Authors: Dr. Theo Notteboom and Dr. Jean-Paul Rodrigue
The provision and management of containers are assumed by shipping lines and container leasing companies, with the repositioning of empty containers mainly the outcome of imbalances in trade flows.
1. The Box Market
Containerization allows for cargo distribution in a unitized form, permitting intermodal transport through a combination of rail, road, canal, and maritime transport. The growth in global trade and freight distribution has led to the ongoing demand for new containers. Each year, about 1.5 to 2.5 million TEUs worth of containers are manufactured, the vast majority in China, taking advantage of its containerized export surplus. Even if containers are standard load units, they can be segmented into three main markets:
- Dry containers. The most important market where standard containers are used to carry general cargo that does not require any particular condition outside of being protected from the weather.
- Refrigerated containers (reefers). A niche market using specially insulated containers to transport temperature-sensitive goods by keeping the temperature constant, such as below freezing. (See this section focusing on reefers and the cold chain).
- Tank containers. A niche market using specially designed containers to carry food-grade liquids such as wine, vegetable oil, juice, or chemicals.
The global inventory of containers was estimated to be around 37.6 million TEUs as of 2015. This implies approximately three TEUs of containers for every TEU of maritime containership capacity. The container manufacturing market is highly volatile. At the onset of the COVID-19 pandemic, container production reached a peak of about 5.2 million TEUs, due to substantial commercial demands and port congestion, creating a temporary container shortage on global markets. At the start of the COVID-19 Pandemic in March 2020, there was a massive surplus of boxes, including 3 million empty TEUs available at Chinese ports plus another 1.2 million TEUs in storage at container manufacturers. Orders for new boxes plummeted due to this surplus, combined with the expectation that trade would collapse as COVID-19 spread globally. However, the situation reversed in mid-2020 due to a demand surge in North America and Europe. The resulting rise in exports from China led to a flood of orders for new containers, in some cases doubling the price for a standard 20-foot box. Global container production rose to 440,000 in January 2021, far above the average monthly output of 150,000 to 250,000 containers.
China accounts for about 90 to 95% of the global production of containers, which is the outcome of several factors, particularly its export-oriented economy and lower labor costs. Top container manufacturers include China International Marine Container Group (CIMC; the world’s largest shipping container manufacturer with an annual capacity of 2 million containers), Singamas Container Holdings, CXIC Group Containers (CXIC), China Eastern Containers (CEC), and China COSCO Shipping. Considering that China has a positive trade balance, notably in the manufacturing sector, which highly depends on containerization, it is a logical strategy to have containers manufactured at that location. This enables a free movement since, once produced, a new container is immediately moved to a nearby export activity (factory or distribution center), then loaded and brought to a container port. Therefore, a long-distance empty repositioning is not required for the newly manufactured container. Every container utilization strategy must thus take into account production and location costs. As container availability has become of strategic importance to trade, several governments, such as the Ministry of Ports, Shipping, and Waterways in India, have initiated steps to increase the domestic production of containers, thereby reducing their dependence on Chinese manufacturers.
A 20-foot container costs $1.70 per cubic foot to manufacture. In contrast, a 40-foot container costs $0.80, which underlines the preference for larger volumes as a more effective usage of assets. Even so, the 20-foot container remains a prime transport unit, particularly for the shipping of commodities such as grain, where it represents an optimal size taking account of weight per unit of volume capacity of containers, around 28 metric tons.
The great majority of containers are owned either by maritime shipping companies or container leasing companies. With the beginning of containerization in the 1970s, a container leasing industry emerged to offer flexibility in managing containerized assets, enabling shipping companies to cope with temporal and geographical fluctuations in demand. Following a period of growth correlated with the ebbs and flows of global trade, the leasing industry went through a period of consolidation in the 1990s, like the container shipping industry. Container ownership is now roughly divided equally between container leasing and maritime shipping companies, where the share of shipping lines reached 59.8% in 2008 but declined to 48% in 2021. This ownership of containers by shipping lines can be explained by the following:
- Containers allow for clear brand recognition, particularly for shipping lines.
