The role of China as the “factory of the world” for retail products has strongly incentivized the use of 40-foot shipping containers. TEUs – twenty-foot equivalent units –, although they remain the standard in the industry, only make up 20% of the units loaded on the major East-West routes. It therefore seems like it’s time to change this practice.
The use of TEUs (Twenty-Foot Equivalent Units) as a unit of measure in containerized sea freight was passed down from former tariff conferences, whose use ended in 2008. At the time, 20-foot dry containers where the most commonly used unit of shipping on all routes, and 40-foot units (FEU or Forty-Foot Equivalent Unit) were scarcely used. When the era of maritime conferences ended, the industry was left with a freight rate cost calculation method that simply treated 40-foot units as a double 20-foot unit.
Most of the demand for 40’ High Cube Dry units
In the past twenty years, the rapid growth of manufactured product exports from Asia to the rest of the world using FCL/FCL has reshaped the market. Shipping container needs quickly shifted to 40’ General Purpose (dry van) units. And today, most of the demand is for 40’ High Cube Dry units, which seem like the best suited standard for palettized products. Today, one can often see a maritime carrier offer High Cube containers when a 40’ Dry is not available for booking, without charging any additional cost.
Today, the sea freight industry no longer charges the price of two 20-foot units for a 40-foot container, since the price difference between a 20’ and a 40’ is now less than 30%. In many cases, the 40’ High Cube has become the new reference.
20’ units are still used for chemical products, agriculture, as well as for bulk commodities and semi-manufactured products (barrels, big bags, coffee, rice, malt, rubber). Geographically, the demand is still strong on the southern routes, where smaller container ships and Con-Ro vessels operate. But for how long?
TEUs now make up less than 20% of all the containers loaded on the major East-West routes. The demand decreases each year, which also means increased costs for the carriers who have to provide this type of unit to a few loaders in their inland depots. Similarly, for container manufacturers, the demand focuses largely on 40’ High Cube Dry and High Cube Reefer units.
Carriers penalize 20' units
In this last decade, the “threat” to the traditional practice was taken very seriously by the historical users of 20’ units. Shippers have progressively adapted their products and habits to the FEU, because they know maritime companies will not go against this change, initiated by the powerful retail industry.
TEUs are, for the most part, heavy, and often used for long term contracts with low profitability rates. This is the reason why carriers often penalize them with increased fees when their verified raw weight exceeds 18 to 20 metric tons. This policy, which, beyond imposing short term cost increases, penalizes 20’ units in the long run, is commonly accepted in the industry.
The historical practice, which consisted in accepting heavy freight loaded on TEUs for financial security and to stabilize ships is made obsolete by the technological tools available today.
- Maritime companies still offer 20’ units in their “catalogs”, because they are still necessary. But when talking to them, one can conclude that they would like for them to become an option rather than a standard industry practice.
- It’s interesting to note that 3PLs, which make up 50 to 60% of the total sea freight shipping volume, agree with that. They clearly prefer selling 40’ units rather than 20’ ones, because they yield more overall revenue, allow for more flexibility for trucks and frames, and make organizing shipping streams with maritime companies easier.
- In the emerging 4PL practice, all streams and associated shipping capacities where designed for 40’ units rather than TEUs (the same applies for two 20’ units loaded on a dolly).
In terms of price, FEUs now have a completely different value than 2 TEUs. Additionally, the 40’ HC has become the new industry standard. If we look at what the Shanghai Containerized Freight Index (SCFI) for US bound shipment shows, it might be time to adopt FEUs, so as to add transparency and simplify streams.
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