Containershipping: Restoring Balance
The repositioning of empty containers costs the liner industry an estimated $15-20billion every year according to Boston Consulting Group (BCG), as containers sit idle at a depot or are repositioned to a different loading point while empty. This is time spent not earning revenue, whil incurring additional costs, and is estimated by BCG to account for 5-8% of total operating costs for an average container liner. These expenses can include inland repositioning by rail or road onto a different port or terminal, the costs of shipping to another location, transhipment costs at terminals, and depot storage costs as well as all the associated administrative, handling, labour and third-party costs incurred throughout. This is a significant burden for carriers working hard to maintain already slim margins.
While this has been a problem that has plagued the liner segment for decades, as an industry, we too have been sitting idle while technological and software solutions for addressing this problem have been developing at pace around us. There is a wealth of granular data from ports, terminals and depots now available to us thanks to a greater degree of automation and digitization across global supply chains. With this resource, the liner industry should have far greater control over repositioning operations than it currently does. This is why Softship has paired with the National University of Singapore (NUS) to build a digital solution.
By applying exceptionally complex but reliable mathematical algorithms which configure supply and demand scenarios, software will be able to empirically assess every available repositioning solution given the scenario parameters and calculate the most efficient repositioning route. The result will be more agile, flexible and cost-effective container shipping solutions.
Understanding the root causes
There are several reasons for the repositioning dilemma. An inherent asymmetry in global supply and demand for containerized cargoes is the main causal factor. China exports more containerized cargoes than it will ever need to import from most countries, for example. This means that spent containers are either left collecting dust at the discharge port or terminal or sent to sit in a nearby depot. Each of these containers costs the container line in lost earnings until there is a suitable laden voyage from the same location. This can take weeks or months.
Alternatively, the spent container can be transported empty to a nearby port or terminal to collect a new load or can be sent directly to a customer. Repositioning containers incurs the inland as well as international transport costs involved in moving to a point of demand. In many cases, the reallocation of these vital assets can cost almost as much to move empty as when loaded – all but eliminating the profit gained on some journeys.
When freight rates are particularly high, it is often cheaper to simply purchase a new container where supply is required, rather than incur all the associated repositioning costs. According to figures shared by research group Transport for Geography, about 1.5 to 2.5 million TEUs worth of containers are manufactured annually (with 90% of this happening in China). The group suggests it costs around $2,000 to manufacture a 20-foot container, or $3,000 for a 40-foot container. At the time of writing, the Freightos Baltic Exchange Container Freight Rates puts a 40-foot shipment China/East Asia to North America East Coast at $3276.
Calculating the cost
Currently, most repositioning is calculated using a ‘rule-of-thumb’ assessment of likely supply and demand; rather than business intelligence and careful consideration of every plausible repositioning option. Carriers do not always have specific information for future loadings available, and therefore often have to rely on guesswork. Shipping lines try to pass the additional expense on, but often have to absorb these costs themselves in order to remain competitive.
Despite being a well-established problem, it is still currently very difficult to optimize container repositioning processes. This is because the number of possible repositioning permutations is so high, that with the tools currently available (mostly spreadsheets), it is extremely difficult to identify the most cost-efficient repositioning plan. This is why there is significant opportunity for a software solution to truly revolutionize the liner industry, and to make a measurable improvement to profitability.
This should soon change. Softship, as part of a newly launched research initiative in Singapore is now working to develop a digital solution to this costly problem.
Softship has signed a Memorandum of Understanding (MOU) with a newly launched research institution, The Center of Excellence in Modelling and Simulation for Next Generation Ports (C4NGP), to develop a digital solution for optimizing global container repositioning procedures. The C4NGP, launched in October 2018 is a collaboration between the National University of Singapore (NUS) and the Singapore Maritime Institute (SMI), based at the NUS. Six other industry partners signed their own related MOU’s with C4NGP, and together will jointly develop ‘digital twins’ of next-generation ports and maritime systems.
Establishing a new equilibrium
Softship’s container repositioning tool will seek to simulate and solve the real-world inefficiencies in re-locating empty shipping containers, to create cost savings for container operators and increase visibility across the supply chain. The ultimate objective is to minimize the total relevant costs such as transportation cost, handling cost, and holding cost, while giving liner operators and managers greater control over their operations.
It will make it much easier for operators to understand and visualize exactly where empty containers are, where there is demand for containers and how to optimize the route for reallocation. Having a birds-eye view will make it easier to formulate the most pragmatic solutions, optimize container usage and minimize the time containers spend travelling empty. This will reduce costs, increase container turnaround and lower unnecessary waste in global containerized shipping.
Repositioning of empty containers, and the significant associated costs, is an issue that has plagued the shipping industry for decades and is the result of an inherent geographical trade imbalance which the shipping industry cannot redress, but it should be able to better manage. Container ship owners and operators should no longer sit idle, like their empty assets, as there are solutions to be found.
Read Containershipping: Restoring Balance in Pdf, Flash or Html5 edition of March 2019 Maritime Reporter
Other stories from March 2019 issue
- Containershipping: Restoring Balance page: 16
- Digitalization & A Connected Workplace page: 18
- The Future: Autonomous Robotic Hull Grooming page: 20
- Marine Coatings: Moving with the Tide page: 24
- Can the Cruise Shipping Boom Continue? page: 26
- "The best expedition cruise ship ever" page: 38
- Tech File: SeaGuard high resolution radar page: 42