Every third container being moved is empty. A number that accounts for at least 60 million empty container moves per year! With this article, we will help you understand the reasons for this massive number of empty containers. As well as help you find strategies to decrease repositioning costs.
Empty container repositioning refers to moving empty containers from an area with a surplus of containers to a location with a deficit. As well as empty container repositioning has an economic downside, that’s not all. It also has an impact on the environment with increased fuel consumption, congestion, and shipping emissions.
Empty container repositioning keeps on growing
It’s an all-too-common scenario: a shipping line has 200 containers in Hamburg. They must be moved to Asia to carry export cargo. None of the shipping line’s northern European customers need these boxes for exports though. That’s why the carrier has to reposition their empty containers from Hamburg to Asia. Something that is expensive and time-consuming.
And container repositioning is a widespread problem in the shipping industry;
It has been an ongoing issue since the beginning of containerization. But it 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. At the same time, Asian ports face severe shortages.
On top of all this, more than 50% of the containers sent to Europe were sent back empty! The costs of moving empty containers are many. They 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. That represents more than 12% of operating costs for shipping lines.
Trade imbalances and 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. These include:
Shipping lines rarely wait for export loads to be available. Instead, they often reposition their empty containers back in Asia. They do this because it could take the shipping line several weeks to find a new customer to export commodities for, load the container and bring back to the port. All that, 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:
Accumulation of containers can happen, If the costs of manufacturing new containers, or leasing existing units, are cheaper than repositioning them. 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.
Sales teams contribute to a high number of unused containers. They focus on increasing headhaul volume rather than optimizing container flows. In a highly competitive shipping market and due to demanding customers, the salesforces concentrate on container availability to sell units to the customer. A high headhaul volume increases storage costs. The cost of ownership per container that you want to have as a reserve is estimated to be at around $0.5 – 1 per dry container per day.
Typically, companies tend to over-forecast demand. Their analysis often relies strongly on agents and gut-feeling. It is not easy to include port congestion, labor strikes, or the weather. The same goes for changes in seasonal and trade demands. Low accuracy of economic forecasts decrease the possible help from these forecasts to help plan purposes. This also leads to unnecessarily high head-haul volume.
A row of issues within a shipping line’s network can cause empty container moves and high storage fees. Such issues can be a delay, the absence of direct vessel, or inland network link between locations. 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 always match customer requirements. Those requirements may be 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. 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?
We can’t entirely avoid empty container repositioning. At least not, as long as there are trade imbalances between Asia and Europe or Asia and the U.S.
At Container xChange we focus on reducing empty container moves. We do that through internal organizational solutions, by reusing empty import containers for exports. xChange also work with intra-channel solutions. Here, we focus on container interchanges through collaboration between shipping lines.
Improving carrier-specific inefficiencies includes the negotiation of better rates with terminals and depots. Or forming strategic partnerships with intermodal operators to decrease repositioning costs. When container repositioning can’t be avoided talking can make a big difference. Reaching out to rail and trucking companies or empty container depot operators and ports can easily lead to a reduction of associated costs. Moreover, shipping lines use jointly procured repositioning services with other carriers to minimize the number of empty containers.
And then we come to internal data optimization. This holds the most significant savings potential for shipping lines. With data optimization, there are many things you can do to improve internal efficiencies. You can, for example, optimize flow forecasting and performance measurement systems. These help sales to improve flow balancing and reduce headhaul volumes. Making better use of internal data can also help with older units. With this data, you can steer these older units to locations with surplus demand. Something that offers excellent opportunities.
A possible future for foldable containers and acquisitions
Many scholars in the maritime industry have been trying to sort the problem of empty container repositioning. Though, without considering the possibility of shipping alliances. There have been other ideas. Such as changing the physical structure of the container. This could be in the form of foldable containers that would make the containers easier to transport. Strategies like these might have problems of their own. And they might not necessarily prove to be better than shipping alliances. But it’s difficult to know, what works without a real-time model.
According to a report by Drewry in 2016, many big shipping lines have started acquiring small and medium-sized shipping lines. This, in an attempt to sort the problem of accumulating empties in surplus locations. It has been a growing trend. One that originated in Europe and is 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. Despite it being the most crucial factor.
How they reposition empties
Shipping lines try to assess the allocation of empty containers based on two deciding factors.
Firstly, they look at the number of containers that are needed at each port. They also look at the number of containers that are ready to be used. As well as at 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.
Empty container repositioning – a global shared equipment pool?
We can also avoid moving empty containers through collaboration. Hinterland triangulation sends import containers directly to export customers of the same company. simultaneously, container interchanges reduce the number of empty containers through partnerships with other carriers.
Jean-Paul Rodrigue states the following 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.”
Let’s put that quote to work. Here’s an example:
Container xChange is the biggest platform for container interchanges with more than 300 customers. We let carriers find partners that move their containers from surplus to deficit locations. xChange does more than help carriers avoid costs of moving empty containers. The online platform also allows carriers to downsize their equipment pools. Carriers can benefit from that on a number of levels. Such as lower capital expenditures, reduced consumption of resources, and reduced costs for depot storage and terminal space.
Money saved is money earned
This online platform matches carriers with freight forwarders, who need containers in a specific surplus location. Container users reposition the carrier’s equipment as one-way containers. They then return the equipment at an agreed depot/ port with an equipment deficit.
There’s money to be saved for every empty container move that shipping lines avoid. These savings are around $200-400 per container. All this money comes from avoiding expenses related to land transportation and terminal usage alone.
Click on the banner below and see how we can help you save money and finally solve the empty container problem!