Every year, 170 million containers move cargo around the world. How amazing is that? But did you know that 50 million of them are moved empty? In this masterclass, we look at different solutions to reduce empty repositioning.
As you can imagine, moving around the boxes filled with air is costing a lot of money. Not to mention the unnecessary CO2 emissions.
CEO & co-founder of Container xChange Dr Johannes Schlingmeier tells us how looking for solutions for empty container repositioning has inspired his team to create Container xChange.
How containers are left empty
In most common scenarios, the containers are loaded at a port in China and send off to Europe or the US. At the point of discharge, after the container is emptied and there’s no cargo to fill it again, the container is moved somewhere else – where cargo is waiting.
Repositioning empty containers is expensive for the industry. If we look at the carriers/shipping lines, they pay almost 8-10% of their total operating costs for moving around the empty containers. That’s more than 20 billion USD per year.
The reasons behind empty container repositioning
Essentially, there are 2 main groups of reasons for empty container repositioning:
1. The structural imbalances
China exports more to the U.S. (and the rest of the world) than vice-versa. No matter how efficient the container system is, there will always be empty containers piling up in the US ports that need to go back to China.
“Not much that we can do about this,” adds Johannes Schlingmeier.
2. Company-specific imbalances or time-specific imbalances
The second reason is more addressable. It’s also where the Container xChange marketplace idea initially came from.
As Dr Schlingmeier explains, the shipping lines – instead of waiting for the cargo in their port of discharge (in Europe or the U.S.) – simply prefer to reposition the empty container to China and get the next profitable deal.
The typical freight rate from China to Europe is double the amount of the rate from Europe to China. From an economic perspective, it might make sense to get the container back to China as soon as possible to fill it with more valuable cargo, than to wait in Europe.
Other important reasons for empty repositioning include:
• Inaccurate forecasts: In the shipping industry, forecasting is difficult and not supported by too much technology yet. If the demand forecast is bad, there are more reasons for short-term repositioning of containers to certain locations.
• Company-specific networks: Let’s say shipping line A has too many containers in Chicago. Because of the structure of this shipping line, they only have 3 routes to get the containers out of Chicago with cargo. So, they can fulfil demands only for 3 directions out of the port. The only other way for them to move the container is to move them empty.
• Little emphasis on the problem: Inside companies, there’s little visibility of the operational costs of empty repositioning. Often companies see the overall costs, but don’t count the costs separately. That makes it very hard to pinpoint the cost of empty container repositioning.
What can be done?
The best way to change this is to decouple the ownership and usage of containers. For the person that operates the container, it doesn’t matter where the actual asset comes from. So, if you’re just renting the container for whatever purpose you need it for, then you don’t care abiut any other parts (for example, repositioning it back). Once you drop it at the specific port, it again becomes free to use for others.
Dr Schlingmeier says that the decoupling strategy has helped other industries before and they can already see the change it brings into container shipping:
“However, what gets us excited is that more and more freight forwarders, NVOCCs and also carriers rely on third party equipment – they spot booked containers for their shipments.”
Container xChange shows that there’s a market price on containers moving out of Chinese, European or US ports alike. A price, that’s not paying for a freight forwarder, or for space on a vessel. It’s just a price for the steel box.