Empty Container Repositioning: How to Increase Resilience and Flexibility
For many months the shipping industry has been riding the sky-high container rates wave, but with lowering trade volumes, the tides are turning. This leads to a greater need for efficiency.
Container capacity has been growing at 4% annually until 2021 when the growth was 13%—a triple average increase. Supply chain bottlenecks such as strikes, covid-related closures, and unpredicted circumstances such as the Suez Canal blockage increased the transit time two-and-a-half fold. This meant suppliers needed a lot more containers to fulfill the same amount of business.
However, peaking at 112 days in 2021 and dropping to around 50 days in 2023, transit times have reduced dramatically alongside consumer demand, freeing a lot of containers. As a result, the industry had an excess of 13 million containers globally in Spring 2023. This also pushes down the container rate to pay a shipping line to transport products and the trend still continues.
So, with the high costs of new containers to pay off and slowing revenue, modern shipping lines’ top priorities are resilience and flexibility. Let’s take a deeper look into the reasons behind inefficient repositioning and some methods to improve this.
Main Reasons for Inefficiencies in Empty Container Repositioning
Repositioning of empty containers in the shipping industry represents about 5% to 8% of a shipping line’s operating costs. Further, there are additional costs for the storage of empty containers and their maintenance, so the total cost of empty logistics is estimated by Transmetrics to be more than 12% of operating costs.
This industry-wide problem has many aspects to it:
- Trade Imbalances: By far, the main reason for empty container repositioning arises from trade imbalances, where full containers are shipped from export-oriented locations (e.g. Asia), and typically, many of them have to be relocated back empty from import-oriented destinations (e.g. Africa). Roughly, such economic imbalances affect two-thirds of all movements of empty containers.
- Relocation Time: To make it even worse, relocating containers takes several weeks, sometimes months. That is why shipping lines need to understand their demand weeks in advance, relocate containers across their network and maintain safety stocks of empty containers in various locations worldwide – all while trying to lower overall capacity and minimize storage and relocation costs. For example, when carriers want to build up their stock of containers in Asia before the Chinese New Year, then they already have to start relocating containers to Asia in November-December.
- Empty Stock and Its Costs: To meet the demand, companies have to decide how many empty containers of each type to keep in each location. There are three main types of costs related to empty stock – repositioning costs, storage costs, and costs of ownership. Since moving empty containers uses the capacity of the same ships that move full containers, the repositioning costs for both types are relatively the same. Storage costs depend on complicated contracts with each depot where containers are kept. Typically companies have some free tier, after which they pay different rates depending on the number of containers and/or days. Last but not least, the more containers you want to have in an empty reserve, the more containers you need to have in total, which comes with a cost of ownership of about $0.5-1 per TEU per day for normal dry containers and potentially much more for specialty containers (e.g., reefers, chemical tanks, and others).
- Unreliable Commercial Forecasts: Typically, commercial people in the industry are notorious for over-forecasting, and many forecasts are coming from different agents and are based on their gut feeling. Furthermore, there are huge fluctuations in seasonal demand for shipping containers. As a result, the low accuracy of commercial forecasts makes them unhelpful for planning purposes.
In addition, two other very important aspects are applicable to many container shipping lines:
- Using Excel for Planning: Even nowadays, complex decisions for planning empty container logistics are based on the experience of logistics teams and are typically handled manually with Excel, which until today remains one of the most widely used supply chain management tools. Such manual and time-consuming planning is still possible since the majority of the container shipping lines own too many containers in reserve, which leads to significant cost inefficiencies.
- No Clear Visibility on the Costs: In many cases, the logistics team manages empty container repositioning globally, while a procurement team controls vendor costs. With different types of costs in place, that can lead to situations in which container shipping lines know the total amount they paid to a certain vendor in a certain location, but the drivers behind these costs are not clear – for example, how many containers were moved, why were they moved, where were they going, was it necessary to move them, if another vendor could do it, and so on. Thus, people making logistics decisions do not always have a full awareness of the cost impact of their recommendations.
Improve Strategic Decisions With Container Visibility
You can’t improve what you can’t see; that’s why logistics providers need to create a detailed view of their container operations and processes across the entire network. Detailed visibility on where containers are, the costs associated with being there, longstanding’s, and first-in, first-out (FIFO) violations, can help shipping companies manage and minimize container logistics costs. They can also identify areas for improvement in the process.
Say you had a container in Portsmouth, you would need to know when the container was there, for how long, and the associated costs. This data increases flexibility allowing you to decide whether to relocate containers to more affordable locations during more extended waiting periods.
Integrating container tracking data and financial systems can support resilient cost management. Logistics providers can improve visibility by streamlining their data processes, centralizing internal data sources, improving data quality, and mapping container events and cost data.
Forecast Container Demand
Seeing the demand at different locations is critical to defining optimal stock levels and building data-driven strategies. To do this, logistics providers must review demand data at the most granular level with two outlooks:
- Short-range demand forecasts: Short-range forecasts generally predict a few days or weeks ahead. For example, the optimal demand forecasting window for ocean shipping is 12 weeks. This allows shipping lines enough time to understand where the upcoming demand fluctuations will arise and reposition the empty containers to mitigate them. That’s why short-range forecasts are highly useful in influencing operational planning to help improve the bottom line for companies with low-profit margins.
- Medium to long-range forecasts: These demand forecasts can range from anywhere between half a year to three years. They are for strategic purposes, using data for budgeting and planning purchases of new assets such as ships, trucks, warehouses, and containers.
With the help of modern predictive tools, accurate demand forecasting enables logistics companies to shift to an anticipatory strategy. They can increase resilience in their long-term planning and enhance flexibility in the short term.
Optimize Empty Container Repositioning
According to a Container Shipping Company, Staxxon, the annual operating prices for shipping and repositioning empty containers ranged between $25,000 to $40,000 in 2022. This was due to labor, fuel, and land charges—which have all increased with inflation.
The state of global shipping impacts whether logistics providers opt for a just-in-time approach (JIT) or overstock supply, and it’s a fluid situation. In a year and a half, shipping companies have seen transit times peak and drop, affecting their ability to operate JIT.
If transit times are 112 days and demand is high, shipping companies need extra capacity to support the movement of their goods. However, when both transit times and demand reduce, logistics providers have the flexibility to return their empty containers quickly in time for the next shipment.
Understanding the state of local, regional, or global shipping operations and the logistic provider’s forecasted demand provides a good environment for leaner JIT logistics planning. They are able to minimize their fleet and costs while still being able to satisfy 100% of their demand. And a setup in which safety stocks are significantly lower than traditional buffers can help minimize OPEX costs.
Consequently, shipping lines’ planning teams must continuously monitor the state of shipping operations and their forecasted demand. With the right set of tools providing demand visibility and suggesting the most efficient strategy to resupply, companies can ship the right number of empties, of the right type, at the right time and place. And visibility 12 weeks in advance will help provide time to reposition their assets effectively.
Thanks to the support of AI tools, logistics providers increasingly turn to a just-in-time approach (JIT). Centralized visibility over container costs and management helps them consider all network costs and constraints while streamlining their data processes helps them respond quickly. At the same time, forecasting enhances preparation for long and short-term hurdles to maximize container usage.
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