Shippers struggle with varying policies on how to secure wheels under their containers.
By Chris Dupin
While a recent study found most U.S. shippers would prefer no change in the way chassis are provided for moving containerized freight to and from ocean terminals, many ocean carriers are steaming ahead with efforts to reduce their chassis costs by owning or leasing fewer units, using pools more, and no longer supplying the equipment on a routine basis.
A potential downside for shippers is that the companies providing containers may view chassis as a business that should make them money, instead of an incurred expense, and could result in higher shipping costs.
The upside, however, is that as the chassis business changes, equipment may be used more productively. This could help prevent costs from rising, or even perhaps reduce them.
But those kinds of gains might require changes in the way that companies handle freight, for example, doing more live unloading of freight as is the case in other countries.
When a shipper arranges the movement of a box between a container terminal and an off-dock location, this is commonly called “merchant haulage.” When the movement between the ocean terminal and an inland destination, such as a warehouse or factory, is arranged by the liner company, it’s dubbed “carrier haulage.”
While carriers continue to provide door-to-door service where they arrange for chassis, some have begun to require shippers to arrange and pay for them as part of merchant haulage.
But the process has been complicated and confusing for shippers, with carriers announcing changes on an individual basis and rolling them out in various locations on different schedules.
Sara Mayes, president of Gemini Shippers Association, said “the whole chassis situation is murky. I think the carriers themselves are confused and change policies as often as they change their underwear.
“All of our carriers have agreed to include chassis for door deliveries, but most now omit it for container yard moves,” she said. Some carriers include chassis in the rates, while others will waive the chassis fee in the locations where they charge it on a case-by-case basis.
“Since many of our members ship under named member-specific bullet rates, we can sometimes arrange member-specific chassis policies,” she added.
“No carrier seems to be clear on their overall policy, except to spew the corporate line about how much money they’re losing and how they shouldn’t be in the chassis business,” Mayes said.
But she said her association has not dropped any of the lines that it contracts with because of changes in their chassis policies.
Dave Akers, managing director of the Toy Shippers Association and several other shippers’ associations, said carriers are more likely to break out chassis costs so that shippers are more aware of what the cost of a chassis is.
He said many shippers are unhappy with the changes, viewing chassis as an essential part of containerized shipping. It’s as if “a grocery store no longer provided shopping carts,” he said.
But Akers noted liner companies continue to be flexible in providing chassis, in part because of the weak economy and competing carriers that are willing to supply them.
Chassis costs are “in the contract and it is going to be broken out in the bill of lading, but it did not become a huge item for negotiations,” Akers said.
Jeff Lawrence, general counsel for the Ocean Carrier Equipment Management Association (OCEMA), a group of 20 container carriers, said “the overall direction that the industry seems to be taking seems to be crystallizing where most of them seem to want to adopt the same approach that is used worldwide, but the precise timeframe and manner in which they do that may vary.”
In most countries, trucking companies moving containers to and from marine terminals provide chassis.
“As ocean carriers, it is really not a core competency and core function for them,” Lawrence said. Chassis are “a motor vehicle and not a ship.”
In April, a new study of container chassis prepared for the U.S. Transportation Research Board by CPCS Transcom, Guidebook for Assessing Evolving International Container Chassis Supply Models
, estimated there are about 725,000 chassis in the United States — 565,000 for ocean containers and the other 160,000 for domestic intermodal containers which are generally wider and longer than ocean boxes.
A recent article submitted to the Transportation Research Forum, “Intermodal Chassis Utilization: The Search for Sustainable Solutions,” said as recent as 2007-2008 the chassis fleet was estimated to be 820,000, but that number may have decreased 10 to 15 percent because of the recession of 2008-2009.
With “around 25 million container transshipments per year, including empty container moves, the mean chassis utilization rate would be a dismal 2.5 trips per month,” said the article authored by Jean-Paul Rodrigue, a Hofstra University professor, and executives John Zumerchik and Jack Lanigan Sr. of Mijack and Marc Barenberg of SoNo International. But they noted “there are nevertheless large deviations in the utilization level, especially due to the varying use of information technology systems and methods to track equipment assets, the ownership of the chassis, and the different business models of the chassis providers.”
However, some shipping executives believe the study’s estimate of chassis use—which would work out to about 30 moves per year—is too low.
Mike Wilson, senior vice president of business operations at Hamburg Süd and chairman of Consolidated Chassis Management (CCM), which manages about 130,000 chassis for container carriers in six pools around the country, estimated chassis productivity has climbed from 34 moves per year in 2009 to 41 in 2011, and could reach 47 by 2014.