- Containers are an asset that maritime shipping companies make available to service their customers. Providing containers helps increase the utilization rate of containerships.
- A growing level of intermodal integration and control in which maritime shippers interact with port terminal operators (some directly operate port terminals such as APM) as well as with inland transport systems such as railways and inland ports. In such a context, controlling container assets enables more efficient use of the transport chain.
- The rising cost of new containers, the repositioning of empties, and systematically low freight rates along several trade routes have made the container leasing business less profitable. Ocean carriers also have a greater ability to reposition empty containers since they control a fleet and can reposition their empty containers when capacity is available. It is also not uncommon for a whole containership to be chartered to reposition empties.
At the beginning of the 2020s, about 60% of the equipment available for lease was controlled by five leasing companies with fleets exceeding 1 million TEU. If the 13 largest leasing companies are considered, they account for 90% of the global container leasing market and controlled the equivalent of 10.7 million TEU. Shipping and leasing companies often have contradictory strategies in the usage of their container assets. From the point of view of shipping companies, their containers are secondary assets enabling more efficient utilization of their ships through a higher level of cargo control. Consequently, they maximize their ship usage, which is their primary asset, and a container is a tool for this purpose.
For leasing companies, containers are their main assets, and the goal is to amortize their investments through leasing arrangements. These arrangements come into three major categories that differ in terms of the length of the lease and who is responsible for the repositioning of empty containers. In the past, maritime shippers relied extensively on leasing. Still, recent trends underline their more active role in managing container assets, particularly because a container spends a large share of its life span idle or being repositioned.
2. The Chassis Market
Chassis fleets are also an important element of the container market as they are necessary to carry containers by road and sometimes within terminals. Chassis are designed to be interoperable as they are designed to carry any ISO container, although some chassis may be restricted to specific container lengths, such as 20 feet. Some chassis are adjustable to carry containers between 20 and 40 feet, while others can be adjusted to handle less common container sizes such as 53 feet (domestic containers). Even if containers are international transport units either owned by ocean carriers or leased by container leasing companies, their transport between international markets relies on separate regional chassis provision segments. The ownership of containers and chassis is usually separate as each carrier within an intermodal transportation chain controls its own equipment and relies on different chassis provision markets.
In addition to its transport function, a chassis can also be used to store containers at terminals and distribution centers.
- Transport units. Chassis are used to move containers from container yards to distribution centers and to carry moves such as empty container repositioning.
- Storage units. Chassis can be used at terminals and distribution centers to store containers for a period of time. At terminals, the usage of chassis for storage is called wheeled operations.
A common chassis provision business model is for the motor carriers or logistics service providers to own the chassis they use, which is particularly the case in Europe and Asia. Near major intermodal terminals, chassis pools support drayage operations by allowing motor carriers to access and return equipment. This business model is prevalent in North America.
The chassis market is a derived demand of a derived demand. It exists to support container movements, which support trade and commercial flows. The demand for chassis depends on the demand for container shipping, which, in turn, depends on the demand for goods shipped across long distances, especially by sea. Therefore, the chassis market is prone to lag effects and adjustments, as chassis providers seek to match chassis fleets, commonly organized into regional pools, with regional container movements. The chassis market can be considered from a supply and demand perspective:
- Chassis supply. The provision of chassis to a regional drayage market. Chassis are either owned by carriers (motor carriers, ocean carriers, rail carriers) or organized as pools by Intermodal Equipment Providers, which lease chassis through daily (spot) rates or through long-term contracts.
- Chassis demand. Using chassis for drayage by motor carriers or terminal operations at port and rail terminals. For motor carriers, the demand is delimited to a regional area representing the usual distance the containers are carried from intermodal terminals to cargo owners.
