Reducing the Cost of Safety Stock with Proactive Empty Container Repositioning

Reducing the Cost of Safety Stock with Proactive Empty Container Repositioning
7 min read

2020 has brought new challenges for the container shipping sector. In addition to the existing trade imbalances, the COVID-19 pandemic has negatively affected the industry, creating a new port and travel restrictions for shipping firms to contend with. All of this decreases profitability and puts additional pressure on operations, forcing shipping companies to make tough decisions such as letting go of some of their employees or cutting down trade lanes. The situation is worsened by the issue of empty container repositioning — an industry-wide problem which is caused by the above-mentioned trade imbalances as well as long relocation time, high costs related to safety stock, and unreliable commercial forecasts, which are mainly based on the gut feeling of planners and local managers.

According to the Boston Consulting Group (BCG), one out of three containers is shipped empty, for a total of nearly 60 million empty container moves per year at an annual cost of $20 billion to the industry—up to 8% of a shipping line’s operating costs. Furthermore, there are extra costs associated with storing and maintaining these empty containers, meaning the total cost of empty logistics is estimated by Transmetrics to be more than 12% of operating costs.

These inefficiencies are simply unsustainable for logistics firms operating amidst disrupted supply chains and greater uncertainty compared to the previous years. The methods of tackling the safety stock liability require a proactive approach to empty container repositioning. In order to reap the benefits of improved empty container logistics, it is first necessary to identify why the problem is so prevalent, before understanding the data-driven solution.

Addressing the Empty Container Issue

Two major factors affect the operation of container shipping lines when it comes to safety stock. The first is the widespread use of manual planning in Excel, which—despite its prevalence— often results in some overt inefficiencies.

By handling empty container logistics manually through Excel, teams rely on their prior knowledge to make decisions. Because most shipping lines have enough containers in reserve to handle potential surpluses, inefficiencies directly tied to cost are inevitable.

The second issue is the lack of visibility related to these costs. While the logistics team is responsible for container repositioning, procurement specialists are typically in charge of controlling vendor costs. This gulf between shipping activity and budget creates ambiguities in the data, which in turn stifles efficiency, particularly with different types of costs in place.

This can lead to situations in which container shipping lines know the total amount they paid to a certain vendor in a specific location, but the drivers behind these costs are not clear.  Companies are often unaware of exactly how many containers were moved, why they were moved, if it was necessary to move them, or if another vendor could do the same job and at what price. In short, because the people in charge of logistics decisions are not always aware of the cost impact of their proposal, the company’s bottom line suffers.

The Cost of Safety Stock

Safety Stock

Historically, the solution to these dual issues—manual planning tools like Excel, alongside the separation between logistics teams and budgeting departments—has been in keeping safety stock on hand. Local managers decide how many empty containers of each type to keep in a given location, and these containers create three main types of expenses: repositioning costs, storage costs, and costs of ownership.

These costs vary depending on the number of containers and/or days, and typically come out to about $0.5-$1 per TEU per day for normal dry containers. Specialty containers such as reefer or chemical tanks typically cost even more, putting additional strain on a company’s bottom line.

The upshot is that more containers means more expenses. Rather than continue to operate at suboptimal effectiveness, companies now have the opportunity to seek solutions in improved performance rather than increased container purchasing.

Partnering for Digital Change

Safety stock

Transmetrics’ solution to empty container shipping is AssetMetrics, which increases logistics asset utilization with three levels of value:

  • Data cleansing, AI enrichment, and BI reports. These systems allow for the automatic extraction of data from TMS systems, which in turn improves the results of the AI. Accurate overviews allows for the disuse of Excel tables, and an improved ability to measure historical performance and address inefficiencies.
  • Business optimization modeling. All relevant costs are re-analyzed for strategic network optimization. What-if scenario building and other modeling methods improve shipment, customer, and lane profitability.
  • Predictive resource optimization. By forecasting shipper behavior weeks in advance, and taking into account internal and external variables as well as real-time information, logistics firms can incorporate prediction into their optimization models, enabling better forward-thinking decisions.

By using the platform, logistics planning teams can calculate the most optimal and actionable global network plan for empty container repositioning, storage, repair, and maintenance. The forecasts are viable for up to 12 weeks in advance, and take into account all the related costs, such as grading, stevedoring, and gate costs.

Transmetrics has helped ocean shipping companies save over 20% of their storage and transport costs, with a further 10% reduction in the total number of containers used and a 15% reduction in repair and maintenance costs.

Transmetrics has helped ocean shipping companies save over 20% of their storage and transport costs, with a further 10% reduction in the total number of containers used and a 15% reduction in repair and maintenance costs.

By working with global, top-tier logistics companies throughout the years, Transmetrics has enhanced and refined AssetMetrics to meet the needs of different types of businesses dealing with logistics assets. Transmetrics has helped ocean shipping companies save over 20% of their storage and transport costs, with a further 10% reduction in the total number of containers used and a 15% reduction in repair and maintenance costs.

These changes are facilitated through the use of Transmetrics’ automated planning system, which allows companies to make thorough, data-driven decisions relating to their empty containers on all levels, whether regional, global, or at individual stations and depots. By improving the visibility of this data and the business processes that relate to safety stock, our clients have maintained these substantial improvements for the long-term.

The reinvigorated attention paid to empty container costs has spurred the development of new platforms, services, and marketplaces aiming to reduce costs and improve collaboration. One such platform is xChange, an online marketplace for container shipping companies to find SOC containers and benefit from low demurrage and detention fees. xChange has over 300 companies on its platform, including ocean shipping lines, container leasing companies, container traders, NVOCCs, and some shippers.

The Data-Driven Future of Container Shipping

Logistics Demand Forecasting

The improvements brought by software tools such as AssetMetrics and platforms like xChange have created substantial improvements for the logistics industry, and they could not have come at a more crucial time. It’s estimated that about 30% of the $20 billion lost to container shipping inefficiencies can be recouped using technologies like these.

These tools allow logistics planners to move away from manual updating and planning based on gut instinct and toward an approach that’s geared around historical data analysis, predictive route optimization, and a drive toward reducing the reliance on safety stock as a matter of course.

Furthermore, the emphasis on collaboration is growing. Some of the biggest names in container shipping have come together to establish a Digital Container Shipping Association (DSCA). Now representing over 70% of the container shipping industry, this collaborative body can help future-proof the shipping industry by introducing new and long-needed data standards.

Coupled with Transmetrics’ solution for the empty container repositioning, these collaboration efforts can build a future that focuses on knowing exactly when, where, and why containers are shipped—a substantial improvement over previous tracking methods, and one that simultaneously reduces costs while improving efficiency in global logistics. To see this technology in action, request a demo of AssetMetrics today and see how Transmetrics can help your company achieve higher profits and greater shipping efficiency.

Safety Stock

Alternatively, you can join us for a webinar about Just-in-Time Shipping where the Transmetrics team will provide practical insights on how Container Shipping Lines can introduce a smart and data-driven approach to the empty container moves and reduce repositioning, storage, and maintenance costs for the container fleets.

Mark your calendars for October 1st at 4 pm CET and move one step closer to implementing the Just-in-Time Shipping in your business!

Acknowledgment

The Transmetrics project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 945610.