Two years after container ship lines began moving away from their 55-year-old practice of supplying U.S. customers with intermodal chassis, the transportation world is still trying to figure out what it means.
The shift to trucker-provided chassis has been described as potentially the most far-reaching change the intermodal industry has seen since the early-1980s introduction of the stacktrain. The change may mean different things to truckers, cargo interests, leasing companies and terminals. But there’s a big common denominator that doesn’t include a common solution to a shift in underlying operations from coast to coast.
“The only thing that is certain about this is the uncertainty. It is not clear where this is going to go,” Philip Connors, executive vice president of Flexi-Van Leasing, said at The Journal of Commerce’s Trans-Pacific Maritime Conference in March.
A stream of terse announcements by some — but not all — ocean carriers, saying that after a certain date they would no longer provide chassis in certain locations, brought the issue into focus. Carrier-provided chassis are unique to the United States, where containerization started as a domestic competitor to trucking. In other countries, shippers, forwarders and motor carriers provide their own equipment to haul containers on and off marine and rail terminals.
The actions in the United States, carriers say, are a natural result of the collapse in trade in the 2008-09 downturn, when carriers struggled to scale back costs and operations, leading many to one cost center that seemed to come with little revenue. But the patchwork nature of the withdrawal, and the lack of any coordinated replacement service, is casting a cloud for many shippers over a narrow but critical part of the transportation supply chain just as businesses are gearing up for the busiest shipping period of the year.
That could leave shippers, trucking companies and terminal operators looking for a solution in the midst of the peak-season rush.
Few dispute ocean carriers’ need to control costs, but carriers need to discuss the issues with other industry parties, Connors said. “I am quite confident the industry can work through these details, but only if people engage in dialogue about it and include the motor carrier and the shipper, and I haven’t seen a lot of that happen yet,” he said.
“The small amount of dialogue around this issue has been frightening,” said Bill Rooney, an industry consultant and former president of Hanjin Shipping Americas, who also spoke at the TPM Conference. “Announcements are made, and then radio silence, and that is not good.”
There’s been some progress on the communications front. The Intermodal Association of North America has been sponsoring meetings by industry interests to discuss operational issues that don’t involve rates or other competitive issues.
“The overarching challenge is how all the stakeholders are going to get their arms and heads around the changes and make this transition without any degradation of terminal operations or customer service,” said Tom Malloy, vice president of IANA. “These operational challenges will be resolved. Exactly how it will be done is just not clear yet.”
Container lines have been moving for years to extricate themselves from chassis costs. The ship lines have an estimated $2 billion to $3 billion in capital tied up in chassis, in addition to annual operating costs said to range from $1 billion to $2 billion. Ocean carriers and leasing companies each own about 45 percent of the nation’s approximately 750,000 chassis. Railroads, terminals and motor carriers have the balance.
Nearly a decade ago, ocean carriers took an initial swing at chassis costs by embracing shared pools, which also have been praised for improving equipment quality through centralized maintenance and repair. Consolidated Chassis Management, established by the 20-carrier Ocean Carriers Equipment Management Association, provides 100,000 chassis in pools in six regions.
Now, carriers are taking the next step by shifting responsibility for chassis to truckers. Maersk Line blazed this trail in August 2009 when it unveiled plans to transfer its 90,000 chassis to a new company, Direct ChassisLink. DCLI rents chassis to truckers for unlimited use at $11 a day but reimburses drayage companies for the cost of haulage covered by ocean carriers’ contracts.
The carrier’s Maersk Equipment affiliate completed its national rollout of DCLI last October. The chassis-rental unit now has interchange agreements with 3,500 truckers and has designated more than 155 sites where motor carriers may pick up or drop off chassis.
About a dozen other carriers have followed Maersk with announcements of plans to quit providing chassis in specific cities or regions. “I think you’ll see a steady increase in lines moving to the trucker model in the second half of the year,” said Steve Rubin, president of Trac Intermodal.