3. Empty Container Flows
A container is a transport as well as a production unit that moves as an export, import, or repositioning flow. Once a container has been unloaded, another transport leg must be found, as moving an empty container is almost as costly as moving a full container. Irrespective of whether it is loaded, a container consumes the same amount of space and, therefore, requires the same transport capacity. Shipping companies need containers to maintain their operations and level of service along the port network they call. Containers arriving in a market as imports must eventually leave, either empty or full. The longer the delay, the higher the cost.
In an ideal situation, an inbound container would find an outbound load nearby once it has been unloaded. Repositioning thus begins after a container has been unloaded and involves costs that the shippers must assume. This cost is thus reflected in the costs paid by producers and consumers. Also, empty containers represent development opportunities for export markets as every disequilibrium tends to impose a readjustment of transport rates and can act as an indirect export subsidy. Firms taking advantage of this may reduce, likely temporarily, their transport costs.
An increasing number of containers are repositioned empty because cargo cannot be found for a return leg. The outcome has been a growth in the repositioning costs as shippers attempt to manage the utilization level of their containerized assets. The positioning of empty containers is one of the most complex problems concerning global freight distribution. A highlighted issue is that, under normal circumstances, about 2.5 million TEUs of containers are being stored empty, waiting to be used. Empties thus account for about 10% of existing container assets and 20.5% of global port handling. The major causes of this problem include:
- Trade imbalances. They are probably the most important source of the accumulation of empty containers in the global economy. A region that imports more than it exports will face the systematic accumulation of empty containers. In contrast, a region that exports more than it imports will face a shortage of containers. If this situation endures, a repositioning of large amounts of containers will be required between the two trade partners, involving higher transportation costs and tying up existing distribution capacities.
- Repositioning costs. They include a combination of inland transport and international transport costs. If they are low enough, a trade imbalance could endure without much impact as containers get repositioned without much of a burden on the shipping industry. Repositioning costs can also get lower if imbalances are acute, as carriers (and possibly terminal operators) will offer discounts for flows in the reverse direction of dominant flows. However, if costs are high, particularly for repositioning containers inland, shortages of containers may appear in export markets.
- Revenue generation. Shipowners allocate their containers to maximize their revenue, not necessarily the economic opportunities of their customers. Given trade imbalances and the higher container rates they impose on the inbound trip for transpacific pendulum routes, shipowners often opt to reposition their containers back to Asian export markets instead of waiting for the availability of an export load. For instance, while a container could spend three to four weeks in the hinterland being loaded and brought back to the port, earning an income of about $800, the same time can be used to reposition the container across the Pacific to generate a return income of $3,000. The latter figure could be much higher in case of peak demand.
- Manufacturing and leasing costs. If the costs of manufacturing new containers, or leasing existing units, are cheaper than repositioning them, which is possible over long distances, an accumulation can happen. Conversely, higher manufacturing or leasing costs may favor the repositioning of empty containers. Such a condition tends to be temporary as leasing costs and imbalances are correlated.
- Usage preferences. A large number of shipping lines use containers to brand the company name and offer readily available capacity to their customers. This, combined with the reluctance of shipping lines and leasing companies to share market information on container positions and quantities for competitive reasons, makes it difficult to establish container pools or introduce the ‘grey box’ concept. Still, as demonstrated by the North American rail system (TTX rail equipment pool), it is possible for transport companies to distinctly separate container assets from modal assets so that efficiency (such as the turnover rate) can be improved.
- Slow steaming. Excess capacity and rising bunker fuel prices have incited maritime shipping companies to reduce the operational speed of their containerships from 21 knots to 19 knots, a practice known as slow steaming. The resulting longer transoceanic journeys tie more container inventory in transit, promote transloading in the proximity of port terminals, and reduce the availability of containers inland.
