With container trailers in short supply, some shippers and truckers are creating dedicated fleets.
Most people don’t give much thought to the chassis. It’s a simple metal frame with wheels upon which ocean containers are placed so they can be towed by truck between warehouses, ports and railheads. The chassis is about as low-tech as tech gets. There’s nothing exciting about it.
But these wheeled frames are a critical component in the international supply chain and increasingly a pain point for businesses as a surge in cargo volume has exposed a dysfunctional system for supplying, distributing and managing them.
At ports where congestion is the most severe—Los Angeles, Long Beach, New York/New Jersey, and Norfolk—a short supply of chassis is blamed by many industry stakeholders as one of the root causes. In reality, the problem has more to do with a misallocation of chassis and utilization levels than an absolute shortage.
Some shippers are trying to secure chassis by hording them on their properties until they are needed to pick up a load or return an empty container, which has exacerbated the shortage.
A few shippers and motor carriers are trying a more innovative approach: Locking up capacity with their own dedicated fleets rather than relying on common chassis pools where, like rental cars, equipment is leased on a daily or short-term basis.
“I would bet in the next six months to a year that the large BCOs (beneficial cargo owners) will even mandate that their larger drayage companies do that to service their needs,” Alex Cherin, executive director of the Harbor Trucking Association in Southern California, said during a Jan. 14 panel discussion at the Transportation Research Board’s (TRB) annual conference in Washington.
A Market In Flux. The current mess can be traced back several years to the decision by ocean carriers to exit the chassis business in the face of mounting losses during the recent economic downturn.
The new market is fragmented and evolving. A majority of shipping lines no longer provide chassis as a free service built into the inland portion of their rate. Many sold their fleets to leasing companies, but those sales often came with strings requiring the equipment to be exclusively used for their containers, which placed continued control with carriers. Some vessel operators still directly provide chassis to customers in certain ports.
Canadian transport consulting firm CPCS estimates that leasing companies now own 87 percent of the ocean container chassis in the United States. In a 2012 report sponsored by the U.S. Department of Transportation, CPCS and its research partners estimated there were 565,000 international chassis, with 75,000 of those inactive because of maintenance issues. The combined fleet has probably not changed much since then because leasing companies have not invested in new equipment.
In most parts of the world, chassis primarily are owned and managed by motor carriers, and fleets are relatively smaller. In most cases, CPCS Vice President Marc-André Roy said, in his TRB presentation, drayage is characterized by live-load/unload situations where the truck driver waits with the chassis for the container to be stuffed or emptied. The system overseas is influenced by the fact that drayage distances are relatively short with factories located close to ports.
The U.S. logistics industry tends to follow the drop-and-hook model, which requires more chassis than containers at any given time because equipment may be idle at a terminal or warehouse.
Several chassis supply models, varying by region, currently exist in the United States, in addition to the traditional ocean carrier model. Leasing companies own and manage their pools, which are viewed as “neutral” because they are not ostensibly associated with any particular carrier. Some marine terminals also manage pools of chassis owned by a combination of ocean carriers, leasing companies or the terminal itself. Co-op pools include chassis owned by ocean carriers or leasing companies that are managed by an independent third party.
These shared fleets allow a contributor’s customers to use any chassis without regard to the actual owner. Contributors can rent out as much equipment as they provide to the shared fleet. The pools cover a defined geographic area and usually have numerous pick-up/drop-off locations. The pool manager keeps track of who is using which provider’s equipment for billing purposes, inspects returned equipment for damage, maintains equipment on behalf of the owners and ensures fluid traffic flow within the depots.
The major chassis leasing firms are Flexi-Van Leasing, TRAC Intermodal and Direct ChassisLink.
The existing system and the transactional nature of chassis usage has created an imbalanced supply situation, which has become more pronounced during the past 18 months with the deployment of massive new containerships and creation of new ocean carrier alliances that have vessels calling at different terminals. It was easier for all parties when an OOCL vessel, for example, arrived each week at the same terminal to discharge and load containers. But under the alliance structure, OOCL (a G6 Alliance member) boxes might ride one week on an APL vessel and the next on an NYK vessel. Those carriers have arrangements with different terminals, where OOCL-affiliated chassis are not stored. Truckers are forced to drive to other terminals to claim or return a chassis and wait in long lines, cutting into their daily driving limit.
Flexi-Van and DCLI, with the help of local port authorities, are in the process of establishing a “gray” chassis pool that will enable the interchange of chassis across multiple pools in the Los Angeles metropolitan area.
