The collapsible container’s superior economics

The collapsible container’s superior economics

The concept of the collapsible container sounds great and makes a lot of sense, but by their very nature they are more complicated to produce versus a traditional container and require more steel. As such, they are more expensive to purchase up front. In addition, the operational costs, such as the equipment and labor necessary to fold the containers, may be off-putting at first glance.

So, why bother, right? Perhaps it’s best that the shipping industry continues to use the traditional container and accept the fees and charges associated with repositioning and storage of these bulky items. After all, as trade expands, fees and charges are increasing and becoming more expensive, correct?

Think again.

The upfront costs may be more, but the economies of scale for collapsible containers are even greater. Consider the repositioning of empty containers. It’s a costly venture in which the global process requires millions of ship, truck, and rail journeys that yield no revenue. Think about airlines. Although you, as a passenger, may enjoy a flight from point A to point B with only a handful of passengers on board, if you do the math you will see there is no way a flight with only a few paying passengers on it could cover the airline’s operating costs. Still, the plane continues to make its way from point A to point B without making money. On an individual flight it can be accepted, but over the long term, it’s just not sustainable. A similar situation exists with shipping lines, but it costs even more, as airlines do not need to manage empty seats as an asset. Boxes on the other hand, full or empty, need to be administered, handled, and moved; hence if they are empty, they do not generate a profit, only an additional cost.

According to Drewry, the net cost of moving empties is about $7 billion per year, an estimate from 2010. Now, consider how ocean freight volumes have boomed since 2010 and double Drewry’s estimate. Indeed, according to the start-up company xChange, an empty container matching service, the cost has skyrocketed to $20 billion — all thanks to the boom in empty containers. Yes, ocean freight volumes have blossomed in recent years, thanks to increasing demand, but for many trade lanes, there has been a demand imbalance. For example, from 2010 through 2017, empties through Los Angeles increased 35.2 percent, while loaded TEU increased 13.8 percent. At Long Beach, container volumes grew 13.7 percent from 2010 to 2017, but empty containers increased 40.6 percent.

Author Dr. Jean-Paul Rodrigue writes in his book, The Geography of Transport Systems, that ship owners allocate their containers to maximize their revenue, not necessarily the economic opportunities of their customers. “In view of trade imbalances and of the higher container rates they impose on the inbound trip for trans-Pacific pendulum routes, ship owners often opt to reposition their containers back to Asian export markets instead of waiting for the availability of an export load. For instance, while a container could take 3 to 4 weeks in the hinterland to be loaded and brought back to the port and earning an income of about $800, the same time can be allocated to reposition the container across the Pacific to generate a return income of $3,000.”

Dr. Rodrigue concludes that “if the costs of manufacturing new containers are cheaper than repositioning them, then an accumulation can happen.”

The collapsible container cost trend line

Reducing the cost to produce collapsible containers is under way but must be considered an evolving process, like all technologies. For example, when cars were first introduced, they were expensive and out of the reach of the typical/common person. Then Henry Ford, the founder of Ford Motor Co., pioneered the assembly line, and cars became cheaper to produce and purchase.

A study from Delft University of Technology, OTB Research Institute for Housing, Urban and Mobility Studies, conducted a cost analysis on the use of collapsible containers. In a port-to-port scenario, by folding and bundling empty containers, which takes place in depots at ports, a $420 savings was achieved by bundling five empty foldable containers into a unit, the size of one standard container. In a door-to-door situation, collapsible containers are folded by the client until a sufficient quantity of empty containers is available for bundled transport to the port. As a result of the temporary storage of empty containers at the premises of clients, the turnaround rate of the containers will be lower than in the case of bundling containers at a local depot. As such, cost savings are estimated at $650.

The use of collapsible containers can lead to substantial net benefits for container transportation, such as operational flexibility and reliability. Also, it can lead to potentially faster ship turnaround times at ports, as a result of empties not having to be specially handled or repositioned on the vessel. As such, instead of four movements, four containers can be moved as one. Essentially, that’s because they are combined and can be handled as fully laden. They can be placed at the bottom of the stack instead of at the top, thus resulting in empties not being double or triple handled as a vessel goes from port to port.

The standard 20-foot container costs about $2,000 to manufacture while a 40-foot container costs about $3,000. In comparison, collapsible containers cost more up front — an average of three to five times that of a standard container. However, the long-term return on investment over the life of the collapsible container dwarfs the upfront capital cost, as well as providing a more-sustainable option. Over time, as more units are produced, the cost of collapsible containers should decrease.

Reducing the estimated $20 billion market for global repositioning of empty containers by utilizing collapsible containers is a win-win for all — ship owner, shipper, and the environment. A long-term strategic approach that embraces a meaningful number of collapsible containers will achieve economies of scale as well as lower unit costs.

Nicholas Press is managing director and CEO of CEC Systems Pty Ltd. Contact him at nicholas.press@cecsystems.co.

 

 

Comments

Interesting theory, not sure of the practicality. Collapsing containers to send them back to wherever on vessels does little as that is a function of the carrying capacity of the vessel - there has to be balance i.e., 10,000 in and 10,000 out. You can't bring in 10,000 and go out with 15,000, it won't work. But possibly on the rail in the US, where in the TP trade as an example, it is a 40% or more empty move westbound. Out of Dallas alone, 12,000 to 14,000 containers a month empty back to LA/LGB. UP and BNSF would have to find a way to "stack" to collapsible boxes and secure them to the unit train cars, possibly changing the numbers of ---- wait a minute, it then becomes a rail car balance, similar to a ship. How would it work???

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