March/April 2017
Chassis Transition Has Moved Forward, More Changes Ahead
The evolution of the international intermodal chassis provisioning process continues to show some gradual progress, but there are significant hurdles to clear before the market becomes more efficient, a wide range of industry experts said.
Motor carrier, ocean carrier and intermodal equipment provider leaders who spoke with Intermodal Insights agreed that there have been effective changes since Maersk began the transi-tion in 2009 by exiting the chassis supply market, such as greater use of pools. The experts also identified how much more needs to be done in areas such as equipment quality, contract terms and further expansion of pools.
In an interview, Flexi-Van Executive Vice President Bernie Vaughan neatly summed up today’s market, saying “the chassis transition is a work in progress. It varies by port. No one size fits all."
There is no question the market has evolved, two other top intermodal equipment provider executives said.
About 40 to 45 percent of chassis pool transactions for ocean carrier customers are done by truckers, cargo owners or third parties, compared with zero in 2009 when the transition away from ocean carrier ownership began, Keith Lovetro, TRAC Intermodal’s CEO, said.
That trend plateaued last year, Lovetro said. What happened was that some
steamship lines have gone back to providing chassis to customers in some cases as a way to differentiate their services from competitors in a hotly competitive market. Vaughan also noted that shift for the same reasons.
Direct ChassisLink CEO Bill Shea said he believes chassis moves currently are split about evenly between store-door deliveries arranged through the ocean carrier and so-called merchant haulage paid by truckers or cargo owners. Though no historic statistics are kept about store-door moves, some experts estimate they once were 70 percent of international ocean carrier chassis moves.
What Works Best
Jeff Lawrence, executive director of the Ocean Carrier Equipment Management Association, underscored a gradual transition. "Each ocean carrier is trying to find the solution to chassis supply that works best for them,” he said. “They took the step back from operating chassis because most of them didn’t view them as a core competency. They need to know how to ensure there is an adequate supply to meet their needs, particularly where there are no pools.”
"Over time, the market will sort out what's the most efficient chassis model,” Lawrence said. “We are seeing a wider variety of chassis solutions. Some areas are farther along in sorting this out. Motor carriers have been increasingly leasing or renting their own chassis.” He said ocean and motor carriers alike are “in different places on a continuum toward ultimate resolution. Not everyone will arrive at the goal line at the same time. They will get to a solution that works best for them.”
“We are still lurching along,” said Curtis Whalen, executive director of American Trucking Associations’ Intermodal Motor Carrier Conference. “We are still in a developmental, expansion stage. The speed of the transition has come down pretty much to a snail’s pace. It’s taking a much longer period of time than I would have hoped. The state of the ocean carrier industry, such as the Hanjin bankruptcy, didn’t help move the issue forward.”
Uncertainty also continues, such as the recent sale of TRAC Intermodal’s parent company, Whalen said. At the same time, he noted progress in working with IEPs in some areas, as well as seeing the growth of the North American Chassis Pool Cooperative, or NACPC. Truckers own NACPC chassis that are deployed in pools.
Equipment Quality Emphasis
Whalen acknowledged that the market is working better in some ways, such as the increasing amount of equipment with radial tires and other equipment such as LED lights that are commonly used in rest of the trucking industry. “There has been progress on that front, which we never would have gotten under the old model,”Whalen said. “We have to continue to expand that shift to newer equipment.”
Dave Manning, president of motor carrier TCW and an IANA board member, agreed. “The quality of equipment has to improve,” he told Intermodal Insights. “All the leasing companies understand that this is important, but it is a huge investment needed to speed up that process so that the quality of intermodal equipment is equivalent to over-the-road.”
Further to this point, the economics of upgrading tire quality are compelling for all parties, Manning said, because bias ply tires can fail as much as four times as often as radials, costing wasted time for truckers without any actual cost savings for IEPs. The modernized equipment reduces roadside delays and tire costs and furthers the overall goal of completing a freight move.
“We as an industry are trying to attract drivers. Nobody wants to spend three or four hours on the side of the road waiting for a tire,” Manning said.
Shea said his company has had success working with marine terminal operators, ocean carriers and the shipping community, using steps such as commitment to radial tires that will be on approximately 25,000 DCLI chassis by the end of 2017. "This is not only a financial initiative, but a commitment to equipment safety and reduced out-of-service time associated with roadside repairs for our motor carrier customers,” he said.