BCOs Take Charge. A recent trend that has yet to fully catch on is for large retailers to take control of their own fleets or work out deals with preferred motor carriers to own and manage a fleet of chassis on their behalf. Think of it as the port drayage version of dedicated contract carriage in the truckload industry.
The most well-known example of a shipper with a dedicated chassis fleet is Lowe’s.
In 2012, the home improvement retailer launched a program in the Southeast under which it covers long-term leases between its trucking companies and Flexi-Van for more than 1,000 chassis. Flexi-Van provides management services, including tracking the chassis and arranging maintenance with unionized longshoremen.
The closed pool is used to move containers between container terminals in Jacksonville, Savannah, Charleston and Norfolk to Lowe’s distribution centers or other import facilities.
Instead of obtaining door rates, the company now books cargo for delivery to U.S. ports and arranges inland transportation itself.
“It has worked well. Those chassis do not reside at our terminal. They come and go. And that honestly is the best model for a terminal because it’s not an asset that’s [taking up space] on a facility,” Griffith Lynch, the chief operating officer of the Georgia Ports Authority, said before the holidays at the Journal of Commerce’s Port Productivity Summit in Newark, N.J.
At the South Carolina International Trade Conference in September, Flexi-Van Executive Vice President Philip Connors urged shippers that want to set a similar program to start the process early because it can take months to work out arrangements.
“Chassis retained by a port shuttle carrier or in a dedicated loop with a beneficial cargo owner operate at a significantly lower cost” than those in chassis pools because they are not subjected to potential damage from being stacked and unstacked, or parked, in terminals, don’t require repositioning and are in constant use, Stan Portlock, vice president of pool activities for Flexi-Van, said in an interview.
And, he added, the trucker who controls a chassis has a vested interest in keeping it in working order.
The time a chassis sits at a terminal between moves adds to the daily rate because the capital costs are being born by the billable days. According to data provided by Flexi-Van, utilization rates for the L.A. Basin Pool have declined sharply, with dwell times for chassis under load at a marine or rail terminal up almost 20 percent in October from the prior year. Chassis spent even more time at shipper or trucking facilities, with almost half the chassis held by customers between six and 30 days. On certain days in November about 15 percent of the fleet had been idle for more than 15 days
“I think this year you will see the larger BCOs and their larger drayage providers get into that business, just for simple survival in the short term,” Cherin said. “As a result, you’re going to see the well capitalized drayage companies do well. You’re going to see the mom-and-pop guys go away or consolidate.”
Portlock predicted large shippers will eventually move away from common user pools, where they have to fight for equipment in the spot market. The common pools will be geared for the occasional user who can’t justify having its own fleet.
“We’d lease a fleet to an importer and included in the lease would be our obligation to maintain the fleet and have a depot. That’s most cost efficient for them and for us because they can use that core fleet as much as possible and use the chassis pool for additional peak requirements,” he said.
Lowe’s, for example, uses the South Atlantic Chassis Pool for buffer stock when it needs more chassis. Flexi-Van belongs to this pool, which is run by Consolidated Chassis Management.
Bridge Terminal Transport, a major port drayage company, has leased more than 500 chassis for specific customers in select lanes, Chief Executive Officer Hans Stig Moller said.
“And I expect to expand this model into other markets,” he added.
Bridge specified that radial tires and LED lights be installed on its chassis because they improve safety and require fewer repairs. The long-term lease reduces maintenance costs and is less expensive than leasing on a daily basis, according to the trucking executive.
“It’s a combination of getting a higher quality chassis and being able to manage your costs better,” Stig Moller told American Shipper. “You have to ensure you have the right amount of utilization to make the economics work.”
The majority of moves are under merchant haulage terms through which the customer directly pays for the service, without shipping line involvement.
All but one of BTT’s terminals has container yards, so the company can store chassis on long-term leases when they are not being utilized.
Several sources said Target has also set up a dedicated chassis operation, but its trucking partners declined to comment and Target officials could not be reached in time for deadline.
And it’s not just the big guys eyeing private chassis fleets. Lancasales, a New Jersey-based export distributor of plastic forks and other disposable food service products, for several years has had a small in-house trucking company, as well as eight chassis, five of which were purchased.
Owner Tim Avanzato said he’s paying $3.20 per day on the leased equipment.
New Chassis Model Barriers. Motor carrier interest in acquiring chassis to service their top customers better and stand out from the crowd may be high, but many companies are taking a cautious approach primarily because they fear retaliation by unionized longshoremen, industry executives said.
