Everybody in the pool
TRAC sees opportunity as more ocean carriers look to exit or reduce their container chassis business.
By Chris Dupin
Spring and summer have brought a flurry of announcements by ocean carriers, exiting or reducing their involvement in the chassis business either regionally or throughout the United States.
Atlantic Container Line, CMA CGM, OOCL, NYK and Evergreen have all said they intend to no longer routinely provide chassis to truckers coming to move boxes from shipping terminals in some or all U.S. ports.
These announcements follow Maersk Line's decision last year to stop providing chassis, and create an independent subsidiary, Direct Chassis Link, to lease chassis to truckers. Maersk has gradually rolled out that program nationally.
| Rubin |
Rethinking chassis strategy is 'on the radar' of every steamship line, said Steve Rubin, president and chief executive officer of TRAC Intermodal, the largest U.S. chassis leasing company.
TRAC, formerly known as Seacastle Chassis, leases containers to most of those companies and 'we are having conversations with all of them. We are a trusted, neutral party and supplier to have these discussions with.'
TRAC has an active fleet of about 200,000 chassis for marine containers and 40,000 chassis for domestic containers.
Rubin, a former 'K' Line executive, said shipping companies' attitude has evolved, and chassis are less likely to be seen as a strategic asset and competitive advantage.
'The growth of cooperative chassis pools, has dampened that thought, that I don't think any of our customers are viewing owning, operating and maintaining chassis as a strategic competitive advantage. It is not a core competency that they have focused on in the past couple of years, particularly the last down cycle,' Rubin said.
'Lines really had to do a lot of cost restructuring and that includes the administration, oversight and maintenance of chassis,' he said. 'The head offices of lines are saying, 'if we need to preserve capital, reduce cost, and align our North America operation with the rest of the world, why do we need to continue to be in the chassis business?' '
Curtis Whalen, executive director of the Intermodal Motor Carriers Conference of the American Trucking Associations, said while steamship lines have indicated for many years they would like to get out of the chassis business, the flurry of recent announcement have been 'confusing to the trucker' because there hasn't been a good explanation of how the change will effect truckers or shippers. 'The good news is that they are rolling it out, it is not nationwide to start,' he said.
'The U.S. is the only country where ocean carriers provide chassis,' said Taiwanese carrier Evergreen, 'and it is neither efficient nor economical to continue to do so.'
That uniqueness is widely attributed to the 'door-to-door' transportation vision of containerization pioneer Malcom McLean, the trucking executive who created containerized shipping through the formation of Sea-Land Service in the 1950s.
'Burgeoning world trade is impacting valuable waterfront terminal space and projected growth of commerce makes the ongoing storage of chassis no longer viable,' Evergreen said. 'Limited expansion real estate availability mandates that chassis can no longer be maintained by the shipping companies.
'Drayage companies and owner-operators are fully qualified to manage and maintain chassis fleets with greater ease and cost-effectiveness, while providing the same standard level of service to the importers and exporters,' the carrier added.
As Maersk did, when created Direct ChassisLink last year, Evergreen touted environmental benefits it expects to result from exiting the chassis business. These include saving hours of truckers queuing and reduce turnaround times, hence reducing truck pollution.
Rubin said the ocean carriers' changing attitude towards the chassis business means opportunity for TRAC.
TRAC's largest line of business today is the long-term lease of a chassis, which Rubin said are similar to long-term container leases. These are 'triple net leases' where the customers pay maintenance, insurance and taxes in addition to rent, and the term of the lease is three to eight years.
About 60 percent of TRAC's chassis fleet is on long-term lease steamship lines, railroads, and intermodal logistics companies. The other 40 percent are in so-called 'neutral chassis pools,' where customers lease TRAC's owned equipment.
TRAC also manages cooperative chassis pools where steamship lines contribute their own equipment and use each other's chassis.
Even if some shipping companies chose to continue to manage chassis, Rubin thinks there will be opportunities for TRAC because carriers' attitude toward investing in equipment has changed, and they are more likely to lease than buy chassis.