Commercial Relationships in Flux
Some struggles continue, including operational friction between ocean and motor carriers as chassis sales to IEPs come with strings attached in the form of terms that force truckers to use specific equipment leasing companies’ chassis to deliver to their customers.
Manning said “ocean carriers have divested the chassis, but not the rules. The lines haven’t been able contractually to get rid of their obligations to furnish chassis. Many of them are sitting on the fence. Some lines do allow motor carriers to choose chassis, but they are in the minority.”
Whalen said he hoped that the costly operational inefficiencies that result from the consequences of the contract terms that upset motor carriers will diminish in the future. Vaughan said that the contract issue will change over time before long because contract periods in sales to IEPs are several years old already. As the original agreements expire, he believes “there will be lots of rebidding activity in the next couple of years. There could be major shifts in that approach. That’s the nature of competition.”
Tiger Cool Express Chief Operating Officer Ted Prince said that the industry still has to work out the financial and operational consequences of the chassis transition. He labeled today’s market “a land of make believe” as participants struggle with the sometimes clashing operational and profitability considerations amid growing complexity from emerging alliances that put five or six lines’ boxes on a single ship.
Chassis Pools Are Evolving
One area where the chassis provisioning process now works smoothly is Southern California, Vaughan said.
Lovetro offered a somewhat different view, saying that the region’s “pool of pools” among TRAC, Flexi and DCLI could work better. It needs a single pool manager that doesn’t exist today. Lovetro said the result is reduced efficiency because there is no standardization among IEPs for practices such as maintenance and repair procedures and commercial terms for those services.
On the East Coast, attention continues to be focused on the long-running effort to establish a so-called gray pool in the Port of New York and New Jersey. Lovetro and Vaughan both expressed some optimism that pool will begin operating this year.
Both IEP officials stressed that good relationships with labor help the process to move forward.
“There was an issue with the International Longshoremen’s Association,” Vaughan said, regarding maintenance. “We were on the one-yard line” but couldn’t quite complete the pool creation process.
Lovetro said that with union questions resolved, the three chassis leasing companies are more focused on resolving the administrative process. He credited the port’s productivity task force for helping to advance the process.
“Something will have to happen in New York area chassis pool because the market requires it,” Vaughan said.
“A pool is like a social network,” Lovetro said, relying on consistent delivery of information and procedures that can best be achieved through standardization.
Lawrence said that generally OCEMA’s experience has been a gray pool with a neutral operator provides the best solution to supply safe and roadable chassis. In that environment, anyone can contribute chassis that are allocated fairly by the neutral operator. Notable examples of that approach are in place in Charleston, South Carolina and Savannah, Georgia, where efficiencies resulting from the neutral pool have improved utilization and freed up terminal space, he said.
“Ports all around the country are looking at this solution,” Lawrence said. “They are beginning to understand the potential benefits these pools can bring to port operations and a resilient supply chain.
“Others have taken note of the successes in the Consolidated Chassis Management pool,” Lawrence said, noting that CCM’s chassis failure rate is less than half of one percent. “Maintenance is a significant element in that."
Improving Asset Management and Productivity
Another widely needed step is more freight visibility, several experts said.
Lawrence said there is a need across the intermodal industry for better prediction of demand.
"More efficient usage patterns, better visibility and forecasting will lead to improved chassis billing accuracy and reduced administrative costs throughout the supply chain,” Shea said.
DCLI is using its REZ-1 platform for predictive models and analytics to aid domestic equipment visibility, while entering the dispatch market through the acquisition of International Asset Systems.
Another important step forward, Lovetro said, is a transition away from a highly variable “demand” model for chassis that kicks in when a ship docks. “There is very little forecasted planning,” he said. “Vessels are on the water for a long time. Having that information in advance would be incredibly helpful.”
More evolution is expected — and needed — from multiple additional perspectives.
More Work to Do
Vaughan believes motor carriers and cargo owners will continue to be more active in securing their own chassis capacity. Leasing companies will keep adding services for them, such as maintenance and repair, he added.
Lovetro said the lines remain committed overall to exiting the chassis business, but not to speeding up the pace. “That’s not the story we want to hear," Lovetro said. "We want to see a definitive push” for ocean carriers to exit chassis supply.
"Certainly efficiency gains can be achieved with regards to on- terminal and street usage,” Shea said. “Better EDI data is required to improve visibility to improve customer reporting tools and assist in efficient chassis logistics."