4. Repositioning Scales and Strategies
Container repositioning can occur at three major scales, depending on the nature of the container flow imbalances. Each of these scales involves specific repositioning strategies:
- Local (empty interchange). It occurs regularly as containers are reshuffled between locations where they are emptied and those where they are filled. They are of short duration with limited use of storage facilities since containers are simply in a queue at the consignee or the consigner, especially if the same freight distributor manages them. The availability of chassis compounds this problem.
- Regional (intermodal repositioning). Involves industrial and consumption regions with imbalances, often the outcome of economic specialization. For instance, a metropolitan area having a marked service function may be a net importer of containers. In contrast, a nearby area may have a manufacturing specialization, implying the status of a net exporter. The matter then becomes repositioning the surplus containers from one part of the region to another. This may involve a longer time period due to the scale and scope of repositioning and often requires specialized storage facilities. This scale offers freight forwarders opportunities to establish strategies such as dedicated empty container flows and storage depots (or inland ports) at suitable locations. However, locating empty depots near port facilities consumes valuable real estate.
- International (overseas repositioning). It results from systematic macroeconomic imbalances between trade partners, as exemplified by China and the United States. Such a repositioning scale is the most costly and time-consuming as it ties up substantial storage capacity in proportion to the trade imbalance. Significant inland freight distribution capacities are also wasted since long-distance trade, especially concerning manufactured goods, tends to involve a wide array of destinations in a national economy. This is paradoxical as maritime container shipping capacity will be readily available for global repositioning. Still, high inland freight transport costs could limit the number of empty containers reaching the vicinity of a container port. It may even force an oversupply of containers as the trade partner with a net deficit of containers (exporter) may find it more convenient to manufacture new containers than to reposition existing units, which disrupts the container leasing market.
Empty container repositioning costs are multiple and include handling and transshipping at the terminal, chassis location for drayage, empty warehousing while waiting to be repositioned, inland repositioning by rail or trucking toward a maritime terminal, and maritime repositioning. An empty container takes the same amount of space in a truck, railcar, or containership slot as a full container. Shipping companies spend, on average, $110 billion per year in managing their container assets (purchase, maintenance, repairs), of which $16 billion is for the repositioning of empties. This means repositioning accounts for 15% of the operational costs of container assets. To cover these costs, shipping companies charge higher freight rates on the ‘full’ leg and lower rates on the backhaul. These freight rate practices are thus an important factor in the shipping costs toward developing countries in Africa, Asia, and the Caribbean. The outcome is higher costs for imported goods, which is economically damaging for low-income countries.
Within large commercial gateways, containerized distribution, and empty repositioning are facing numerous challenges:
- Transport companies must cope with access and storing charges at terminals as well as wear and tear on equipment.
- Truck drivers are losing hours waiting to access terminal gates and distribution centers to return empty containers and chassis.
- Terminal operators lose productivity because of congestion and face pressures from localities to reduce the number of idle trucks at their gates.
The fundamental reason behind the repositioning of a container is the search for cargo to ensure the continuity of paid movements. A container is an asset whose usage level is linked with profit, and it must continuously be in circulation. Its velocity involves higher turnover rates, and three main options are available to promote this velocity:
- If there are few opportunities to load empty containers on the backhaul trip, an efficient repositioning system must be in place to ensure the overall productivity of the distribution system. Transloading is part of such a strategy as it frees maritime containers by moving loads into domestic containers so that there are fewer risks of shipping companies imposing surcharges because of imbalanced containerized flows. Opting if and where transloading occurs is the outcome of a tradeoff between its advantages and disadvantages.
- Improve the efficiency of existing cargo rotation with a better link between import and export activities by synchronizing flows. Instead of returning directly to the rail or maritime terminal, an empty container can be brought immediately to an export location to be loaded. However, an asymmetry between import and export-based logistics makes this a difficult proposition.
- Develop an export market taking advantage of filling empty containers with new cargo, notably commodities. This can imply various strategies such as substitution from bulk to containers or setting up consolidation centers enabling the regrouping of small cargo batches into container loads. This particularly benefits small companies and enables them to access new global markets.
