Shippers wondering if they can save money by transloading their imports from marine containers into domestic boxes should talk to Josh Owen. The president of Ability Tri-Modal, a Carson, Calif.-based trucking, warehousing and distribution company, knows firsthand the value cost-conscious and logistics-savvy shippers can achieve by shifting away from an inland-point-intermodal strategy in which marine containers are shipped intact to inland destinations.
When a Tri-Modal customer shipping 18,000 marine containers a year by intermodal rail to the Midwest shifted its entire business to transloading operations on the West Coast, the company cut $6 million in transportation costs, Owen said. The reason: the contents of three marine containers fit into two 53-foot domestic containers, allowing the customer to pare those 18,000 boxes to 9,800 inland-bound containerloads.
For importers and transportation providers looking to cut every nickel to rebuild profitability after last year’s historic recession, transloading is becoming an increasingly attractive option, especially as this year’s strong trade rally stretched marine container availability to razor-thin levels, causing delays on sea as well as land.
It’s one example of how the recession changed the game for global supply chains, pressing companies to develop leaner, more flexible logistics strategies amid rapid downsizing by their transportation providers, from railroads and motor carriers on the ground to ocean carriers on the sea.
Although no organization tracks transloading activity, broad figures showing container and trailer shipments along with comments from cargo consolidators and third-party logistics providers suggest transloading on both coasts has increased this year. Stronger growth, industry officials say, depends on the ability of providers to better manage equipment to avoid costly repositioning of empty domestic containers to the coastal load centers.
“Our activity is up, but we would be seeing more if equipment were more available,” said Kent Prokop, president of Pacer Distribution Services in South Gate, Calif. Spending hundreds of dollars to reposition an empty domestic box from an inland location eats up much of the savings inherent in transloading, Prokop said.
Intermodal traffic is up sharply this year. According to the Intermodal Association of North America, domestic container moves by rail increased 15.5 percent through August from a year earlier. International intermodal shipments are up 18.2 percent.
Intermodal traffic has been especially strong in the West, and volume is accelerating. BNSF Railway reports international intermodal on its system increased 27 percent in its fiscal third quarter ending July 31 from a year earlier. The peak season, while anticipated to be stronger than in 2009, will fall short of the volumes of 2006 to 2008, spokeswoman Krista York Wooley said.
IANA estimates 29 percent of U.S. import shipments were transloaded into 53-foot containers last year. Transloading increased to 30.2 percent in the first half of 2010, according to Tom Malloy, vice president of business development.
The decision to transload or ship marine containers inland is influenced by factors such as ocean rates, rail rates, fuel and related transportation costs. Because those costs fluctuate continuously, transloading activity increases or decreases depending on the final cost of transportation to the shipper. So the very forces that drove shippers to ramp up transloading could lead them away just as quickly.
But broader market forces may be changing the traditional equations.
In an attempt to return to profitability, carriers have deployed several cost-cutting strategies. Because repositioning empty marine containers from inland locations to seaports is one of the largest costs they incur, carriers appear to be discouraging the inland movement of marine containers.
This strategy involves offering attractive port-to-port rates, for example, from Asia to the West Coast, or, conversely, charging higher intermodal through rates to inland destinations. The result is importers are saving money by taking favorable port-to-port rates and transloading cargo into domestic containers on the coast. The importer contracts with a 3PL or intermodal marketing company for inland transportation service.
The ocean carrier — along with shippers in Asia and importers in the U.S. — benefits in this scenario. After the imported merchandise is put into the domestic container on the coast, the empty marine container can return to Asia to be reloaded with high-paying merchandise. The carrier doesn’t have to absorb the cost of repositioning an empty box back to the West Coast, and the shipper doesn’t have to endure delays waiting for containers stuck on inland-bound trains.
Ocean rates from Asia to the West Coast are drifting lower. According Drewry Shipping Consultants’ Container Rate Benchmark, published weekly in The Journal of Commerce (see page 56), the average spot rate for shipping a 40-foot container from Hong Kong to Los Angeles on Sept. 13 was $2,546, down from the peak of $2,838 on Aug. 2.
Mary Ann Kotlarich, a spokeswoman at Maersk Line, said trans-Pacific rates have fallen recently, but that is due to normal market forces as carriers increase capacity. She said Maersk has not lowered port-to-port rates, however, to discourage intermodal through shipments to inland destinations.
Reducing transportation costs for discretionary cargo is not the only factor importers consider. Transloading cargo near a seaport postpones by as much as a month the decision on the final destination for a shipment, compared to determining the allocation before the container leaves Asia. With retailers maintaining leaner inventories, the expedited shipment is another driver of transloading, said Scott Weiss, a senior account executive at APL Logistics.
Postponement of allocation works especially well for large retailers with multiple distribution centers, he said. Transloaded shipments are routed to regional DCs, or to retailer service centers for direct shipment to stores, and the allocation decision is made within days of the promised delivery date.
“Retailers are operating a lot smarter. The recession has forced their hand,” Weiss said.
Big-box retailers have been transloading for years. “If you’re bringing in a lot of volume, transloading makes sense,” Owen said. Now it appears the trend is spreading. Ability Tri-Modal earlier this year received more inquiries about transloading, but importers were uncertain about the direction of the economy. Some of those inquiries now are turning into contracts.
Warehouse operators, meantime, say a shortage of domestic containers is restricting their ability to take on more transloading. Equipment providers this year ordered some 15,000 domestic 53-foot boxes from manufacturers in China, but many of the containers have not reached the U.S. because of tight ship capacity in Asia, said Ron Sucik, principal at RSE Consulting in Naperville, Ill.
|Empty 53-foot containers are abundant in the nation’s interior, but not on the East and West coasts where they are needed most. Because of normal cargo flows, only four of every five domestic 53-foot containers moving inland return to the coasts loaded with cargo. That means up to 20 percent of the domestic containers must be repositioned empty.
Warehouse operators may have to absorb the entire cost of the empty repositioning in their transload operations. Sometimes railroads will help to mitigate the cost. With the demand for transloading increasing, however, more companies are willing to reposition empties rather than waiting for a loaded box moving from east to west, said Mike Epeneter, senior vice president of Weber Distribution in Santa Fe Springs, Calif. “The person closest to the customer is likely to pay the repositioning costs,” he said.
Shortages of domestic and marine containers were more pronounced earlier in the year, especially in Southern California, because congestion at marine terminals clogged the supply chain. Recently, however, marine terminal operators in Los Angeles-Long Beach opened more night or Saturday gates, easing the shortages, Epeneter said.
A transloading strategy will attract new converts if the industry can address the basic issues restricting its growth, Prokop said. One big need is to balance the flow of equipment by generating more two-way traffic. An expected surge in grain and cotton exports this fall, for example, could generate more domestic containerloads from inland locations such as Chicago and Memphis, he said. Attracting customers with a year-round commitment to transloading also would help.
Contact Bill Mongelluzzo at email@example.com.