Counting the cost

Richard Butcher has written an interesting article on the large quantity of excess containers floating around the world today. Many of these containers are plugging up the yards of major and minor ports, causing longer delays in cargo handling. The space issue is important because with more space you can arrange inbound and outbound containers for easy loading and easy drayage to the customer or warehouse.

He makes a strong point— that containers are held as assets on the books of ocean carriers, and they don’t want to write off too many at a time. Obviously, the costs of holding them don’t outweigh the value of keeping them in the container liners’ eyes.

While managing the inventory of empty containers and aging them aggressively is a great idea, I don’t believe the container carriers have enough motivation to do much. It’s very true that we now have the software and technology for tracking and identifying these containers easily, and managing them one by one.

But empty containers are packaging materials, and already we have seen in domestic industries the close attention retailers and firms such as Amazon have paid to the waste caused by packaging. One of the reasons is the downstream cost of disposing of it.

Containers are also packaging waste, and should be if extra cost were added to storing them empty, it would induce carriers to cut down their stocks. We have evidence of this. Moves by ports to add detention costs to containers that sit idle for days have already induced carriers to move out their containers, even though in some cases the charges have never been enforced.

One difference between containers and the Amazon box you get with your shipment is that the container is reusable. Actually, the customer may reuse the Amazon box; I know I do. But that is relying on a chance event; after a while if I have nothing to ship, I may send it to our local recycling. Of course I pay for the recycling through my taxes, and Amazon doesn’t directly pay, nor do the charges show up in their books. This strategy is not effective for a major item like a container.

However, I propose that ports and yards, or perhaps political entities, such as the US or EU, or state governments, institute a recycling charge for containers left beyond the limit of days set. Containers left past that time would be carted off, cut up for scrap steel, and the costs of the removal and disposal be charged to the ocean carriers. I further propose that the scrap steel value be retained by the governments, perhaps for use in port and yard improvement projects; I don’t care much, since I don’t think it will be too big. It’s like condemning an unsightly property that is blighting a neighborhood.

This proposal would immediately place an accounting cost on ocean carriers. They would have to plan for how many containers would be lost through this process, and accrue the charges they are likely to receive for container disposal. This additional cost should certainly be enough to encourage efforts at tracking, removing containers from yards, and getting them back to exporting ports for reuse. Loss of the asset and paying for its loss will provide motivation for the ocean carriers to take care of their own waste.

If the US or EU would put such provisions into effect it might do the trick. These are the largest importing nations in the world, and they have the most empty containers around. But I think if they led, other nations around the world would follow.

China might not; it would put a dent in their container manufacturing business, which is mostly state-owned. But it would put a stop to the practice of buying new containers instead of recycling old ones, and charging the shipper for the new container.

Actually, since China is a major source of steel production, one could view the manufacture of containers as a form of ‘dumping’ at below the cost of manufacture. But trying to resolve this through the WTO would take forever, and have no certain outcome, like most of the past disputes on trade presented there.

Taxing the old empties and disposing of them would cut through the noise and begin placing the cost of the packaging and the ‘pollution’ it generates squarely on the ocean carriers. And it would force them to recognize the costs they are generating in their books, hurting their bottom lines.

Richard Butcher | Nov 14, 2022

Counting the cost

Mississippi barge quagmire leaves exporters looking for alternative routes

Low water in the Mississippi river is hampering barge traffic. This river is a main pathway for soybean exports, which travel downriver to the New Orleans area to be loaded for the Far East.

Barge traffic is much cheaper than rail or truck. For agricultural exports, cost is the main thing to email competitive with Brazil, the largest competitor. While the voyage from Brazil to the Far East is days longer than from the US, and Brazil’s inland infrastructure is not as developed as the US, the final product, soybeans, is about the same price today.

The situation is complicated by the fact that the US harvest in October is diametrically opposite that of Brazil, which is in the Southern Hemisphere. So a large buyer like a Chinese pig farmer or processing plant tends to buy from whoever is cheaper, which is usually who has just completed the harvest. Beans are cheapest when the harvest comes in, because it costs money to store them, and losses of quality and spoilage occur in storage. Farmers store only when they think the current price offered is too low and they believe it will go up.

