Container shipping transports 95% of all manufactured goods around the world. It is the industry that underpins the global economy – the quantity of goods carried by containers has risen from around 102 million metric tons in 1980 to about 1.83 billion metric tons in 2017, which is now worth over $4 trillion of products.
Every 1 in 3 containers globally is moved empty, and according to Boston Consulting Group (BCG) it costs the industry up to $20 billion per year.
However, the shipping industry still suffers from huge inefficiencies. Namely, empty container repositioning represents a significant problem – every 1 in 3 containers globally is moved empty, and according to Boston Consulting Group (BCG) it costs the industry up to $20 billion per year. Some major ports, such as Port of Los Angeles, in 2017 moved over half of the outbound TEUs empty, the amount which grew by 35.2% in the period of 2010-2017, while loaded TEUs increased by only 13.8%. Even higher growth was seen on the East Coast ports, such as the Port of New York/New Jersey, where empty traffic increased 58.5% from 2011 through 2017.
In the following article, we will take a look at the major industry trends, what influences the problem of empty container repositioning, and how container shipping companies can solve this problem with the help of digital technologies.
Container Shipping Market Outlook
After industry-wide profitability in 2017, the container shipping market outlook was not as positive. Seeking economies of scale and lower unit costs, carriers deployed bigger and bigger ships, already with capacities of over 21,000 TEU (twenty-foot equivalent units). As a result, the world’s fleet capacity continued growing too fast for the demand to cope with it. In addition to the overcapacity issue, the prices for transporting goods have declined. The consolidation wave in the industry over the last few years has created a situation on the market, where the top five carriers managed almost two-thirds of global capacity.
Two other major topics affected the container shipping industry in 2018: the trade tensions between the U.S. and China, the world’s two largest economies, and the Global Sulphur Cap regulation by IMO (International Maritime Organization). The new trade tariffs affected $34 billion worth of Chinese products imported into the U.S., with China taking countermeasures on U.S. imports. At the same time, carriers had to start preparing for the global 0.5% Sulphur cap, which would be introduced in 2020 and would affect up to 70,000 ships, according to IMO estimates. This regulation could lead to a 20-30% increase in total fuel costs, which would ultimately be passed on to customers.
Slowing growth of global world trade volumes and an escalating trade war were expected to continue negatively influencing the container shipping demand in 2019, so cost-cutting has become critical for the container shipping industry.
Main Reasons for Inefficiencies in Empty Container Repositioning
Repositioning of empty containers in the shipping industry represents about 5% to 8% of a shipping line’s operating costs. Further, there are additional costs for storage of empty containers and their maintenance, so the total cost of empty logistics is estimated by Transmetrics to be more than 12% of operating costs.
This industry-wide problem has many aspects to it:
- Trade Imbalances – By far, the main reason for empty container repositioning arises from trade imbalances, where full containers are shipped from export-oriented locations (e.g. Asia), and typically, many of them have to be relocated back empty from import-oriented destinations (e.g. Africa). Roughly, such economic imbalances affect two-thirds of all movements of empty containers.
- Relocation Time – To make it even worse, relocating containers takes several weeks, sometimes months. That is why shipping lines need to understand their demand weeks in advance, relocate containers across their network and maintain safety stocks of empty containers in various locations all over the world – all while trying to lower overall capacity and minimize storage and relocations costs. For example, when carriers want to build up their stock of containers in Asia before the Chinese New Year, then they already have to start relocating containers to Asia in November-December.
- Empty Stock and Its Costs – In order to meet the demand, companies have to decide how many empty containers of each type to keep in each location. There are three main types of costs related to empty stock – repositioning costs, storage costs and costs of ownership. Since moving empty containers uses the capacity of the same ships that move full containers, the repositioning costs for both types are relatively the same. Storage costs depend on complicated contracts with each depot where containers are kept. Typically companies have some free tier, after which they pay different rates depending on the number of containers and/or days. Last but not least, the more containers you want to have in an empty reserve, the more containers you need to have in total, which comes with a cost of ownership of about $0.5-1 per TEU per day for normal dry containers and potentially much more for specialty containers (e.g., reefers, chemical tanks and others).
- Unreliable Commercial Forecasts – Typically, commercial people in the industry are notorious for over-forecasting, and many forecasts are coming from different agents and are based on their gut feeling. Furthermore, there are huge fluctuations in seasonal demand for shipping containers. As a result, the low accuracy of commercial forecasts makes them unhelpful for planning purposes.
In addition, there are two other very important aspects that are applicable to many container shipping lines:
- Using Excel for Planning – Even nowadays, complex decisions for planning empty container logistics are based on the experience of logistics teams and are typically handled manually with Excel, which until today remains one of the most widely used supply chain management tools. Such manual and time-consuming planning is still possible since the majority of the container shipping lines own too many containers in reserve, which leads to significant cost inefficiencies.
