The current container shortage is seriously disrupting the fluidity of the supply chain. Should shippers build up container fleets of their own? A first response.
Draw me a container…On the shipping planet today, shippers would no doubt happily borrow the words of Antoine de Saint Exupery's Little Prince when he asked the stranded airman to draw him a sheep! "Boxes" are in very short supply.
Let's start with the basics. A container is a form of reusable packaging standardised for multimodal use. Every word in this definition is important. Let's spell them out so as to better understand what a standard "dry van" container is.
- Reusable: The average life of a container is around 15 years if it is maintained regularly. It can be much less, however, if it is used for heavy materials and much more if it is only used for palettes under film.
- Packaging: A container is a parallelepiped metal chassis with a wooden floor, which is fitted with reinforced corner pieces for general handling purposes and floor-level lateral fork slots for handling when empty. Soft steel walls are welded on to the chassis with ribs to give the welded structure greater solidity. Doors fitted with joints are used to close the structure on one side.
- Standardised: The container is an American invention (the original idea comes from military logistics at the end of the Second World War) which is defined according to standards set by the International Organization for Standardization (ISO).
- Multimodal: The container can be switched from road rig to a ship or to a rail waggon without having to be repackaged and without compromising the integrity of the goods which are contained in it.
The container, which has been the basic instrument of the globalisation process which has taken place over the last three decades, has not until now been affected by problems of availability. The global container fleet has pretty well kept up with the expansion of the global shipping fleet and its growth has even accelerated in recent years as China has gradually established itself as the world's "factory".
Market control at stake
By creating a shortage of containers, the disorganisation of the supply chain caused by the Covid-19 epidemic is changing the dynamics of the shipping market. Containers are no longer seen as commonplace but as objects of value. The market is beginning to realise that, without container, global logistics would be paralysed.
A large-scale return to conventional shipping is out of the question. Conventional shipping still exists as a segment of the overall shipping market but is mainly used for goods which cannot be put into containers. Along with the control of shipping capacity, the control of container capacity is now the second key element to control the market from the supply side. This represents a revolution on a market which is more used to seeing the demand side dictate its terms.
The pros and cons of having one's own container fleet
The current shortage of containers is pushing some shippers to ask themselves legitimately whether they should invest in having their own container fleets so as to free themselves of their dependence on the shipping companies. Such containers are known as shipper-owned containers (SOCs).
One should be careful, however, before plunging into such a venture. Containers need regular maintenance, storage space and, by the same token, handling capacity, as well as periodical checks to verify that their structural capacities meet the standards laid down by the Convention for Safe Containers. Account also needs to be taken of the potential for using them for return journeys. If the shipper needs to pay the cost of repatriating his empty containers, such operations cannot be economically justified unless negotiations are carried out with forwarders for the use of their containers. This option is attracting a certain amount of interest at the moment, moreover.
One positive point in this risk versus benefit analysis of container ownership is that, as well as gaining control over the containers themselves, the use of customer-owned containers enables shippers to obtain a discount when they come to negotiate cost and freight terms with the shipping companies, since they no longer have to bear the logistics costs arising from the management and maintenance of the containers or the cost of making them available and returning them after use.
A last point: containers are often used by shippers to store goods temporarily outside warehouses in return for a financial charge which is negotiated with the shipping companies under the heading of detention charges. If the shipper becomes the owner of his own containers, this clearly is no longer necessary.