify preferred, acceptable, and unacceptable trading partners. Once a deal has been struck, both carriers pay a transaction fee (they also pay a $100 monthly access fee). They receive a transaction history showing all offers and counteroffers as well as agreed-upon terms and fees.

The Internet-based container exchanges are quickly finding favor with users worldwide, as evidenced by their fast-growing membership lists. Small to medium-sized carriers in particular are benefiting from access to other carriers' fleets. They may be less useful, though, to large carriers that operate global fleets, suggests Columbus Line's Parker. Both Columbus Line and Alianca belong to the Hamburg Sud Group, which also owns Crowley American Transport, Transroll's South America-Europe service, and several smaller lines serving the South Pacific. That gives their parent company interlocking routes connecting Europe, the United States, South America, the Caribbean, Australia/New Zealand, and the South Pacific islands--and a fleet of about 100,000 containers. "With all those trade routes it has increased opportunities for mixing and matching [the company's own] containers across different services," Parker says.

Shippers Can Play a Role

Although ocean carriers and leasing companies are taking the lead in trying to resolve container imbalances, shippers, too, have an important role to play. By working closely with ocean carriers to optimize equipment use, they can help reduce costs for both parties.

That's because carriers frequently offer financial incentives to shippers that agree to use containers that are in short supply at the destination port. Both Columbus Line and Alianca, for example, have negotiated favorable rates with shippers that use refrigerated containers to move dry cargo to ports where "reefers" are desperately needed. (Only certain types of cargo, though, are suitable for carriage in the food-grade refrigerator boxes.)

Salgado suggests that shippers examine their total cargo flows rather than buy ocean shipping services by port pairs or trade lanes. When all the segments are linked together, he says, it's often possible to identify opportunities to keep containers full and in transit. He cites the theoretical example of a customer that ships 40-foot containers from Europe to its subsidiary in Venezuela. The Venezuelan subsidiary, meanwhile, ships in 40-foot containers to the United States, where those containers are in short supply. Rather than treat them as two separate transactions, Salgado says, the same containers could be emptied of imports and reloaded for export without leaving the premises. Both carrier and shipper benefit from improved equipment availability and reduced costs.

This kind of flexible arrangement is becoming more common because carriers are now able to negotiate equipment repositioning costs in individual contracts under OSRA, the Ocean Shipping Reform Act that took effect last May, Parker observes. OSRA also allows shippers and carriers to craft contracts that cover multiple trade lanes, and that has opened up new opportunities for managing container flows, he adds. A carrier could, for example, offer a discount to a shipper that is able to move containers in a continuous pattern like the one described by Salgado, or it could reduce rates for shippers that agree to use containers that are stockpiled at inland depots.

It's possible that shippers and carriers will come up with still more ways to work together to address the worldwide container imbalance. The incentives for shippers to get involved are great: significantly lower costs, more reliable service, and--most important of all--assurance that containers will be available where and when they are needed.

The Forgotten Issue

The transportation press has written many articles about the worldwide container imbalance and its impact on shippers, carriers, and leasing companies. But few--if any--have paid attention to another critical problem that arose from the same economic conditions that have affected container supply and demand: a critical shortage of container chassis.

Chassis are the "wheels" on which ocean containers are moved from place to place. They consist of a heavy-duty metal frame with one set of wheels in front and two sets of wheels in the rear. Containers are locked into place on top of the frame, which then is attached to a truck or yard tractor for local or long-distance transportation.

The number of containers is far greater than the number of chassis. When the United States began receiving a huge influx of import containers from Asia, therefore, there were not enough chassis at West Coast ports to move them all immediately off the docks, says Alan Messing, vice president of marketing at TIP Leasing in Bala Cynwyd, Pa. That situation contributed to the severity of the congestion that developed at West Coast container terminals and caused delays in delivering shipments to importers, he adds.

When empty containers began to pile up in the United States, moreover, carriers needed more chassis to move them out of overcrowded terminals to inland storage sites. Demand for chassis quickly outstripped supply, and leasing companies scrambled to order more equipment, Messing reports. "We had the repair shops busy fixing everything in sight, and we were fighting over space at the manufacturing plants. Everybody was buying up whatever [manufacturing] space was available," he recalls. Manufacturing capacity booked up so quickly, in fact, that one leasing company ordered chassis from a plant in Korea and shipped them to the West Coast.

Today the chassis shortage has lessened somewhat, and the supply situation should continue to improve, Messing says. That's because leasing companies are continuing to purchase more "wheels," as they're often called, and manufacturers have added additional production capacity by opening new plants in Mexico.