There is also hedging. Elevators can sell beans for future delivery, which means a contract for a fixed quantity and quality to be transferred to the new owner at a later date. This can be called hedging. It’s a good thing for farmers and bean consumers like processors alike. They can control their cost or gain. While there are speculators for any agricultural commodity, they have to outguess the actual price performance of the market, and that is hard to do.

But back to the logistics. The state of the Mississippi locks has been an issue for many years; the locks are old, and some have not been kept in good repair. It’s the responsibility of the US Army Corps of Engineers to maintain the locks, but for years Congress failed to vote enough funds to keep up the repairs. However, since the supply chain crisis following COVID, Congress’s attention came around, and money is now flowing more freely.

But it isn’t much help if the rain stops coming. A drought in the central US means the water level in the Mississippi River has dropped to levels so low that barges are restricted from carrying full loads. the effective draft allowed is just over 9 ft, which means a loss of carrying capacity for barges. So farmers and grain elevators cannot get enough grain to market especially abroad.

The situation is dire enough for farmers to choose to ship by rail to the West Coast for transport by bulk carrier to the Far East. But with the problems rail transport is having right now, it’s hard to pull off. Railcars and trains simply aren’t available. It’s a version of the blanking of sailings we see in container transport today. Railroads are running fewer trains, so shipments occur less often. The trains are longer, so the turnaround time for the cars is slower. There is a strike of rail workers pending. And rail crews have been stretched thin by precision scheduled railroading (PSA), a form of lean operation that seems not to fully take into account the needs of customers.

It’s quite a dilemma, and there are no easy answers. Wish it would rain!

By Ian Putzger, Americas correspondent 02/11/2022

Mississippi barge quagmire leaves exporters looking for alternative routes – The Loadstar

MSC: CII to soak up 7-10% of container fleet

The new measurements of carbon intensity for ships have gone into effect. The International Maritime Organization (IMO) created new regulations that went into effect on November 1, 2022. One of the measures is the Carbon Intensity Indicator (CII), intended for existing ships. It’s calculated as CO2 emitted per unit of ship cargo carrying capacity and nautical miles sailed, says DNV, classification society for maritime and an assurance and risk management expert (What is the CII?)

There are two different measures used in the calculation. One is the Annual Efficiency Ratio (AER), the annual emissions per ton mile, for segments where cargo is weight critical. The other is cgDist, emissions per gross ton-miles, for volume-critical cargo.

One of the criticisms of the measure is that it uses distance sailed rather than anything related to the amount of cargo. Actually, as of today, a similar rating using actual cargo carried, the EEOI, can only be reported on a voluntary basis, and may not be substituted for the CII. This has provoked some stern criticism from the large carriers that are heavily loaded, such as Maersk and MSC, though they will comply with the reporting regulation.

But these carriers and others have called for an early reform to the measure, to prevent a ship logging empty miles in order to improve its CII. Emissions are lower when running empty, since you’re not moving the weight of the cargo. So a tanker, for instance, can improve its CII ratio by deadheading back to its pickup point, rather than moving another cargo.

But these concerns are nits compared to the concept of rating all ships by their carbon emissions. These measures begin the process of making actual emissions available to the public, so shippers can make a choice to lower emissions.

One of the ways to reduce emissions is to sail more slowly, or slow steam. Gary Howard’s article quotes MSC, the large container line, that the new CII will cause a 7% to 10% loss of capacity due to slower steaming.

It’s an interesting number. It forces shippers to accept longer voyages before getting cargoes, a clear tradeoff between emissions and prompter delivery. For many customers this will not be an issue; they can alter resupply schedules if the reliability of getting it at the predicted time is high. However, reliability of shipments is another serious problem for container carriers— it’s down around 40% for most carriers. Most of the delay of recent shipments is due to blanked sailings, and to congestion loading and unloading in some major ports. Blanked sailings don’t affect the CII for ships. But congestion delays at ports cause fuel to be burned and push the CII up even if the ships don’t move many miles. the fuel is still used.

I think introducing the CII is a very good idea. True, it could be improved; but we have to start somewhere.

Gary Howard | Nov 01, 2022

MSC: CII to soak up 7-10% of container fleet