Carriers could cut significant costs by pooling, says grey box pioneer

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The world’s top 30 container shipping lines are now estimated to be spending a combined $20 billion per year on repositioning empty containers, due to the huge imbalances in global trade flows.

According to a recent report, Maersk alone spends $1 billion per year shipping empty boxes to where exporters need them, including more than two million boxes per year just to Asia, representing a huge amount of wastage in today’s global supply chains.

It doesn’t have to be so, said Richard Butcher, chief executive of maritime logistics consultancy Invicta Management Solutions, which was one of the early pioneers of the “grey box” container pooling concept – and he told The Loadstar it should be re-examined in the wake of the financial pressure now bearing down on carriers.

There have been several attempts over the years to introduce grey boxes to the industry. In broad terms this would see a group of carriers putting part of, or all of, their box fleets into a common pool, which would then be managed by an independent company that would match individual carriers’ demands for equipment in specific locations with grey container availability in those self-same regions. The net effect would mean that carriers would have to reposition their branded boxes far less.

So far, the concept has only proved to be operationally successful in single organisations, in particular when one larger line has acquired a number of smaller lines and consolidated their fleets. One example is the work undertaken by Mr Butcher’s company in the 1980s, following OOCL’s takeover of a number UK-based lines, among them Furness Withy Shipping, Dart Container Lines, Manchester Liners, Shaw Savills Shipping, SEAPAC Shipping and Royal Mail Lines, as it sought to increase its exposure to the transatlantic trades (the background to this is interesting in itself – the 1980s were a period of extreme uncertainty for the Hong Kong business community, with the prospect of a British handover of its colony to China, and many magnates were keen to diverse their holdings outside Hong Kong).

Combined, the acquired container fleets of the lines came to some 115,000 units, with an annual operating expense of about $107 million per year. Over an 18-month period, the management of the different fleets combined through a centralised IT system, while analysis of the various demand and supply patterns of the different lines saw the fleet reduced to 87,000 units; the annual operating cost reduced to $85 million a year and 10% greater movement of loaded boxes.

Further successful projects were undertaken for Global Equipment Management, the grouping of various Scandinavian lines, and the group of Italian carriers operating under the Interlogistica banner. All were subsequently broken up when individual carriers were subsequently acquired by larger deepsea container lines in the consolidation phase of the 1990s and early 2000s.

However, migrating that model to today’s environment and getting competing lines to work in a grey box pool has so far proved impossible, partly because of carriers’ commercial departments, Mr Butcher argued.

“The trouble is that commercial departments want to see a box with their logo arriving at the shippers’ premises. It has been the biggest hurdle we have come across.

“The only other thing that would be critical is that you need a very good centralised IT system that takes care of all the bookings, control and maintenance of the fleet, and the trouble is that there aren’t many such systems out there,” he said.

On the face of it, in today’s environment it would appear that the organisations most suited to such a role would be container leasing companies, but Mr Butcher said there is a conflict of interest.

“The fundamental aim of leasing companies is to lease as many units to lines as possible – a grey box pool seeks to reduce the amount of units operated,” he said.

However, with the advent this year of much larger shipping alliances, such as the merger of the Grand Alliance and New World Alliance into the G6 Alliance on the Asia-Europe trade, there is surely an opportunity for the carriers to run trials on selected strings.

Moving from sharing vessels and slots to sharing equipment represents a next logical step.

“Clearly it would be more difficult to start something like this on a global basis, but a certain trade route where there was overlap between carriers would make a good starting point,” Mr Butcher said.

The problem is not inherent to container shipping, but other modes have begun to make inroads into the pooling concept. Air freight is also afflicted by the exorbitant costs of repositioning, according to CHEP Aerospace Solutions, which estimates air freight carriers spend a combined $70 million a year on repositioning empty ULDs [unit load devices].

However, something in the region of 12% of the global ULD fleet is now “owned and/or managed by outsourcing providers”, CHEP’s head of sales and marketing David Babbage told The Loadstar.

“An effective pooling system could save the industry approximately 60% of the $70 million, circa $40 million per year, by our estimates,” he added.