The International Longshoremen’s Association maintained its right in the 2013 collective bargaining agreement with maritime employers to carry out chassis repair work within marine terminals and designated port areas. The International Longshore and Warehouse Union on the West Coast is fighting to maintain jurisdiction over chassis maintenance in drawn out negotiations over a new labor contract.
“A lot of my members who would like to buy their own chassis are sort of sitting it out right now because they know the union will exercise its ability to control and ruin your day at the gate if they haven’t gotten what they want,” Curtis Whalen, executive director of the American Trucking Associations Intermodal Motor Carrier Conference, said at the TRB event.
Most motor carrier-controlled chassis remain tri-axles used to haul heavier loads and provide a differentiated service that ocean carriers don’t offer, trucking experts say.
“The problem is with the chaos in the ports, with the threat of the unions to take you out of line for trumped up maintenance issue,” Whalen said. “Until we get a better fix as to what is going on in the industry I just don’t see them jumping into this with any large numbers.”
Even though there is no contractual relationship with motor carriers, dockworkers will try to get them to bring chassis repairs to union mechanics, officials said.
“We see it now in certain areas, where the union will treat you as a target, slow you down, break your light, do whatever [when a truck tries to enter or leave the terminal with a load],” Whalen elaborated to a reporter. “So you really don’t want to get too ahead of yourself and make a huge asset commitment to owning your own chassis, but you do want to try and find at least a near-term path to get through the congestion and the lack of chassis.”
Fred Johring, chairman of the Harbor Trucking Association and president of Golden State Express, said the same tactics in Southern California make drayage companies reticent to invest in chassis.
Truckers worry that “the terminals [read: longshoremen] will inspect the private equipment and that they’ll be very petty in their inspections. We’ve seen that with even borderline repairs. They force you to cut a deal with somebody there to do the maintenance on the equipment,” he said in an interview.
The ILWU, in fact, won an arbitration ruling in 2011 giving longshoremen the authority to conduct mandatory roadworthiness inspections of chassis owned or controlled by shipping lines or terminal operators before they can be driven away. Longshore mechanics had long done repairs, but inspections were conducted by truck drivers themselves, as required by the Federal Motor Carrier Safety Administration.
“We just hope the Pacific Maritime Association won’t fold on the chassis maintenance issue,” Johring added.
PierPass, the L.A.-Long Beach night gate program that charges a $66-per-TEU traffic mitigation fee for daytime truck moves, is another barrier to trucker fleets, according to Johring.
He said the system needs to be reworked so truckers who return an empty box during the day can pick up a load without penalty, because otherwise they have to make a bare backhaul to the truck terminal.
If the driver bobtails back less than 10 miles with just the tractor, the motor carrier has no obligation. But if a chassis is pulled, the driver is paid $30 each way and the company has to pay $15 to store it at a typical yard.
Trucking executives say the market for truck-controlled chassis fleets is also restricted by the deals between ocean carriers and chassis leasing companies that force motor carriers to use a particular chassis provider to handle their containers.
Dray operators that provide a chassis of their own instead of one provided through an ocean line pool don’t get repaid because the beneficial cargo owner is already paying for the equipment through its contract with the liner.
“There is no way that a trucking company can bring its own fleet of chassis in to handle a broad base of cargo out of the harbor,” Johring said. “If I did my own gray pool it would be at my own expense.”
“Until BCOs or truckers are predominantly responsible for owning or paying for chassis, you can’t justify it,” Philip Wojcik, president of Consolidated Chassis Management LLC, concurred.
That’s why it only works with large shippers who can guarantee enough movements in a closed loop that can keep the chassis utilized year round, experts said. And, like Lowe’s did, it helps to get the chassis excluded from the ocean freight bills.
Private chassis fleets are also at a disadvantage when deployed to facilities with wheeled operations, according to drayage experts. Most ocean terminals today are grounded operations where containers are stacked until they are ready to be transferred to a truck, train or vessel. Many inland rail terminals store containers on chassis. Containers coming off a train are directly transferred to a chassis, making the chassis an active part of terminal operations.
Truckers have to pay a “flip charge” if they want an intermodal terminal to lift a particular container on a private chassis rather than leave the chassis and retrieve it another time. Flip charges run about $100, Wojcik said.
Trucking experts said dray haulers and shippers also need to consider the difficulty of tracking and dispatching their own chassis
“It’s still an evolving model that has taken longer to develop than a lot of people thought,” Stig Moller said.
This article was published in the February 2015 issue of American Shipper.