Chassis Chokepoints

It would be a convenient story line to link one of the major reasons for this winter’s gridlock at the ports of New York-New Jersey and Los Angeles-Long Beach to deficiencies in infrastructure. But the topic that yielded seaports a rare mention in last month’s State of the Union address is just one factor in the winter of discontent that users of the three largest U.S. ports are currently enduring. Of much more immediate impact is the anarchy surrounding chassis, and the root cause of that is to be found not on land but at sea.

As anyone responsible for moving large numbers of containers through major U.S. gateways knows, the availability of chassis on which containers are mounted and hauled among ports, distribution centers and railheads used to be a foregone conclusion. Ocean carriers owned virtually all the chassis, often making them freely available to customers that came to fetch their own containers or used them in providing transportation to inland points.

But in a classic knock-on effect, carriers’ inability to earn profitable freight rates for ocean transits led them to focus on costs in their search for elusive profits. One cost that stood out as having no offsetting revenue was chassis — at least in the U.S., the only market in the world where, thanks to Malcom McLean being a trucker, carriers were obligated by customer expectation to provide chassis.

Beginning about three years ago, following the multibillion-dollar losses racked up by carriers in the aftermath of the Great Recession, carriers’ bottom lines took precedent over concerns about market share. One by one, they began selling their chassis fleets and announcing, one carrier and one market at a time, that chassis would no longer be available. In one such announcement from 2012, OOCL said, “Effective Sept. 1, 2012, OOCL will no longer provide chassis for import and export shipments to/from Atlanta, Ga. All motor carriers, either working as suppliers for OOCL or OOCL customers, must provide chassis for these shipments. Chassis usage fees for Merchant (CY) moves should be billed by the motor carrier directly to their customer.”

To say such announcements — and there have been many — opened a can of worms is an understatement. Carriers were essentially saying to the market, “You guys figure it out. This isn’t our problem any more.” That meant someone else had to pay. Making it harder still is that whoever that someone is, unlike the carriers, they won’t tolerate losses year after year.

There’s no law that prevents a company from walking away from unprofitable business, but unless solutions are found soon, the problem will get worse because the economic growth is accelerating and economists expect a corresponding pickup in growth at U.S. ports this year.

As my JOC colleagues Bill Mongelluzzo and Joe Bonney have been reporting regularly in recent weeks, while the vacuum in chassis provision has been slowly developing for three years, it wasn’t really noticeable until a rush of pre-Chinese New Year cargo flow revealed in recent weeks how incomplete the transition to a new industry model is.

One question is whether the so-called gray chassis pools that have functioned effectively at several smaller ports could be adapted at the main U.S. gateways that are experiencing the greatest strains today. As Mongelluzzo reports, gray chassis can be picked up at a terminal or off-dock storage yard and can be dropped off at a different location. The system eliminates “split moves” where the container and chassis must be dropped off at different locations, causing delays for harbor truckers. The chassis pool at Savannah eliminated shortages and reduced the number of overall chassis needed to serve the port from 8,000 to 2,400, according to Phil Wojcik, CEO of Consolidated Chassis Management, a chassis pool operator that manages chassis fleets on behalf of owners and handles functions such as billing.

But Savannah is fundamentally unlike Los Angeles-Long Beach or New York-New Jersey. The port authority operates Garden City terminal, while terminals at the two larger port complexes are privately run and the ports serve in a landlord role with less control over operations.

For example, there are six chassis pools in Los Angeles-Long Beach serving 13 marine terminals, a chaotic system on the best of days. There are complex issues to be worked through, involving billing and especially longshore labor jurisdiction over maintenance and repair, an issue likely to be raised in upcoming negotiations to replace the contract with the International Longshore and Warehouse Union that expires on June 30.

This is not an issue that will be solved by federal dollars. It will require hard work by all parties involved. The free flow of U.S. trade depends on solutions being found, and quickly.  

Peter Tirschwell is executive vice president/chief content officer at JOC Group. Contact him at ptirschwell@joc.com and follow him at www.twitter.com/petertirschwell.

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