Leading chassis companies expect “gray pools” by peak season.
Major chassis leasing companies operating in the ports of Los Angeles and Long Beach and Port of New York and New Jersey hope to achieve the goal of having interoperable, “gray” chassis by the start of peak season in the second quarter of this year.
Today, many chassis must be returned to a particular terminal or other location. This contributes to port congestion as drayage drivers are forced to return chassis to one location and pick them up at another. Interoperability will improve the flow of containers within port regions, allowing chassis to be picked up or returned at many locations, industry experts say.
While some shippers and port executives think there is a need for more chassis—the Port of Long Beach has requested proposals for the creation of a pool of 3,000 chassis for use during peak season—chassis leasing companies believe that better flow of equipment would help relieve congestion.
Keith Lovetro, chief executive officer of TRAC Intermodal, the largest chassis leasing company in the country, said while some were hoping interoperable pools of chassis would be in place by Feb. 1 in Southern California, “that would be an extremely aggressive goal.”
In an interview last month, he said TRAC, Flexi-Van Leasing and Direct ChassisLink Inc. (DCLI) have been meeting on a weekly basis and working with a vendor, International Asset Systems (IAS), “to articulate the business rules that will govern the pool operations.”
“It’s a complex process,” Lovetro said. “Every week progress is being made. And we’re working through the various situations, and as those get completed and refined, then we’ll have a better sense of what the actual start date is.
“We want to go faster, but again the focus is to make sure it’s built properly and correctly,” he added. The goal is “congestion problems that occurred in prior years are eliminated.”
The work being done in L.A./Long Beach “is unprecedented in our industry,” said Phil Connors, executive vice president at Flexi-Van. “Not only from the size of the pools itself, but the concept of pool-to-pool interchanges and agreements… The most important aspect of this is that all stakeholders are in agreement with the processes and the details in order to execute it.”
The major chassis leasing companies are using two different approaches to pooling equipment in the two biggest markets in the United States—a so-called “pool of pools” in L.A./Long Beach and a “market pool” in New York/New Jersey.
The goal in both cases is to create interoperability, improve the flow of equipment for liner carriers, truckers, and shippers.
“You want to be able to have this high-velocity network moving through the ports, where chassis are available. That’s what both of these pool structures are intending to represent,” Lovetro said.
The market pool that the carriers are seeking to create in the New York/New Jersey area is a gray co-op pool where many companies may contribute equipment, but a single company will actively make sure the pool is operating smoothly and precisely.
Market pools are in use today—for example, the six pools operated by Container Chassis Management in different regions of the United States are market pools.
“They are a bit more tested and tried and true,” Lovetro said. “The pool of pools is a bit of a new concept and it has certain positive attributes, so it’s worth testing to see if it can produce the same results and if it does great.”
In the pool of pools, several pools manage equipment and “have basically an interline agreement established between them, so you can use mine and I can use yours,” Lovetro explained. “There really isn’t a pool manager over top of it. There’s a work group that defines business rules of how things work.”
Connors said creating a pool or pools isn’t simply a matter of signing a document that states, “‘I agree that you can use my chassis and I’ll use yours.’ It’s sort of like the Wizard of Oz—a lot is going on behind the curtain.”
He noted the details that need to be worked out include: “How do we ensure repositioning is done between the pools properly? How do we handle migrations from one pool to another? How do we ensure that the proper user of chassis gets divvied up?”
Lovetro said the decision to use different approaches to pooling chassis in New York/New Jersey and L.A./Long Beach will be useful for chassis providers in that they will be able to see which method is quickest to start and has the best performance.
In L.A./Long Beach there are four major companies participating in chassis pools and a business review letter by the U.S. Justice Department last year paved the way for the three biggest lessors—Flexi-Van, DCLI, and TRAC—to discuss forming a pool of the region’s container pools along with a pool for the stevedoring company.
More Chassis Needed? Both Lovetro and Connors think there are sufficient chassis to meet the current demand in the container shipping industry.
Lovetro estimates there are about 95,000 chassis in L.A./Long Beach, 100,000 if private liner carrier fleets are included, and 30,000 chassis in New York/New Jersey.
A shortage of equipment is “not the issue, and if it was, we would be contributing more fleet to true it up,” Lovetro said.
In a 10-Q financial report filed with the U.S. Securities and Exchange Commission, TRAC stated in the second quarter of 2014 it had acquired or returned from container lines about 23,000 marine chassis.
The same document noted TRAC took a retirement charge of $14.8 million as a result of 11,000 excess and other non-standard chassis residing at depots and chassis pools, in addition to about 9,000 axle sets residing at depots. (Leasing companies often retain axles, which are much longer lived than chassis themselves, because they can be remanufactured into new chassis.)
“The influx of marine chassis caused us to analyze our fleet requirements over a multi-year period taking into account forecasted market growth, the current performance of our marine pools and utilization requirements among other factors which ultimately influenced our decision to early retire certain chassis and axle sets,” TRAC said.
Connors said when container traffic was growing faster, at double-digit rates, “chassis were being put in the market hand-over-fist.”
The efficiency of container pools has actually reduced the number containers that are needed.
“Is there a chassis shortage in the United States? Absolutely not. We still have inventory,” Connors asserted.
“I can tell you that when this whole debacle on the West Coast started, in my opinion, the chassis companies were the ones that everybody seemed to be pointing their finger at. As time has gone on, I think people have realized this is a much bigger problem than to simply blame one specific issue. And it is far beyond whether or not there were enough chassis,” he said.
Among the factors that Connors pointed to as causes of congestion: larger vessels are dumping more containers into terminals with the same footprint size; alliances calling multiple terminals; ships in particular services occasionally calling different terminals from week to week; and increased dwell-time both of containers on chassis after they leave terminals and inside terminals.
“Had someone told me a year ago that dwell-time was going to increase 25 percent on the street and 19 percent on terminals, we were going to have vessel-bunching, we were going to have alliances that were switching port calls week by week—would we have been able to put in chassis? Sure we would have been able to put in more,” Connors said.
But as it is, he said Flexi-Van added 1,000 chassis in Southern California.
Interoperability is important, Lovetro said, because “chassis have a natural migration pattern” that’s determined by the character of the trade of the container services that call at particular marine terminals, and can cause a shortage or surplus of chassis.
“In a port as big as L.A./Long Beach with 13 port terminals—that’s a big geography—migration becomes an important aspect of balancing a fleet and more importantly the balancing of labor to where that migration occurs,” he said.
Lovetro also noted slow steaming has resulted in more vessel-bunching and irregular demand for chassis.
“Before, if you had bunching and it was a 6,000-TEU ship, it wasn’t as big a deal. Now, you have bunching and they’re 15,000-TEU ships, that’s a much bigger deal,” he explained.
That’s not to say equipment isn’t being added.
The Intermodal Association of North America’s Global Intermodal Equipment Registry shows that a little more than 1 percent, or 9,298 chassis, were added between January 2014 and January 2015, pushing up the number of chassis to 676,256.
TRAC added 4,800 new chassis for 53-foot domestic containers in 2014, but no new chassis to its marine fleet last year. Instead, it refurbished chassis to carry 40-foot ocean containers. (Refurbishing involves taking a marine chassis that’s at the end of its economic life; stripping it; sandblasting it; performing a metallurgic inspection of the frame; and replacing tires, brakes, and all the hydraulic “plumbing” and electrical lights and wiring on the chassis.)
These units “look just like a brand new chassis,” Lovetro said. TRAC ordered 2,580 of these refurbished chassis last year and plans to add about 3,100 in 2015.
The company buys new chassis from Hyundai Translead, which has a manufacturing plant in Tijuana, Mexico, and the Chinese manufacturer CIMC. It uses four to five different companies to refurbish chassis.
In the United States, Cheetah Chassis manufactures chassis in Berwick, Pa.
Both TRAC and Flexi-Van have built custom chassis for various customers.
TRAC has some “triaxle” chassis under construction to help accommodate customers moving heavy freight, and in the past couple of years has built 300 of its “TRAC Titan” units that come equipped with radial tires, LED lights, automatic airing systems, and other features aimed at truckers who need to move cargo longer distances.
Connors said basic chassis cost about $10,000-$11,000, while features such as radial tires and LED lights can increase the price to the $12,500-$13,000 range. Triaxle chassis can cost upwards of $19,000-$20,000. Remanufactured chassis used to be 20-25 percent cheaper, but he believes that discount is now less than 10 percent.
Leasing companies are not part of the Pacific Maritime Association, but jurisdiction over who repairs chassis is said to have been a major issue in the negotiations between the PMA and International Longshore and Warehouse Union.
Because negotiations between the PMA and ILWU have been going on since May 2014 under a news blackout, it’s been difficult to know just how important chassis jurisdiction is, but in mid-January several sources said good progress was being made to resolve that particular issue.
Both Lovetro and Connors said their companies have traditionally had chassis repairs done by both the ILWU and its counterpart on the East Coast, the International Longshoremen’s Association. Connors noted at some locations other unions represent chassis maintenance and repair workers. These include members of the International Association of Mechanics.
“Chassis maintenance is a critical issue for any chassis supplier,” Lovetro said. “I only can tell you that maintenance of our equipment is absolutely paramount to us and we’re not trying to not use the ILWU on the West Coast. We have sent the PMA notice that said we intend to use the labor force that’s in place in the ports. We have no intention of trying to circumvent or pull units out of the port.”
Lovetro said a market or gray pool will result in a “level setting of quality” of equipment, but added “I would tell you that could be a positive thing because you then raise the quality of all the fleets.”
He believes the quality of chassis will improve as the pools are implemented in New York/New Jersey and L.A./Long Beach markets.
Lovetro said a core part of planning for the pools will be creating facilities that are off the terminals, but still near the docks.
“Waterfront property is a limited asset, so as import and export volumes grow, you’d rather use that very expensive real estate for cranes and working ships. You don’t necessarily want a chassis depot sitting on that kind of real estate,” he said.
Lovetro believes the movement of chassis off port terminals is inevitable, noting Maher Terminal has already made that move in New Jersey.
But the change will be gradual, and chassis depots “will be very near dock, because you still have to have them available for flow. You don’t want the motor carrier running out of route miles and causing disruption. And the port terminal needs quick and easy access,” he said.
He added near-dock chassis depots should allow for better management of labor, because chassis companies will be able to employ the same number of workers to repair and maintain them day-in and day-out, whereas labor devoted to repairs at a terminal tend to fluctuate depending on what the needs of the terminal are each day.
This article was published in the February 2015 issue of American Shipper.