Since DCLI was introduced, Trac and Flexi-Van have introduced similar chassis programs that allow truckers as many turns as they can squeeze into a daily rental. “The truckers can be as creative as they want to be. It presents those who are business-savvy with an opportunity to make money on the asset,” Rubin said.
Despite the talk about container lines exiting the chassis business, carriers may find that saying goodbye to chassis is easier said than done. Carriers will still need chassis for certain contracts under which the ship line is responsible for arranging drayage, to meet demand for movement or storage of containers on terminals, or for other reasons.
Market forces will yield a variety of programs for chassis supply, leaving truckers with multiple options from which to choose.
“We’re not going to see an across-the-board answer,” Malloy said. “I see signs that this is going to evolve regionally, possibly in combination with a by-steamship-line approach.” He said it’s likely some carriers will continue to offer chassis in some regions for competitive reasons, or as part an all-inclusive service that emphasizes customer convenience.
“That may be their market differentiator,” he said. “A carrier may say, ‘Instead of forcing a customer to look at 10 different options for chassis, I’ll keep it simple.’ ”
Differences also are likely to emerge among leasing companies that provide truckers with chassis on daily rentals or longer leases, Malloy said. “It may be like Chicago O’Hare, where you have Hertz, Budget, Avis, Alamo and the other car rental companies lined up,” he said. One chassis lessor might have a cheaper daily rate. Another might offer special drop-off points, added insurance or other extras. Or a trucker might negotiate a corporate rate with a particular lessor.
No matter how motor carriers obtain chassis under the new regime, the ultimate bill will be paid by shippers. “The truckers don’t have the margins to pay it,” Connors said. “It ultimately is going to go back to the cargo owner, and it’s going to come out of their pocket.”
But some believe there may be big savings across the supply chain that could drive chassis costs down. Exposing the true cost of chassis could discourage inefficient practices such as carrier agreements that provide extra free time to shippers and reduce the number of turns a chassis can make. A trucker paying a daily rental on a chassis won’t be happy to see it sit under a container for weeks because of a shipper-carrier contract to which the trucker was not a party.
Rooney said burying chassis costs within ocean carrier rates has encouraged inefficient pricing that encourages mismanagement of resources. “In the end, I think the carriers, the shippers and the public in general would be better off with more appropriately priced chassis,” he said.
The new chassis regime’s success in improving efficiency will depend on how well the industry succeeds in working out myriad details of cost, operations and finances. Some of this is new territory for chassis, which Malloy noted have long been “an afterthought” in container movements.
IANA’s Uniform Intermodal Interchange Agreement traditionally has been between the ship line and trucker, not a leasing company that provides the chassis to the trucker. Jeff Bader, president of the Association of Bi-State Motor Carriers in New York-New Jersey and of Golden Carriers in Hillside, N.J., said after initial skepticism he now likes everything about DCLI except that it is not covered by the UIIA.
Some of the trickiest details in the new chassis arrangement will involve terminals. Trucker-provided chassis work better at terminals using ground storage of containers than at facilities with boxes mounted on chassis that may have to be switched to other containers. But Philip Wojcik, executive vice president and chief operating officer of Consolidated Chassis Management, noted many carriers aren’t suited for grounded operations.
Other issues for terminals include how to deal with multiple chassis providers in a single pool, and how to ensure terminals have enough chassis on hand to ensure the terminal runs smoothly. Still, ports and terminals may stand to gain a scarce commodity: space. Greater efficiency in chassis operations could free up untold space now occupied by rows or stacks of the equipment.
Shippers have a big stake in these and other details. Some shippers said they plan to raise chassis as an issue this spring in the annual service contract negotiations with trans-Pacific carriers. Breaking out the cost of chassis previously included in base rates is one issue, but there are others.
Scott Larson, vice president of global logistics and customs compliance at Bon-Ton Stores, told the TPM Conference he wonders whether beneficial cargo owners might face detention charges for chassis as well as containers now that the two no longer are a unit.
Larson said as the industry adjusts to the new environment for chassis, he worries chassis supplies could run short, just as containers did last year. “I hate to bring this up,” he said, “but will the BCOs be faced with a potential peak-season chassis surcharge?”