The increase in productivity is a result of carriers using more container pools, or a reduction in “wheeled operations” at ocean terminals where containers sit on chassis in favor of “grounded” operations where boxes are stored in piles, as well as more use of trucker-owned chassis.
Wilson said there are some pockets of much higher chassis productivity, notably the Miami area where chassis commonly carry 70 loads or more per year and in the Pacific Northwest more than 75 loads per chassis annually is the average. He said that’s because there are more trucker-owned chassis in those areas due to shuttling cargo to near-dock facilities. The Pacific Northwest also tends to attract heavier freight that requires tri-axle chassis.
Still that is far behind Canada, where chassis are commonly owned by truckers and are used to move more than 200 loads per year.
The number of chassis in use in the United States is startling when compared to other parts of the world. The TRB study—relying on information supplied by the world’s largest manufacturer of chassis and containers, China Intermodal Marine Containers Group—said “the total U.S. chassis supply is roughly five times that of China and likely more than twice the combined supply of East Asia, this despite the latter’s container throughput being significantly larger than that in the U.S.”
It added that “a possible explanatory factor behind the lower supply of chassis in Asia concerns drayage distances and the nature of economic activities. The export-oriented economic development model has favored the setting of factories closer to marine terminals. Drayage distances are relatively short and containers are loaded and unloaded immediately, with the tractor remaining hooked to the chassis and the driver waiting until ready for a next move. The utilization level of chassis assets is therefore higher.”
Steve Rubin, principal of consulting firm InterPro Advisory, which worked on the TRB study, said at the Transpacific Maritime conference earlier this year that in other countries about 70 percent of cargo is unloaded “live” at the delivery destination as the trucker waits, while the study said in the United States “on average, drop and hook service was most typical (62 percent) vs. live unload (38 percent).”
Overseas trucking companies “control the ecosystem of the entire first and last mile” of container movements, Rubin said. In the United States, the typical motor carrier is an asset-light owner-operator.
(Another difference — overseas chassis tend to be beefier because weight limits are often 100,000 pounds versus 80,000 pounds in the United States, and chassis are also adjustable so they can handle 20-, 40- or 45-foot containers.)
Rubin said the bottom line is that these differences mean “we really have to put to rest once and for all that the U.S. can quickly evolve into a Europe or Asia model anytime soon.”
He explained chassis are provided in five ways:
- 29 percent directly from liner carriers.
- 6 percent are from truckers.
- 42 percent come from cooperative pools operated by CCM.
- 17 percent are from neutral pools operators such as TRAC Intermodal, Flexi-Van, and Direct ChassisLink.
- 6 percent come from pools operated by terminal companies, such as Stevedoring Services of America.
Interestingly, Rubin said there are big regional differences, too. For example, neutral pools are more common in the Northeast than in other parts of the country.
In addition to different operating models, he said there are varying billing models for chassis, to the point where in the Port of Oakland, for example, a single motor carrier may provide up to eight different ways to bill for service.
Keith Lovetro, chief executive officer of TRAC, the largest lessor of chassis in the United States, said ocean carriers have become more efficient in their use of chassis in recent years by making a transition from providing the units on an individual basis to customers to contributing their assets to pools, such as those organized by CCM.
But Lovetro anticipates “from the pooling model, it will evolve to the motor carrier model” where truckers will own or lease chassis and provide them to shippers.
His company is currently developing a concept called “TRAC Gray Pool,” which Lovetro believes will be similar to, but an improvement on the CCM pools.
He said the pool would have an open membership that would include a wider range of owners. “We think it will be a fairly open model that will allow a number of contributors in, whether a steamship lines says ‘I want to keep my assets, but I just want to contribute them to a pool,’ or whether someone buys assets and says ‘I represent ABC and XYZ Line, and I want to contribute them,’” Lovetro said.
“We will allow other contributors into the pool, and TRAC will remain the manager and we will also have contributed assets,” he said. “We believe that would create a platform that facilitates an economical way to handle the chassis-use model, but it would also create for the steamship line a platform for taking the next step, which is to evolve to the carrier model.”
“The way we look at it is if the lines are going to exit, someone has to enter,” CCM’s Wilson said. He said truckers and shippers are beginning to show interest in owning and contributing to pools.
