Containers are important assets that have brought tremendous value to the shipping industry, invented by Malcom McLean. As an asset they go through several interactions between point of loading and point of destination, each of these adding complexity and cost to the transfer of goods. Ideally a shipper (let’s say that is you!) wants the right good moved to the right place at the right time, while keeping costs as low as possible. There are several choices and options you have for every individual transport need— but regardless of which move it is, there is the initial decision of SOC or COC.
What is a COC container?
Essentially a container is considered a “COC” when the carrier (container liner or steamship line) owns the container and controls the majority of the entire transport chain. COCs are normally used for standard shipments on stretches with a lot of cargo flow. There is little to no incentive for using your own container if the carrier has ample boxes available and you are paying a fair price for the end-to-end move.
An example would be if you are Beiersdorf, shipping cosmetics e.g. Nivea from Hamburg to Singapore. There is nothing extraordinary about this stretch and usually carriers have enough containers in Hamburg to supply the move. Moreover, Singapore is not a far-flung location which could entail difficulties for the carrier when re-use / moving the container after discharge.
The benefits of a COC containers
Using a COC is simple: You pay the carrier a given “all in” rate to move your freight from A to B and the carrier is responsible to do the “in-between”. This includes the provision of the container itself. One resulting benefit is that once the move has been completed, the consignee does not need to worry about the container anymore. After the container is unstuffed, it is returned to the carrier’s depot and there are no further obligations to move or utilise it.
In cases where the shipment originates in a “high surplus” area—i.e. a region where trade imbalances resulted in an overstock of empty containers—using a COC can even yield significant freight rate discounts. This is true, because the shipper essentially helps the carrier evacuate some of the equipment by using it for export cargo.
Problems arise when it comes to shipments that move away from the standard everyday transport of a carrier. This often leads to situations where the carrier prefers the shipper to “bring his own box”. In the case of our original example, this could mean changing the port of destination from Singapore to Karachi, a location with significant overstock and less sophisticated local processes. The simple and cost effective COC ex Hamburg suddenly gains in complexity which means costs rise exponentially. If the carrier has limited stock of containers in the port of departure or no need for additional units at the point of return (e.g. because in that specific location there are always more imports than exports or it is a remote hinterland location), naturally they will charge you a higher rate to cover their costs.
Besides surcharges on freight rates, driven by demand and supply of containers, it does not take much to turn an easy and efficient COC move into a shipper`s nightmare. The key words here are demurrage and detention. Essentially you have to pay a penalty if you exceed the agreed free time for using the carrier’s container. While this helps to ensure a fast turnaround of the containers (great for carriers!)—for you it can easily destroy the value proposition of using a COC. Demurrage costs can add up quickly to the tune of 15-20 USD per day and are oftentimes outside of your control. This is especially true for locations that are known to have a high process uncertainty, such as slow customs procedures or unreliable port workers.
In our example above, you could imagine the container being stuck in customs for 30 days, thereby racking up additional demurrage charges that destroy your original calculation.
SOCs or “Shipper Owned Containers” are the alternative
A container is considered a “SOC” when the BCO, freight forwarder or NVOCC organizes their own container and then hires a carrier and usually several other parties to transport their goods. Instead of using a container liner’s assets, you “bring our own box” and purchase only the slot on the vessel from the carrier. A frequent example for SOC shipments are project cargoes into remote hinterland location (think of a construction site in the jungle) where it might take 30-40 days to return the container back to the port.
The key advantages of shipper owned containers include
Control of supply: You can source containers on your own, which is essential for locations where carriers are unable or unwilling to provide boxes or only offer them at very high rates.
Control of ownership: You can choose accurately which containers you need in which condition for which periods of time, including whether to buy or simply lease the container depending on the current need
Control of cost: You avoid unexpected demurrage and detention cost as you are not obligated to move and/or return the containers to and from the carrier within a certain time frame.
Challenges with SOC containers
With great power comes great responsibility. A SOC allows for control, flexibility and independence, but this means you must put the time in to find the right partner for every step along the transport. The more effort it takes to organize SOC containers , the lower the net cost/time benefit gets. There are many touchpoints, so when it comes to a standard move where the benefit of a SOC over a COC is marginal, it might not make sense to go through this process. When you organize SOCs, you must also consider what to do with the containers once they have reached the destination. This problem can be alleviated by leveraging one-way containers, cabotage containers, or sell-and-buy-back deals—alternatives that are facilitated through “Container-xChange.com” where container users can find SOC containers, negotiate and execute one-way container moves. We will dive deeper into the different alternatives in a later post.