Empty container repositioning refers to the process of moving empty containers from a surplus to a deficit location. It’s an all-too-common scenario: a shipping line has 200 containers in Hamburg that must be moved to Asia to carry export cargo. None of the shipping line’s northern European customers needs these boxes for exports though. That’s why the carrier has to reposition their empty containers from Hamburg to Asia, which is expensive and time-consuming. Container repositioning is a widespread problem; every third container being moved is empty! That’s at least 60 million empty container moves per year and has not only economic impact but also sustainability impact through the reduction of fuel consumption, congestion and shipping emissions.
It has been an ongoing issue since the beginning of containerization but has gotten worse due to the rapid volume growth and regional differences. The main factors are trade imbalances and carrier-specific inefficiencies. European and American ports have been experiencing a high surplus of empty containers, while Asian ports are facing severe shortages. More than 50% of the containers sent to Europe were sent back empty! The costs of moving empty containers include handling charges at terminals and ports, storage and maintenance at warehouses, inland transportation by rail or truck and seaborn repositioning. Research shows that container repositioning costs the industry (mainly shipping lines) more than $20bn per year and represents more than 12% of operating costs for shipping lines. With this article, we help you understand the reasons for this massive number of empty containers and help you find strategies to decrease repositioning costs.
Main reasons for empty container repositioning: trade imbalances and operational inefficiencies
Approximately two-thirds of all movements of empty containers arise from structural trade imbalances. Some countries, such as China, export more than they import – as a result, carriers must reposition their empty containers to these countries. The remaining one-third of repositioning costs relate to carrier-specific inefficiencies that include:
Revenue generation: Shipping lines often reposition their empty containers back in Asian export markets instead of waiting for the availability of an export load. It could take the shipping line several weeks to find a new customer, load the container and bring it back to the port to earn profits of approximately $800. Instead, carriers reposition the empty container across the Pacific and generate a profit of $3000.
Manufacturing and leasing costs: If the costs of manufacturing new containers, or leasing existing units, are cheaper than repositioning them, then an accumulation can happen. Inversely, higher manufacturing or leasing costs may increase empty container repositioning. Sometimes, it is even cheaper to sell containers in surplus locations and buy new units in Asia.
Head-Haul volume: Sales teams contribute to a high number of unused containers by focusing on increasing head-haul volume rather than optimizing container flows. In a highly competitive shipping market and due to demanding customers, salesforce concentrate on container availability to sell units to the customer! A high head-haul volume increases storage costs and the costs of ownership per container you want to have as a reserve is estimated to be at around $0.5 – 1 per dry container per day.
Unreliable forecasting: Typically, companies tend to over-forecast demand, and their analysis often relies strongly on agents and gut-feeling. It is not easy to include port congestion, labour strikes or the weather and changes in seasonal and trade demands. Low accuracy of economic forecasts makes them not helpful for planning purposes and leads to unnecessarily high head-haul volume.
Carrier network: Issues within a shipping lines network such as delay and the absence of direct vessel or inland network link between locations lead to empty container moves and high storage fees. The lack of visibility of containers can be improved with, for instance, tracking devices and better collaboration between channel members.
Specific customer demand: Sizes and types of available empty shipping containers do not match customer requirements such as different container types (reefers, open-top or high-cube containers) and container conditions (cargo worthy, food-grade or newly built units)
No clear visibility on costs: In many cases, the logistics team manages empty container repositioning globally, and a procurement team controls costs on a vendor-based level. That can lead to situations in which shipping lines know total costs, but the drivers behind these costs remain unclear. Their fleet management systems don’t answer questions such as how many containers were moved or why were especially these containers moved?
How can you avoid empty container repositioning?
Empty container repositioning can’t be entirely avoided as long as there are trade imbalances between Asia and Europe or Asia and the US. We focus on reducing empty container moves through internal organizational solutions, intra-channel solutions such as reusing empty import containers for exports and inter-channel solutions such as container interchanges through collaboration between shipping lines.
Improving carrier-specific inefficiencies includes the negotiation of better rates with terminals, depots or the formation of strategic partnerships with intermodal operators to, at least, decrease repositioning costs. Talking to rail and trucking companies or empty container depot operators and ports leads to a reduction of associated costs when container repositioning can’t be avoided. Moreover, shipping lines use jointly procured repositioning services with other carriers to minimize the number of empty containers.
Internal data optimization holds the most significant savings potential for shipping lines. Examples for improving internal efficiencies include optimized flow forecasting and performance measurement systems. These help sales to improve flow balancing and reduce head-haul volumes. Making better use of internal data also helps companies with steering older units to locations with surplus demand that offer excellent opportunities.
Are creative solutions like foldable containers and acquisitions the solution?
Many scholars in the maritime industry have been trying to sort the problem of empty container repositioning without considering the possibility of shipping alliances. Ideas that touched on changing the physical structure of the container, such as foldable containers that would make them easier to transport. These strategies might have problems of their own and might not necessarily prove to be better than shipping alliances. It is difficult to measure its effectiveness without a real-time model.
But, according to a report by Drewry in 2016, many big shipping lines started acquiring small and medium sized shipping lines to sort the problem of accumulating empties in surplus locations. This has been a growing trend that originated in Europe and spreading across the globe with the aim of expanding territories. Unfortunately, the effectiveness of these alliances is not measured by the number of empties reduced, even when it is the most crucial factor.
Shipping lines try to assess the allocation of empty containers based on two deciding factors. Firstly, the quantity of containers needed at each port, ready to be used and the cost estimation between the operating locations. Mathematical models have been developed based on these factors to arrive at an optimum solution. In reality, the target is always to load laden containers on the vessel that has a better profit ratio than the empty containers. Empty containers always have low priority when competing for vessel space with laden containers. Other factors that might influence the loading of empty containers on vessels include the following:
- The vessel capacity
- The demand fluctuation at the deficit location
- The supply fluctuation at the surplus location
- The size of the vessel may vary in an alliance
However, vessels should also allocate space for empty containers to avoid accumulation in surplus locations. For instance, vessels on the stretch between Europe to Asia should reposition the containers to meet the demand in the deficit location.
Collaboration between different stakeholders
Empty container moves can also be avoided through collaboration. Hinterland triangulation sends import containers directly to export customers of the same company and container interchanges reduce the number of empty containers through partnerships with other carriers. Jean-Paul Rodrigue states in his book ‘The Geography of Transport Systems’,” A strategy will therefore be necessary to eventually involve all the actors in a system where a market for the exchange of empties becomes possible.”
An example: Container xChange, the biggest platform for container interchanges with more than 300 customers, lets carriers find partners that move their containers from surplus to deficit locations. In addition to helping carriers avoid costs of moving empty containers, the online platform allows carriers to downsize their equipment pools. Benefits include lower capital expenditures, reduced consumption of resources and reduced costs for depot storage and terminal space. The online platform matches carriers with freight forwarders that need containers in a specific surplus location. Container users reposition the carrier’s equipment as one-way containers and return the equipment at an agreed depot/ port with equipment deficit.
For every empty container move that shipping lines avoid, savings of at least $200-400 per container are generated from the avoidance of expenses related to land transportation and terminal usage alone. To delve deep into the topic of empty container repositioning, watch our free webinar: