Wednesday, 26 June 2019

Commentary: Record number of empties – a logistical fact of life or a symptom of shipping dysfunction?

Note: FreightWaves occasionally publishes commentary from industry sources with expertise, information and opinion on current transportation topics. The opinions expressed in the article are solely those of the author and not necessarily those of FreightWaves. Submissions to FreightWaves are subject to editing. 
The author of this commentary is Nicholas Press, Founder and CEO of CEC Systems, which is located in Sydney, Australia.
The Port of Los Angeles recently celebrated its best-ever April, handling 736,466 twenty-foot equivalent units (TEUs). At a time of global trade uncertainty, a record-breaking month and an improved, year-on-year performance for the first four months of 2019 should be applauded. 
What was interesting, however, was a note at the bottom of the announcement, a little detail slipped in that suggests the stellar month wasn’t purely due to an increase in either imports or exports. It revealed that the port handled 220,189 empty containers (‘empties’), which is 30 percent of all TEUs that passed through the port and an increase of 22.5 percent over the amount handled in April 2018. That’s the equivalent of 10 of the world’s largest container ship, the OOCL Hong Kong, fully laden.
Yet the Port of Los Angeles’ high April empty count is not actually that out of the ordinary across the sector. In fact, depending on where the data comes from, it’s estimated that almost one-quarter of all containers currently in use (i.e. in transit, in a depot or on a quayside) are empty. Twenty-four percent of the container shipping industry’s combined efforts go into the movement and storage of boxes full of air. 
Just a fact of life?
In fairness to the Port of Los Angeles, what it is seeing is in part due to a desire to outrun trade restrictions/tariffs. In a report on Progressive Railroading, Port of Long Beach Executive Director Mario Cordero said the surge in empties was a result of the import rush that occurred during the fourth quarter of 2018, as retailers stockpiled ahead of potential tariffs. “Ocean carriers have been busy repositioning containers back to Asia after sending so many to North America late last year,” Cordero said. “With peak season approaching, we’re expecting imports to continue to grow, but it’s clear exports are suffering under the weight of tariffs.” 
However, the wider issue of empties is not simply a result of tariffs. The way trade works means there is always going to be a surplus of containers in one part of the world and a deficit in another. If every country has a 1:1 import/export ratio then every box that came in would leave filled with something else. The fact is, however, that in the U.S., the U.K., most of Europe and other parts of the industrialized West, more is imported than is exported, and so there is a surplus of empties. 
That situation is also expensive. In 2012, Maersk estimated it cost around $1 billion per year to move empty containers, while in 2015 the Boston Consulting Group put the cost to the entire industry at somewhere between $15 and $20 billion, representing up to 8 percent of a carrier’s typical operating costs.
The costs aren’t going anywhere, and neither is the issue itself. Although certain countries, such as the U.K., might have historically been able to reposition empties back to Asia by exporting waste, that is no longer an option. “Now China has banned the import of these products [waste] and other Asian countries are following suit, [so] there has been an increase in empty containers heading back to Asia,” saidRichard Brough, Technical Advisor at the International Cargo Handling Association. 
A symptom of dysfunction?
Are empties simply a cost-of-business in shipping, or is there something else at play? 
The conversation around empties usually focuses on carriers and the costs they incur in transporting these boxes of air. It makes sense – because they are the container owners (whether literally or via leases), so it is up to carriers to fill them and make the boxes profitable. 
Yet ports themselves also suffer when used as a storage site for empties. When the Port of Felixstowe, the U.K.’s largest, suffered from congestion and delays due to the implementation of a new operating system, the build-up of empties was felt both in the port and in other ports across the country.
This was due to operators switching services to a new destination, such as DP World’s Southampton. The ports themselves were able to handle the new vessels; the problem lay in adjusting inland haulage operations. While an ocean service might be relatively straight-forward to move, complex road and rail movement proved more challenging, limited as they were by existing infrastructure. 
According to one report, midway through October 2018, DP World Southampton was at 98 percent yard density. That’s the critical issue for ports – when yards and quaysides get clogged with containers, whether full or empty, they will struggle to perform their basic function – that of loading and unloading cargo – at an optimum level. 
It can get to the point where terminal operators will refuse to take any more empties until they can free up space, which in turn then impacts the moves a carrier might wish to make. 
Potential answers to an ongoing question
Because dealing with empties is nothing new, it’s unsurprising that different solutions have been proposed over the years. Broadly speaking, the solutions fall into two camps: digital answers that focus on sharing information; and physical ones that look at how actual space can be regained without the costly repositioning of empties. 
In the digital sphere, different businesses, particularly start-ups, are looking at how better use of data can help carriers, shippers and ports understand the number of empties (supply) and container demand in real time. From online marketplaces to GPS tracking, is there a potential solution that would cover a portion of repositioning costs? 
As we head towards a more transparent digital future in shipping, the use of data to help solve the issue of empties is going to become increasingly feasible. That’s if all the parties involved can overcome their current suspicion of anything and everything that might require being open to new solutions and cooperating with one another. 
On the physical side of things, it’s about how a container can be stored in such a way that there are fewer repositioning costs for carriers, but more space. It might be collapsible boxes or being able to combine twenty-foot containers to make forty-foot containers or separate them again. Whatever the solution is, taking a hardware-based approach can not only help those tasked with storing the boxes (i.e. terminal operators) create space when yard density gets perilously high but reduce operational costs and the industry’s impact on the environment. 
It’s likely that none of these, whether digital or physical, alone is the complete answer. Rather, it will require an integrated approach, one that encompasses the entire ecosystem of container management. 
The ideal solution is one that can identify when new containers are required, when space needs to be freed up, where demand is, and how the pressure can be released on all these pinch points by having a clear view of the containers currently in use and those waiting to be stuffed. 
An old issue tackled with new ideas
In a way, the empties problem is much like falling rates, rising fuel costs or the battle for talent – there are so many macroeconomic factors with both indirect and direct influence over shipping that the problem is probably never going to go away. It is both a fact of life and a symptom of wider dysfunction. 
Therefore, it is a case of looking at the old problem in a new way. Some ideas won’t work; that’s a given. Some may work in some parts of the world and not in others. The point is that in an industry that is continually striving for efficiencies, empty containers offer an opportunity, if tackled appropriately, to not be as much as a burden as they currently are.


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