Retailers and other beneficial cargo owners encountering a shortage of container space this peak season need not look far when they point the fingers of blame. That’s because many of the BCOs are using the containers as temporary storage depots, their own warehouses and distribution centers packed to the rafters with holiday season goods.
Why so packed so soon in the peak? Because with barely a month until the East and Gulf Coast longshore contract expires, with talks between the International Longshoremen’s Association and United States Maritime Association inching along, and with the nation’s two largest ports — Los Angeles and Long Beach — facing their own potential labor disruption, U.S. retailers are scrambling to stock as much inventory as possible before any potential disruption erupts.
Sure, the union and management antagonists get a share of the blame for a growing container and chassis shortage. So do financially strapped carriers that have dramatically slowed their equipment orders. But if those factors have brought the equipment shortage to the edge, it could be the shippers who push it over.
Some carriers already are feeling the pinch on containers and chassis, and the peak shipping season still has two months to go.
Or does it? Ships are running close to full on the inbound leg from Asia as importers move up their peak-season shipments. Does that mean the peak could wind down earlier than usual? Maybe.
“Importers are quietly trying to bring in as much cargo as they can before something happens on the East Coast with the ILA and on the West Coast” with the Office Clerical Unit, the International Longshore and Warehouse Union affiliate that has been working without a contract for more than two years at Los Angeles-Long Beach, said an executive with an Asian shipping line who requested anonymity.
BCOs are trying to beat the Sept. 30 deadline for the expiration of the ILA contract, in case the union takes any action to disrupt East and Gulf Coast ports, and to avoid any possible labor action during the OCU talks.
U.S. importers are willingly paying daily detention charges to the carriers that own the containers and chassis because it’s cheaper and more convenient than renting warehouse space at another location. “I’m on the phone every day with our retail customers trying to get them to return the boxes,” said a top executive with a European carrier who also requested anonymity.
Ocean carriers usually allow five days of free time on containers and chassis before charging cargo owners per-diem fees for failing to return them. Charges vary from carrier to carrier, but are generally around $65 a day for the first five days and $100 a day for every day after free time expires until the container and chassis combination is returned.
If the drayage carrier provides the chassis, it bills the importer for detention on the chassis. That can add up quickly for an importer who keeps five containers on chassis at the parking lot around a warehouse that’s run out of space.
If an importer keeps those containers and chassis for 10 days beyond the free time, it would rack up detention fees of more than $4,000. But that still allows for more flexibility and costs less than renting new warehouse space at a different location and rerouting the supply chain.
“They use containers as warehouses, because it’s a heck of a lot cheaper,” the Asian carrier executive said. “If your DC in Newark (N.J.) is full and you’ve got five extra boxes coming in, you have to compare that detention charge to the cost of moving it from your DC to another warehouse, processing it into the warehouse, the receiving charge, the storage charge. Then when you get rid of it, you’ve got a shipping charge. If you’ve got a box at your DC in Newark, and you’ve got to get your hands on a special item in it right way, it’s just sitting there and you can get it out and ship it.”
He said some importers decide to run up the detention charges and then hope to be able to negotiate them down with the carrier. “Carriers cut back on their ordering in the last few years because of some of the challenges they are facing,” said Brian Sondey, CEO of container leasing company TAL International. “We stepped into the breach by buying a lot of containers in the last few years, but we have very limited inventory in the U.S. because we try to concentrate our inventory in the Pacific Rim.”
Carriers’ financial conditions haven’t helped the situation. With industrywide losses mounting into the hundreds of millions of dollars — or more — in two of the past three years, many carriers put a freeze on orders for new container ships and the boxes that fill them. To cut costs, many also stopped ordering replacements for damaged, rusted or lost containers.
But not all carriers are in the same boat. “We are not experiencing container shortages,” a spokesman for APL in Singapore said. “Our box fleet is adequate for our deployment and our customers’ demands.”
Ironically, the shortage is hitting after the global container equipment fleet increased more than expected last year, according to Drewry Maritime Research’s Container Census 2012, published this month. Global container equipment fleet capacity increased 8.5 percent in 2011, taking the global fleet to 31.25 million 20-foot-equivalent units, compared with 7 percent growth in 2010, according to the report. Seventy percent of the growth occurred in the first six months of the year, before the fall-off of new ship orders put a damper on container orders.
As a result, the cost to replace a 20-foot-equivalent dry container has been volatile, climbing 20 percent to almost $3,000 per Capital Equipment Unit in early 2011 before dropping. Drewry expects prices to drop to $2,500 per CEU for the rest of this year and 2013.
The Drewry report said the underlying reason for the slowdown in the latter half of 2011 was an apparent misreading of demand. Few buyers predicted an oversupply of 900,000 TEUs in mid-2011, and more than 500,000 TEUs by the end of 2011, which was exacerbated by a weak peak season. Even so, utilization of the in-service fleet held at a high level, topping 95 percent.
Carriers also largely stopped leasing containers last year as losses climbed. “In good times, you lease as much equipment as you can,” the Asian carrier executive said. “In bad times, you offload all the leased equipment you can, because how much do you want to own during your least busy time?”