- No Clear Visibility on the Costs – In many cases, the logistics team manages empty container repositioning globally, while a procurement team controls vendor costs. With different types of costs in place, that can lead to situations in which container shipping lines know the total amount they paid to a certain vendor in a certain location, but the drivers behind these costs are not clear – for example, how many containers were moved, why were they moved, where were they going, was it necessary to move them, if another vendor could do it, and so on. Thus, people making logistics decisions do not always have a full awareness of the cost impact of their recommendations.
Technologies That Can Solve Empty Repositioning
Luckily, with the advancements of modern technologies, it became possible to tackle the problem of empty container repositioning and optimize day-to-day operations. With the right tools, logistics companies can yield far-reaching business benefits and cost savings without any negative impact on customer service levels. These technologies should closely complement operational expertise in order to ensure that the right equipment is always available at the right location at the right time.
Named among Top 5 AI Startups for Supply Chain Management by Business Insider Intelligence, Transmetrics developed such a solution for predictive empty container management called AssetMetrics. The software consists of three main modules – data cleansing and enrichment, AI-driven demand forecasting based on the historical data and the external factors, and predictive optimization. In just a few clicks, logistics planning teams can calculate the most optimal and actionable global network plan for empty container repositioning, storage, repair & maintenance for up to 12 weeks in advance, which takes into account all the related costs (including grading, stevedoring, gate costs, etc.).
Over the years, Transmetrics has delivered multiple successful projects with top-tier logistics companies worldwide. Companies that work with Transmetrics achieved 20+% percentage savings through the reduction of costs for handling empty containers, in particular, storage and transport costs, and a 10% reduction in the number of containers used. A new automated planning system from Transmetrics allows more thorough and data-driven decisions about the management of empty containers on all levels (station/depot, regional, global) and better visibility on the data and business processes.
Another technology company xChange, a spin-off of Boston Consulting Group, tackles the problem from another side. On their platform for empty containers, members can find partners to match loads and third-party equipment for their one-way container moves. It is claimed to be the first online marketplace for container logistics to help negotiate deals, track containers, and benefit from low demurrage and detention fees on top of that. xChange has over 300 companies on its platform, including ocean shipping lines, container leasing companies, container traders, NVOCCs and some shippers. The service covers 2,500 locations worldwide and offers more than 300,000 potential opportunities to interchange containers. To speed up the contracting process, xChange users sign a multi-party interchange agreement, saving them days or even weeks from setting up legal agreements and negotiating offers. The average savings are estimated at $200–$400 per container, which mainly come from reducing the costs for land transportation and the use of terminals.
Meanwhile, TankContainerFinder has developed a similar solution but for a niche market of tank containers. According to the company’s co-founder Léon de Bruin, the market is vastly fragmented worldwide with 3,000 suppliers of tank containers and more than 10,000 companies on the demand side. TankContainerFinder serves as a logistics matchmaker for tank containers and cargo to more than 900 active users in over 100 countries. Companies can place their requests on the platform, contact suppliers and compare the offers to achieve more efficiency and cost-savings. The site is poised to become the main industry source to search for tank containers with 65% of the global fleet connected through the platform and over 800 inquiries for tank containers.
In collaboration with several partners, The Port of Rotterdam has developed an online depot tool called Navigate. Previously called InlandLinks, Navigate is an online route planner that helps companies find the best and most efficient way to transport container cargo via Rotterdam. But also on top of this, Navigate includes the so-called ‘Empty depots tool’, which quickly finds and indicates locations in Europe for empty container repositioning.
One more online platform called Avantida by E2open (previously an INTTRA company) helps to coordinate land-based activities like container reuse and repositioning. This is how Avantida works: once a container has been unloaded, it should be transported back to the port or assigned depot. With Avantida, logistics companies can request the liner shipping company to reuse the same container and bring it directly to their export customer to be loaded. This direct move eliminates waiting times at terminals and depots and avoids unnecessary empty mileage, which brings additional benefits of reducing carbon emissions and overall transportation costs.
Logistics companies will always need to move empty containers from import-oriented to export-oriented locations and there is not much that can be done about it. There is no way to eliminate the entire $20 billion cost of empty container repositioning, but it is estimated that about 30% of this cost is caused by inefficiencies and can be saved with technologies.
There is no way to eliminate the entire $20 billion cost of empty container repositioning, but it is estimated that about 30% of this cost is caused by inefficiencies and can be saved with technologies.
All of the solutions that are mentioned in the article have already proved their potential to improve empty container repositioning. However, transport companies need to keep in mind that any optimization technology by itself is only a part of the solution to achieve real cost savings in logistics. Companies need to integrate the technologies within the business processes of relevant departments so that their logistics professionals can quickly receive and review software results and are able to execute decisions based on the software’s suggestions.
Empty container repositioning is just one of the major problems that the maritime shipping industry faces. That led to the creation of multiple maritime logistics startups, which are using innovative tools like digital platforms, predictive analytics, fuel efficiency solutions and more to help logistics companies optimize their operations and cut costs. If you are looking for other modern shipping solutions, you can find some of the best maritime logistics startups in the following article: