The Container Shortages Crisis: Sailing in the Right Direction
“To reach a port, we must set sail — Sail, not tie at anchor — Sail, not drift.”— Franklin D. Roosevelt.
Shipping companies, ports, and logistics teams have had their hands full. With the ever-rising consumer demand, first-class delivery solutions increased customers’ expectations, along with the urgency to get cargo out at sea. Last-minute reconstructed isolation measures, congested harbors, and lack of communication are causing idle ships, and unreliable vessel schedules are taking boats to ports that are already overcapacity.
The situation is worsened by the issue of empty container repositioning — an industry-wide problem that is caused by general trade imbalances as well as long relocation time, high costs related to safety stock, and unreliable commercial forecasts, which are mainly based on the gut feeling of planners and local managers.
According to the Boston Consulting Group (BCG), the sector facilitates a total of nearly 60 million empty container moves per year at an annual cost of $20 billion to the industry—up to 8% of a shipping line’s operating costs. Furthermore, there are extra costs associated with storing and maintaining these empty containers, meaning the total cost of empty logistics is estimated to be 12%+ of operating costs. With too many containers standing by on land now, the issue became undeniable.
Authorities recognized that failing to clear empty containers off the docks and depots opened Pandora’s box. Their immediate response was to add new dwell fees for owners of stagnant containers. Yet, with multitudes of containers stacked above one another, their deferred penalty would have caused unfair charges to those trapped.
Ocean carriers are looking to the logistics industry for alternatives to cut backlogs and optimize efficiency throughout the supply chain. The methods of tackling inefficient container storage and following container shortages across the industry require a proactive approach to empty container repositioning. Let’s look at some of the challenges causing delays and container shortages and how AI and proactive repositioning can help to resolve them.
Addressing the Empty Container Issue
Let’s start with the empty repositioning challenge. Two major factors affect the operation of container shipping lines when it comes to safety stock. The first is the widespread use of manual planning in Excel, which—despite its prevalence— often results in some overt inefficiencies.
By handling empty container logistics manually through Excel, teams rely on their prior knowledge to make decisions. Because most shipping lines have enough containers in reserve to handle potential surpluses, inefficiencies directly tied to cost are inevitable.
The second issue is the lack of visibility related to these costs. While the logistics team is responsible for container repositioning, procurement specialists are typically in charge of controlling vendor costs. This gulf between shipping activity and budget creates ambiguities in the data, which in turn stifles efficiency, particularly with different types of costs in place, and indirectly affects container shortages.
This can lead to situations in which container shipping lines know the total amount they paid to a certain vendor in a specific location, but the drivers behind these costs are not clear. Many companies are often unaware of exactly how many containers were moved, why they were moved, if it was necessary to move them, or if another vendor could do the same job and at what price.
To put it in a simpler way, because the people in charge of logistics decisions are not always aware of the cost impact of their proposal, the company’s bottom line suffers.
The Cost of Container Storage
Historically, the solution to these dual issues — manual planning tools like Excel, alongside the separation between logistics teams and budgeting departments — has been in keeping safety stock on hand. Local managers decide how many empty containers of each type to keep in a given location, and these containers create three main types of expenses: repositioning costs, storage costs, and costs of ownership.
These costs vary depending on the number of containers and/or days of storage, and typically come out to about $0.5-$1 per TEU per day for normal dry containers. Specialty containers such as reefer or chemical tanks typically cost even more, putting additional strain on a company’s bottom line. For instance, at the peak of the recent conainer crisis in California, the number of empty containers on Port of Los Angeles docks reached 90,000+ units, and the overall storage costs have increased as well.
The upshot is that more containers means more expenses, and less off of them means that you expereince container shortages and won’t be able to service your clietns as good. Rather than continue to operate at suboptimal effectiveness, companies now have the opportunity to seek solutions in improved performance rather than increased container purchasing, especially when there are too many containers staying idle.
Shipping Challenges Caused by the Pandemic
In the meantime, hundreds of ships have idled outside ports globally, from Shenzhen to Los Angeles, some of them waiting over 20 days in line. When a storm arises, containers are often damaged or lost as it causes them to collide or fall overboard. Ports are not centrally managed or maintained by governments in the way that highways are. With a mish-mash of private owners across the supply chain, information gets held up across multiple manufacturers, shipping companies, and ports, delaying processes and creating inaccuracies when the latest data is not shared.
The rise in demand and consumer spending patterns due to the pandemic (centered on imported goods) has led to larger shipping vessels cutting costs. Transporting fewer larger ships reduce fuel demands. However, they take more time to unload and put pressure on large ports, such as the LA port that is already struggling to handle the spike in the market.
How to Set Sail to Avoid Container Shortages
Logistics platforms that connect your teams to satellite data allow you to follow ships across the globe and determine their current position, whether departing, sailing at sea, or unloading. By removing the reliance on information-sharing between shipping companies and ports, you can make real-time judgments and plan accurately, in order to avoid major container shortages.
Vessel speed and directions all feed into the AI to highlight where congestion is at its worst, predict where to expect it, and enable route optimization and forecasting. Monitoring all ports and inputting the final destination into the system allows the AI to recalculate a vast number of scenarios in a matter of seconds. Entering vessel and port size parameters will support the reliable allocation of ships based on predicted port availability, reducing the number of highly congested larger ports.
Sustainability is also an essential factor. Optimized routes and improved container management reduce the distance traveled and the number of partially empty cargo, ultimately reducing your carbon footprint.
The focus is to deliver long-term solutions – optimization, not cutting costs. With better planning, shipping companies can avoid long waits in ports, container shortages and reduce the risk of their cargo being stranded out at sea after poor weather conditions.
Transmetrics Solution to Container Shortages
Modern AI-powered paltforms provide one source of truth for employees and stakeholders – everyone sees the same data. The efficiencies gained leave more time to focus on improving structural processes and work on other initiatives outside of the dread of the same old planning loop over and over again. Transmetrics’ Predictive Container Management, leverages AI to help logistics planning teams in 3 main areas:
- Data cleansing, AI enrichment, and BI reports. These systems allow for the automatic extraction of data from TMS systems, which in turn improves the results of the AI. Accurate overviews allows for the disuse of Excel tables, and an improved ability to measure historical performance and address inefficiencies.
- Business optimization modeling. All relevant costs are re-analyzed for strategic network optimization. What-if scenario building and other modeling methods improve shipment, customer, and lane profitability.
- Predictive resource optimization. By forecasting shipper behavior weeks in advance, and taking into account internal and external variables as well as real-time information, logistics firms can incorporate prediction into their optimization models, enabling better forward-thinking decisions.
By using the platform, planning can calculate the most optimal and actionable global network plan for empty container repositioning, storage, repair, and maintenance. The forecasts are viable for up to 14 weeks in advance, and take into account all the related costs, such as grading, stevedoring, and gate costs.
Transmetrics has helped ocean shipping companies save over 20% of their storage and transport costs, with a further 10% reduction in the total number of containers used and a 15% reduction in repair and maintenance costs.
By working with global, top-tier logistics companies throughout the years, our team has enhanced and refined the Container Management solution to meet the needs of different types of businesses in shipping. Transmetrics has helped ocean shipping companies save over 20% of their storage and transport costs, with a further 10% reduction in the total number of containers used and a 15% reduction in repair and maintenance costs.
These changes are facilitated through the use of Transmetrics’ automated planning system, which allows companies to make thorough, data-driven decisions relating to their empty containers on all levels, whether regional, global, or at individual stations and depots. By improving the visibility of this data and the business processes that relate to safety stock, our clients have maintained these substantial improvements for the long-term.
The Data-Driven Future of Container Shipping
The improvements brought by such platforms as Transmetrics have created substantial improvements for the logistics industry, and they could not have come at a more crucial time. It’s estimated that about 30% of the $20 billion lost to container shipping inefficiencies can be recouped using technologies like Artificial Intelligence and Demand Forecasting.
Such tools allow logistics planners to move away from manual updating and planning based on gut instinct and toward an approach that’s geared around historical data analysis, predictive route optimization, and a drive toward reducing the reliance on safety stock as a matter of course. Furthermore, the emphasis on collaboration is growing in the sector and introducing new and long-needed data standards can help future-proof the shipping industry.
Coupled with Transmetrics’ solution for the empty container repositioning, these collaboration efforts can build a future that focuses on knowing exactly when, where, and why containers are shipped—a substantial improvement over previous tracking methods, and one that simultaneously reduces costs while improving efficiency in global logistics. To see this technology in action, request a demo of Transmetrics Container Management Solution that can help your company achieve higher profits, greater shipping efficiency and deal with the container shortages challenge.