The Repositioning of Empty Containers

Container flows are quite representative of global trade imbalances, which have steadily been growing since the mid 1990s. For instance, there are 1.96 times as much containers moving from Asia to the United States (14.7 million TEUs in 2014) than vice-versa (7.5 million TEU), meaning that the equivalent of 7.2 million TEUs had to be repositioned across the Pacific. More than half the slots of containerships leaving the United States are for empties, particularly for major container ports such as Los Angeles. The Asia-Europe trade route is facing a similar imbalance. It is not uncommon to see whole containerships being chartered solely to reposition empty containers. Thus, production and trade imbalances in the global economy are clearly reflected in imbalances in the physical flows of containers and transport rates. Production and trade imbalances in the global economy result in imbalances in physical flows and transport rates. West to East rates are lower than East to West rates which in theory gives an advantage to American/European exports.

Source: UNCTAD

A container is a transport as well as a production unit and can move as an export, import or repositioning flow. Once a container has been unloaded, another transport leg must be found as moving an empty container is almost as costly as moving a full container. Shipping companies need containers to maintain their operations and level of service along the port network they call. Containers arriving in a market as imports must eventually leave either empty or full. The longer the delay, the higher the cost.

Repositioning begin immediately after a container has been unloaded and it is important since it involves costs that must be assumed by the shippers and are reflected by the costs paid by producers and consumers. Firms taking advantage of this may reduce, likely temporarily, their transport costs.

An increasing number of containers are repositioned empty because cargo cannot be found for a return leg. The outcome has been a growth in the repositioning costs as shippers attempt to manage the level of utilization of their containerized assets. The positioning of empty containers is one of the most complex problems concerning global freight distribution, an issue being underlined by the fact that about 2.5 million TEU of containers are being stored empty, waiting to be used.

The major causes of this problem includes:

• Trade imbalances. A region that imports more than it exports will face the systematic accumulation of empty containers, while a region that exports more than it imports will face a shortage of containers. If this situation endures, a repositioning of large amounts of containers will be required between the two trade partners, involving higher transportation costs and tying up existing distribution capacities.
• Repositioning costs. Includes a combination of inland transport and international transport costs. If costs are low enough, a trade imbalance could endure without much of an impact as containers are repositioned without much of a burden on the shipping industry. Repositioning costs can also get lower if imbalances are acute as carriers (and possibly terminal operators) will offer discounts for flows in the reverse direction of dominant flows. However, if costs are high, particularly for repositioning container inland, shortages of container may appear on export markets.
• Revenue generation. Shipowners allocate their containers to maximize their revenue. In view of trade imbalances and of the higher container rates they impose on the inbound trip for transpacific pendulum routes, ship-owners often opt to reposition their containers back to Asian export markets instead of waiting for the availability of an export load. For instance, while a container could take 3 to 4 weeks in the hinterland to be loaded and brought back to the port and earning an income of about $800, the same time can be allocated to reposition the container across the Pacific to generate an return income of $3,000.
• Manufacturing and leasing costs. If the costs of manufacturing new containers, or leasing existing units, are cheaper than repositioning them, which can be possible over long distances, then an accumulation can happen. Inversely, higher manufacturing or leasing costs may favor the repositioning of empty containers. Such a condition tends to be temporary as leasing costs and imbalances are correlated.
• Usage preferences. A large number of shipping lines uses containers as a way of branding the company name and to offer readily available capacity to their customers. This observation combined with the reluctance of shipping lines and leasing companies to share market information on container positions and quantities for competitive reasons, makes it very difficult to establish container pools or to widely introduce the ‘grey box’ concept.

Container repositioning can take place at three major scales, depending on the nature of the container flow imbalances. Each of these scales involves specific repositioning strategies:

• Local (Empty interchange). Occurs regularly as containers are reshuffled between locations where they are emptied to those where they are filled. They are of short duration with limited use of storages facilities since containers are simply in queue at the consignee or the consigner, especially if they are managed by the same freight distributor.
• Regional (Intermodal repositioning). Involves industrial and consumption regions where there are imbalances, often the outcome of economic specialization. For instance, a metropolitan area having a marked service function may be a net importer of containers while a nearby area may have a specialization in manufacturing, implying a status of net exporter. The matter then becomes the repositioning of the surplus containers from one part of the region to the other. This may involve a longer time period, due to the scale and scope of repositioning and often requires the usage of specialized storage facilities. This scale offers opportunities for freight forwarders to establish strategies such as dedicated empty container flows and storage depots (or inland ports) at suitable locations. However, locating empty depots near port facilities consumes valuable real estate.
• International (Overseas repositioning). Is the outcome of systematic macro-economic imbalances between trade partners, as exemplified by China and the United States. Such a repositioning scale is obviously the most costly and time consuming as it ties up substantial storage capacity, in proportion to the trade imbalance. Significant inland freight distribution capacities are also wasted since long distance trade, especially concerning manufactured goods, tend to involve a wide arrays of destinations in a national economy. This is paradoxical as maritime container shipping capacity will be readily available for global repositioning, but high inland freight transport costs could limit the amount of empty containers reaching the vicinity of a container port. It may even force an oversupply of containers as the trade partner having a net deficit of containers (exporter) may find more convenient to manufacture new containers than to reposition existing units, which disrupts the container leasing market.

Once unloaded, an empty container needs to be repositioned to a new location so it can be reused as a transport unit. It is very uncommon that the location where a container is unloaded is also the location where it will be reloaded, so repositioning is required. An important factor behind the scale and scope of repositioning are trade imbalances. With low imbalances repositioning is not considered a problem while with high imbalances repositioning is not economically feasible. In between, there is a whole range of scales at which a container can be repositioned, with increasing costs. For very long distance international repositioning, where several modal and intermodal movements are required it can even reach a point that it is cheaper to manufacture a new container than reposition another from a distant location.

Source: Reproduce from Dr. Jean-Paul Rodrigue