“We are still in a very confusing era,” said Curtis Whelan, executive director of the American Trucking Associations’ Intermodal Motor Carriers Conference, which represents the draymen that move containers to and from ocean terminals as well as rail yards. “We don’t always know what our obligations are, who our chassis are being provided by.”
For example, he said when a carrier decides to stop providing drayage service in a particular port, it still may tell a motor carrier to use a particular chassis provider, even if that motor carrier does not have a contractual relationship with the chassis company.
“If I had to write a primer on how to do business as a motor carrier in today’s market, I could not do it because it changes every week,” he said. Still, he added “so far it’s sort of working out, with a lot of angst and stress.”
He said ATA’s membership is now looking at the issue of whether they should create a co-op or some other type of organization that would own chassis. One of the advantages to that, he said, would be that trucking companies might do a better job of maintaining equipment.
Whalen said one of the frustrations for draymen is that they sometimes arrive at terminals to find the container they have been hired to pick-up sitting on a chassis that has been tagged for safety deficiencies. The trucker must then wait in line while the chassis is repaired.
Another looming problem is the age of the container chassis fleet. Chassis have a life of 20 years before they need to be replaced or undergo a major rebuild. The TRB study said 40 percent of marine chassis were built between 1985 and 1997.
While the overall trend has most carriers announcing some changes to their chassis policies, there is a great deal of variation between them, with some making far reaching announcements and deciding to stop providing chassis for merchant haulage in many markets, while others take more gradual changes.
OCEMA publishes a summary of ocean carrier chassis announcements on its Website which is regularly updated, showing announcements by 16 carriers and in which markets they say they will no longer routinely provide chassis to shippers.
Some companies have not owned chassis for many years—for example, Hamburg Süd has not owned any chassis since 1995, but instead relies on leased equipment.
The exit from the chassis business by carriers began to gain speed in 2009 when Maersk created a new company called Direct ChassisLink, which offers the equipment to truckers for short-term hire. Over the next year, the company began making that change in markets across the country. In March, Maersk sold Direct ChassisLink to the private equity company Littlejohn.
At least 14 other carriers made changes to their chassis provisioning in 2010 and 2011 — some such as CMA CGM are making them throughout the country, while others just in a few markets.
This year there has been a flurry of announcements from companies such as Hyundai, COSCO, Hamburg-Süd, Zim and APL.
Singapore-based APL said earlier this year it will begin phasing out its U.S. fleet of container chassis during the first half of 2012, and expects to stop providing chassis at inland locations by the end of the year, divest itself of chassis at East Coast ports in 2013, and complete the phase-out in early 2014.
But Gene Seroka, president of APL Americas, said “we are going to take a very pragmatic approach in working with both the customer and the industry to find the best solutions with respect to the chassis paradigm.
“It is an opportunity for a number of us in the industry to work together. Some carriers have gone in different directions. But this is something we are going to try and test out and work really closely with the community and see what best solutions we can create and still provide the level of service that the customers have requested,” he said.
Among the issues that APL has to juggle, he indicated, are the funds it has invested in chassis and the liability associated with providing chassis if a trucker hauling a container is involved in an accident, as well as making sure shippers continue to have the ability to efficiently move their containers from terminals.
Some carriers say they are not making changes.
“We will remain controlling our own chassis and we do that as a continued service to our clients,” said Allen Clifford, an executive vice president at Mediterranean Shipping Co.
The company has a mix of owned and leased chassis, he said, but “we operate them so that people don’t have to worry that we are going to give your chassis in the near-term future to outside vendors, we are going to control it.”
Mayes said she agrees personally that ocean carriers should not be in the chassis business.
“I always believed that chassis were part of trucking, but I can’t say that to most of our members,” she said. “It bothers me that the chassis fee is different at different locations and the trucker administration fee is all over the place.”
Mayes said she has wanted for several years to arrange something uniform for her association’s members, such as a discounted chassis or administration fee or free chassis if they use a specific drayman, but that things are “too vague and confusing for all parties.”
“Free time for chassis do not match free time for boxes, so that leads to more confusion. Most of our contracts have extended detention time, but members have issues with their truckers about chassis free time,” she said. And carriers and draymen have conflicting stories about fees, who pays, and where to pick up chassis and return them.
It’s common at many distribution centers to see dozens, if not hundreds of containers on chassis, essentially being used as temporary storage.
While this may appear to be a waste of the chassis asset, Akers of the Toy Shippers Association said this may make good economic sense for the toy industry or retailers whose businesses are highly seasonal, adding it would be very expensive for them to build warehouses or distribution centers that would sit empty for most of the year.