But the big opportunity for TRAC, as carriers decide to exit or downsize their chassis business is in chassis pools, particularly neutral chassis pools, he said.
Rubin said carriers have been able to reduce chassis usage by low double-digit amounts using co-op pools, and 'neutral pools are the most efficient operation out there.' In a neutral pool, a company makes a one- to five-year commitment for a certain amount of usage, but has the ability to flex its chassis usage up or down.
Rubin estimates roughly one-third to 40 percent of the 700,000 or so chassis nationally are in pools today, the majority in co-op pools.
TRAC operates marine neutral pools for the shipping industry in the North Atlantic and the Gulf region between Tampa and Houston. It also has neutral pools for the marine industry at many CSX locations.
Rubin said the company plans to focus growth efforts on expanding neutral pools, which he said is a natural transition for steamship lines as they seek to exit the chassis business.
Trac manages four of the cooperative pools that Consolidated Chassis Management has set up for the Ocean Carrier Equipment Management Association (OCEMA, an association of about 20 U.S. and foreign-flag international ocean common carriers).
The company also has nationwide neutral chassis pools for domestic containers, mostly for 53-foot equipment, as Rubin said 48-foot equipment is being phased out for more popular, larger units.
TRAC has agreements with all seven Class I railroads to provide domestic chassis pool service, and Rubin believes the domestic chassis business will continue to grow, as 'intermodal seems to be the strongest growth engine on the railroad today.
'Logistics companies like to focus on their core competency, which is finding and moving freight, not managing chassis.' The same is true of railroads, he said, who want to focus their investments on 'line of road' assets.
In August, TRAC announced a new product called TRAC Connect, which like Maersk's Direct ChassisLink, is designed to provide chassis rental, leasing and related services to the intermodal drayage community. The company initially rolled out the product in New York, Philadelphia, Baltimore and Mobile, Ala., and Rubin said other major cities will be added later this year.
TRAC Connect will allow motor carriers to enter chassis interchange agreement directly with TRAC Intermodal online and rent marine chassis as needed on a short- to medium-term basis.
'We wanted to make it very easy for the trucker to get started, and we have plans in the future for truckers to be able to grow the amount of business they transact with us on our Web site,' he said.
The company has been developing the product since last fall and Rubin said already hundreds of truckers are using it.
Flexi-Van Leasing has announced a new product called FlexiDay, which will offer daily and monthly leases on standard and specialized equipment while continuing to offer longer term traditional leases.
| Web-only content • Unloading chassis |
TRAC has begun discussions with carriers about taking over some of their assets as they seek to divest from operating chassis.
But Rubin said, 'one of the things that is interesting about chassis operations in the U.S. is that no two regions are the same.' Some Atlantic terminals, for example, have nearly all chassis grounded, while some on the West Coast have nearly half their boxes on wheels for on-dock rail facilities and 'hot' cargoes that need to move off the terminal as soon as possible.
'Lines are really thinking long and hard about what is the best approach to an exit strategy given that each region has slight different operating characteristics,' Rubin said, and 'they want to ensure there are sufficient chassis for the most efficient terminal operation.
'It is not practical to overlay a cookie-cutter approach,' he added.
Rubin believes that truckers, rather than carriers, supplying chassis should not have a major impact on transportation costs. But there should be opportunities for companies who can 'figure out how to be most efficient with the chassis.
'There is going to have to be a lot of dialog among the parties involved in the cargo supply chain ' the beneficial cargo owners, the steamship lines, truckers and marine terminals. If the model is changing, how do we make sure there is not unreasonable cost pushed to one party or the other?' he said.
Rubin and Whalen of the ATA agree that new chassis safety 'roadability rules' implemented by the Federal Motor Carrier Safety Administration have focused industry attention on the responsibility of intermodal equipment providers.
Rubin said ocean carriers have varying views of the roadability rules. 'Some look at the challenges of complying with the federal roadability law and say, 'why would a foreign steamship line want to add regulatory challenges.' '