Getting a grip
Transition to new chassis management model is “painfully slow process.”
The transition to a new chassis management model in which a new set of middlemen have taken over from where ocean carriers left off is still evolving and technical problems are being worked out.
“It has been a painfully slow process,” acknowledged Phil Connors, executive vice president of Flexi-Van.
Flexi-Van has purchased around 13,000 chassis in the last 24 months and Connors still thinks there are chassis out there to be acquired, but warned his firm is not interested in buying assets that aren’t backed by a contract for service. He noted, however, that because the company purchases younger chassis and phases out older units, Flexi-Van may have only added “a couple of thousand” additional chassis to its fleet.
“We don’t need more chassis,” he said. “The deals that we will move into are deals that will in turn be backed by some kind of book of business for some period of time.”
Connors said this new way of doing business with chassis makes sense from the ocean carriers’ perspective. He noted outside the U.S. market carriers had gotten out of the chassis business long ago.
“It’s a good thing for the ocean carriers to try to shed the costs,” Connors said. “At the end of the day, I think more and more of the shippers are starting to recognize that this is going to continue to happen.”
When asked if this new chassis model is positive for shippers, Keith Lovetro, president and chief executive officer of Trac Intermodal, one of the big three chassis providers, said “I think them having control and bringing the chassis into the light of day is good. It will allow the BCO (beneficial cargo owner) to have better control of the last mile of their supply chain. Let the steamships do what they’re good at; they are very good at doing port-to-port transportation.”
With ocean carriers having less control over chassis and transferring the assets over to leasing companies, it’s actually becoming more efficient, Lovetro said, which brings higher utilization to the overall U.S. chassis fleet.
Lovetro has also seen a general increase in prices for chassis users — labor and material costs are going up — since the ocean carriers divested themselves of them. He said more emphasis on safety and security, and the necessity of repairing chassis to strict federal guidelines, also adds to the expense of these assets.
“When it was owned and operated by the steamship lines, [cost] might have been buried inside of an operation,” Lovetro said. “I think you’re finding the true cost of running a chassis fleet is beginning to see the light of day.”
Lovetro estimates Trac has purchased about 30,000 chassis in the last 12 months, and he expects the company to keep buying chassis to fuel its expansion on the West Coast, which he said is expected to happen in the next 12 or 36 months. He did note that of the 210,000 chassis on the market, 90,000 have already traded, and he expects to buy a significant portion of the remaining chassis.
During the third quarter of 2013, Trac turned in a net loss of $6.3 million, an increase from the $4.7 million loss turned in during the same quarter in 2012. For the first three quarters of the year, Trac’s net loss stood at $7.9 million, compared with a loss of $3.1 million during the same period in 2012. Through the third quarter of 2013, leasing revenue came in at $345 million, a significant jump from the $267 million seen in 2012, but total expenses rose by almost $84 million.
Lovetro said not all the chassis in the market will be divested by the shipping lines. Some carriers will maintain a fleet, he said.
“The steamship lines that are electing that strategy are pretty big lines. They actually could have a chunk of chassis,” he said.
Carriers that want to get out of the chassis business aren’t selling them cheap to third-party management firms.
“The steamship lines aren’t dumping them at a discount price; they’re selling them at what I would tell you is a premium,” he said.