How can we solve the empty container repositioning dilemma?

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Source: modugo

History of the shipping container

Imagine before shipping containers emerged, how the world looked like, and how people transported their goods around the world. Goods had been stored into sacks, bales, barrels, and crates at a port warehouse before an empty available vessel arrived. They were loaded onto the ship by hand, which is an extremely labor-extensive process, known as breakbulk cargo. However, the scend industrial revolution saw the lack of cargo standardization become a real problem when transferring freight from ship to trains was so slow that it caused blockages within ports. It took large ships a week to upload and reload cargo back then. Although there was a need for a standardized method of transport, it required an entire industry to align all types of transportation with the same standard, such as ships, trains, trucks, and port terminals. 

The inventor of the shipping container

Source: Malcolm McLean(wiki)
Source: First Containership, Ideal-X, 1956 (wiki)

Malcolm McLean, widely credited as the inventor of the shipping container, was a road hauler. He started out as a truck driver and founded Mclean Trucking Co. in 1935. After seeing an opportunity to cut costs and to speed up the movement of goods by realizing a standard size box to be loaded onto a ship, he sold his haulage company to set out his plans, purchasing the Pan Atlantic Tanker Company. Later he renamed the company Sea-land shipping. McLean converted his oil tankers into the world’s first container ships. The first container ship was the SS Ideal X, which carried 58 containers from New Jersey to Texas. Finally, he patented the first International Org ISO container in 1956, which was stackable and built with steel without causing damage. It was in the late 1890s that the containers started to be put in use for the US military to get equipment to the troops quickly in the war of Vietnam.  

The growth of the world container traffic 

Source: adapted from Drewry Shipping Consultants and own elaboration.

From the first containerized commercial services in the late 1950s to the rise of the first containerships in the 1960s, the container was not acclaimed technology in global shipping. It was not until 1970 that containers became approved as a transport method, and the investments in containers increased along with a commercial opportunity. With China entering the global economy in the 1990s, containerization started to enormously impacting global trade patterns and manufacturing strategies. Moreover, containerization started to go further inland with rail and barge services. The growth of international trade pushed the surge of container throughput until the financial crisis of 2009-2010 which had a significant blow on container flows. This was the first time that container volumes dropped-a drop of 49 million TEUs (9.3%) between 2008 and 2009. But the growth of throughput resumed afterward. 

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Manufacturers of Containers in the World

Shipping containers played an essential role in ushering the world into globalization during a period of international trade expansion in the 1990s, lowering costs of transportation and opening various distribution channels. Container manufacturers have to consider many factors that affect profitability, such as costs of manufacturing and selling a container, labor costs, etc. In the 1970s, Japan was the leader when it entered into container manufacturing, but its rising costs of production primarily due to labor costs gave its position to Korea. When production costs were seen increasing, Korean manufacturers gave up manufacturing containers and China took the leading position. Since then, China has managed to lead container production volumes with the benefit of its raw material available at lower costs and labor costs in the county. Although Europe may be considered as the second largest container manufacturer in the world, it contributes to no more than 8% of the world’s manufacturing total. 

Shipping containers play a pivotal role in international trading and logistics. Currently, the world’s top 10 shipping container manufacturers are leading the production volume of the global shipping container market. Over 90% of world trade is flowing with a large number of shipping containers and shipping tanks loading, storing, and transporting various goods to every corner of the world. As the demand for shipping is anticipated to increase with the global trading activities growing, the revenues of the world’s top 10 manufacturers are expected to climb in the coming year. Chinese companies are taking up 85 % of the world’s total shipping container production. The two leading Chinese container manufacturers are China International Marine Container Group Co., Ltd (CIMC) and Singamas Container holdings. 

Costs of Repositioning Empty Containers 

Source:pexels

The shipping industry suffers from inefficiencies, which means that empty container repositioning causes a serious problem of every 1 in 3 containers being globally carried empty. This costs the shipping industry up to $20 billion per year. Moreover, after seeing the industry profitability in 2017, carriers deployed bigger ships with capabilities of over 21,000 TEUs, seeking economies of scale and lower unit costs. As a consequence, the world’s fleet capacity continued growing too fast and the prices for transporting goods declined. Over the last few years, the top five carriers managed almost two-thirds of global capacity. Repositioning of empty containers in the shipping industry constitutes about 5% to 8% of a shipping line’s operating costs. Moreover, there are additional costs incurred for the storage and maintenance of empty containers, adding them to the total costs of empty logistics by 12% of operating costs. 

What are the main reasons for economic inefficiencies in Empty Container Repositioning? 

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The empty container repositioning is mostly created by the trade imbalances where full containers are carried from export-oriented locations, many of which ended up being relocated back empty from import-oriented areas. To make it even worse, relocating containers takes several weeks, or months, which requires shipping lines to estimate their demand weeks in advance. For instance, for shipping lines to build up their stock of containers in Asia before the Chinese New Year, they should start relocating containers to Asia from November to December. Carriers also need to consider three main costs incurred by empty boxes: repositioning costs, storage costs, and costs of ownership. Repositioning empty containers is the same rate as moving full containers. Storage costs vary depending on intricated contracts with each depot. Lastly, costs of ownership are about $0.5-1 per TEU per day for typical dry containers but increase more for specialty containers such as reefers or chemical tanks. Moreover, unreliable commercial forecasts contribute to empty containers repositioning. Fluctuations in seasonal demand for shipping containers interrupt business projections, leading to disorienting planning objectives with relatively lower accuracy. 

In sum, since the introduction of containers in the mid-1950s, shipping lines have moved from inefficient freight handling systems to large cellular vessels. The practice of the container improved its productivity and shortened enormously transit time, reducing cargo damage and bringing carriers immense benefits. However, they are also faced with increased complexity along with numerous variables unforeseen and fixed costs. Not only a burgeoning global trade imbalance but the surge of the container volumes has led to an accumulation of empty containers in some port areas and container shortage in other regions. 

How to reduce Empty Container Repositioning Cost

Source:pexels

Forecasting was built exclusively on human knowledge in previous decades, which can approximate actual, while it’s subject to human error and bias. The major obstacle to shipping container flow is to determine how to forecast future shipping patterns with greater accuracy. Fortunately, the digital approach to container shipping repositioning can create new opportunities. Artificial intelligence can bring benefits to shipping operations. AI enables shipping lines to evaluate demand two to three months ahead and avoid profit inhibitors, curbing unpredictability in the supply chains. Although we cannot eliminate the entire $20 billion cost of carrying empty containers, it is said that technologies can save about 30 % of the cost incurred by inefficiencies.  

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