A strategy that will reduce empty container costs

A strategy that will reduce empty container costs

Since 2005, international container movements have increased at a 4.6 percent compound annual growth rate (CAGR) based on United Nations Conference on Trade and Development (UNCTAD) data. This growth has been the result of such macroeconomic events as global population growth, a rising middle class in emerging markets, and the expansion of industrialization.

To address the demand for growth, ocean carriers expanded by increasing capacity and raising rates. However, the market soon realized that overinvestment in the ocean market occurred, resulting in a volatile situation with too much capacity and collapsed rates.

Even though consolidation and the reduced number of alliances have helped to control capacity to a degree, carriers’ profits have become pressured.

Not only have profits suffered but also efficiency has increased. For example, 21 percent of transportation and port handling is wasted on empty containers. On the China-Australia route, for every 100 containers into the port of Sydney, Australia exports only 35 containers. This results in a regional accumulation of 65 in every 100 containers that are required to be shipped back north empty.

Where the cost comes is in the storage and handling. The space on the port or empty park that the 65 containers take up costs money on a daily basis. In addition, the loading of empty containers onto the vessel has a per unit cost.

Since, on average, ocean carriers need to fill a ship to at least 91 percent with billable cargo to cover costs, lines are losing hundreds of millions of dollars every year relocating, storing, and handling their container fleets. In addition, the overcapacity issue is a problem now, a lagging effect of the global financial crisis.

Over the next decade, as trade grows and capacity starts to even out with demand, the lines will not want to carry empties, as it will cut into their profit margins. Unless they keep building bigger and bigger ships, there will come a point when empties will once again become a very sensitive issue.

The foldable container

Generally, most people believe digital technologies can solve the empty-container issue. It certainly can improve the situation but no matter how you optimize the movements of empty containers, the biggest waste across the industry is the movement of air.

A collapsible container can significantly reduce the impact of managing empty containers on shipping lines’ operations with the added benefit of significant cost savings. Foldable containers have been around for a while and studies show that they can not only help reduce transportation costs but also solve space constraints at seaports and ship yards. However, the conventional thought within the ocean freight industry has been that because there’s always been ample capacity on ships to carry containers unfolded and also since the containers are mostly owned by ocean carriers, there has been little interest in incurring the extra cost that the folding process creates.

This mindset is incorrect, shortsighted, and shows the lack of knowledge, or perhaps concern, towards inefficient shipping. It not only fosters a false reason to raise rates but it also is a lack of customer care by discouraging any meaningful innovation. Instead, by adopting a collapsible container strategy, one could achieve a significant amount of cost savings as well avoid future heartaches.

A return to basics is needed to address the fundamental issues of overcapacity and empty containers as well as the identification of new opportunities. To generate real, long-term returns, the industry must provide a solution that is simple and compatible, that reduces costs within existing frameworks across the entire network without throwing more money at infrastructure, additional assets, and creating new challenges.

Perhaps it’s time to trial collapsible containers, much like carriers and logistics providers are trialing blockchain, artificial intelligence, and other digital technologies. While these technologies are new and exciting and show a willingness to make much needed change happen, an innovation-mix of both the physical and digital should be considered instead, to provide the best return on investment for the industry.

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

Comments

Interesting thought, not sure really practical. Markets are markets, folding containers won't change those. Maybe some cost savings on inland if somehow the folded containers could be moved stacked in lots of three or four. On the ships, no, as each has to carry its full compliment and folding does little for that requirement - and there is the open question of the costs to fold/unfold, the cost to build those vs fixed positioned standing units. But exploring options always smart thing to do.