The case of the United States is particularly telling. For every 100 containers entering the country, half will be repositioned empty to foreign markets. Of the 50 remaining, most return empty to port terminals awaiting export cargo to become available. The empty container is picked up from the port terminal and taken to a distribution center to return to the terminal once loaded. Only 5 of the 50 containers will be loaded with export cargo shortly after being unloaded of import cargo without coming back empty first to the maritime terminal. Cargo rotation appears as a simple repositioning strategy but requires fairly complex coordination. It can take place if import and export activities are located nearby and thus enable a quick rotation. Otherwise, an intermediary stage implying the usage of an empty container depot is required. Thus, cargo rotation is an operational process for repositioning that can be supported by empty container depots, which are physical infrastructures. Those two elements require a management system where actors involved in supply chains interact to combine mobility needs and the availability of containers.
5. The Digitalization of Containers
Like other elements of the transport sector, containers are being transformed by information technologies. The container is the object of digitalization and the diffusion of smart containers that allow for additional information to be made available to carriers, terminal operators, and cargo owners. This information is related to the identification of the container, its location, and its physical characteristics. In particular:
- The locational coordinates of the container can be used to calculate the estimated time of arrival along the transport chain.
- Temperature, humidity, and air pressure information are particularly relevant for reefers and cold chain logistics.
- Geofencing information can trigger notifications when a container has entered an area (e.g. a terminal) and assess any locational security breach.
- Shock detection assesses if the container was subject to stress levels beyond a defined threshold, particularly if the cargo carried is fragile.
- Information about the container doors and locks, may include details of whether doors were opened during transit.
The goal is to provide a better level of control over the transport chain, which leads to derived benefits for supply chains. It also enables a clearer identification of the liability if theft, damage, or a breach in the container integrity took place.
Concepts have been brought forward to help connect the various commercial needs (imports and exports) with the availability of containers, such as freight exchange platforms and the virtual container yard. These systems imply an online market where information about container availability is displayed without the necessity for the container to be in a physical storage depot. The container can be in circulation or at a distribution center, but the important point is that its availability, both geographically and temporarily, for a new load is known. The main goals of a platform are:
- Display status information about containers, such as their characteristics, location, and availability.
- Improve information exchange between actors involved in supply chain management, such as trucking companies, shipping companies, distribution centers, and equipment leasing companies.
- Transfer the container lease and the related documentation without bringing the container back to the depot or the terminal.
- Assist the actors in supply chain management in their decision-making process concerning the usage of container assets, namely returns, and exchanges.
Therefore, platforms are clearinghouses where detailed information is made available to the involved actors. Small and medium-sized firms are the most likely to use the platform as they generally have less logistical expertise and available resources to manage containerized assets. Large logistics firms and maritime shipping companies are less likely to use such a system since they already have substantial expertise and their own management systems. An emerging strategy to involve all the actors in a platform enabling a market for the exchange of empties. Thus, repositioning strategies are important in managing containerized assets, but effectiveness is difficult to achieve.
- Chapter 1.2 Ports and Maritime Supply Chains
- Chapter 1.3 Ports and Container Shipping
- Chapter 8.5 Containers: The Containerization of Commodities
- Chapter 8.6 Port Cold Chains
- Boile, M., S. Theofanis, M. Golias and N. Mittal (2006) Empty Marine Container Management: Addressing Locally a Global Problem. TRB Annual Meeting, Washington, DC. Paper # 06-2147.
- CPCS Transcom, InterPro Advisory, Prime Focus and Jean-Paul Rodrigue (2012) Guidebook for Assessing Evolving International Container Chassis Supply Models, Transportation Research Board, National Cooperative Freight Research Program, Report No. 20.
- UN/CEFACT (2019) Smart Containers: Real-time Smart Container data for supply chain excellence.
- U.S. Government Accountability Office (2021) Commercial Shipping: Information on How Intermodal Chassis Are Made Available and the Federal Government’s Oversight Role.