50 Million Containers in the World and Carriers still struggle with their supply and Demand predictions !

The container was invented back in the late 1950s with the advent of Malcolm Mclean's novel idea of switching out the wheels on his enclosed trailers. The Container as we know it was born and has been the lifeblood of trade ever since. With some 50 Million containers in circulation, there is certainly no shortage of equipment that is either sat in yards, on board vessels, or in complex supply chains.

The top 10 Ocean Carriers, operate varying-sized container pools, and these units make up close to 90 % of the total global inventory. One of the biggest issues these lines struggle with is the demand and supply aspects of being able to position containers to meet demand. Commercial divisions are responsible for projecting their demand forecasts in terms of where and when containers will be required, other data available to the container control departments are historical predictions, peaks and troughs on certain trade routes and customer projections.

However many Operators still struggle with these predictions and many build huge safety stocks of equipment to fulfill orders and shortfalls. Of course, these stored units get to sit in depots and yards far longer than the lines would like to admit.

Millions of dollars per annum are lost through containers sitting idle. The real ability comes from Operators that can triangulate their equipment, ensuring import containers are turned quickly with minimal detention times at shippers premises. However, the balance between import and export demands can be significant and rarely do you get a balanced trade. This ultimately ends up with more containers being dropped off to depot facilities.

These Ocean Carriers will undertake several empty container repositioning to try and balance out the trade, they might also look at taking lower-paying cargo to help cover these empty repositioning costs. These do not always help unless the units are dropped at one of their main ports of call and the shipper must deal with the import transportation. It can cause problems as those containers can end up in the wrong locations and still involve significant inland transportation costs.

We are also seeing Ocean Carriers leasing Containers for short-term leases in demand locations and creating freight rate bubbles, with shippers having to stump up the additional charges or go short on their shipping. The impact on Ocean carriers will be in excess equipment accruing and their annual equipment costs exponentially increasing. The problems just keep getting bigger for these operators.

Container demand and supply has always been a thorn in the side of the carriers logistics divisions, what solutions might be available to solve these issues :-

• Widespread scrapping of old aged units - taking containers out of service earlier in their life cycles. I can already hear carriers questioning "WHY would we do that with assets that are fully depreciated!!" Well simple if containers have been sat in storage facilities for months even years on end what is the true asset value? The increased storage, insurance, and repair costs on units that are not being moved or used far outweigh the residual value of those units.
• Selling off Equipment - instead of running containers for 14 + years, start to sell these units off when they reach 6 to 7 years. Reducing excess units will have a significant improvement on the carriers OPEX's. Selling off units will free up working capital and provide better asset utilization on a smaller fleet.
• Better planning on demand and supply issues with container leasing companies. The leasing Group's one objective is to ensure the maximum number of units leased over the longest periods. Leasing companies will track demand trends and will ensure they have new equipment for leasing in-demand areas, these are mainly in the Chinese markets. It makes the carrier's container department life so much easier to take leased units on-hire in the demand areas over repositioning units to meet the cargo requirements. The trouble is the empty repositioning of the carrier's units will impact their yields on that cargo move.
• Outsourcing their entire container fleets to a 3rd Party management group. This enterprise would strip down the entire container fleet, scrapping and selling off units, a deep cleansing to deliver a smaller more efficient container fleet. Looking to lease back units to the carriers at more flexible terms and rates.

• The carriers need to update their container logistics software, and the need to address supply and demand projections is a critical element. Better control over the repositioning of containers and looking at various options in terms of using their equipment over leasing units. The ability to track stock that sits idle for longer than 3 months in depots needs to be addressed. Automated decision-making on selling, off-hiring or scrapping units that sit idle for 6 months or more.

• Container unit tracking has been around for years, of course, the main benefits are aimed at improved supply chain information but the real-time data on dwell times and locations this data can help the container controllers to ensure units are returned in time. Why is that so important well if you have a demand for that unit for an export load then you want it returned cleaned and checked to meet that requirement rather than less or repositioned units in to that area.
• It's common knowledge that container controllers would rather lease units than have depots dig out containers sat in stacks that could also suffice a booking order. WHY well the costs of digging those units out in terms of moves again would impact the yields on the cargo bookings.

• The further development of the collapsible container units, these have been around for many years with the first being launched back in the early 1990s. The design has been fine-tuned since those early days but still has its issues, however, the ability to ship 5 units back in flat pack format using one vessel slot and reduced inland transportation costs could be considered as an option.

• Container Manufacturers need to build containers that will last between 5 and 7 years rather than those that can last longer. Why build containers that last longer when a large proportion of that equipment sits idle in depots. The problems is their are just to many empty unused units sitting idle for months and sometimes years at a time. Build Units that have a certain sea-worthy life. Car Manufacturers are well known for this practice of building vehicles with a practical operating life span. If you build them to higher levels then the manufacturer will fall short of their manufacturing quotas, of course, there is a very fine line between quality that will not impair a brand name also wanting to sell more cars and if you build them to last then ultimately they are losing potential market share. The container manufacturers might want to look into this.
• Container Pooling and the Grey Box -well I am a great believer in sharing and benefiting from the economies of scale. Three Grey Box pools have been seen during my lifetime in this industry. All brought significant benefits but they were not without their unique problems. These being related to :-
• Quality of the Units (Maintenance and Repair varying standards between founding members)
• Meeting the commercial booking demands of the Members - who got priority of the containers at the point of booking).
• Integration into the back-end carrier IT systems.

However other methods have prevailed with Direct Container Interchange options, providing carriers to list spare excess inventory for shippers, Forwarders or NVOCC's to pick up the units under an electronic DI exchange. This model has again been around for sometime with a modicum of success.

The industry has ultimately created this container deficit over the years they have continually increased their container pools without really undertaking a significant culling off older units.

But if the truth was known the container sector could become a lot more efficient if basic common sense was introduced, and a much tougher stance over the vast excess fleets of boxes that sit buried deep slowly rusting away.

Its time for these Operators to cull equipment, becoming a much leaner more focused in the way they manage their owned and leased units. Container Control departments might actually have to start becoming more proactive and visionary in the way they manage these smaller but far more efficient container pools.

Lets see which carriers will start to think outside of their conventions and become leaner more cost-efficient operators as the industry looks to once again evolve.

Drafted by Richard Butcher

Managing Director - GEM Ltd

[email protected]