JULY/AUGUST 2019
The Open Choice Chassis Model — When, or If, or Ever?
After years of transition away from the ocean carrier sourcing model, wherein chassis were made available by carriers at no charge for users, circumstances have evolved to the point where there are a small number of equipment providers that supply chassis to trucking companies, beneficial cargo owners and ocean carriers.
But the current system has its share of critics, and is facing calls for change. How much of an appetite does intermodal in the U.S. have for further evolution toward a trucker-driven "open choice" equipment model, wherein those who haul containers to and from have the ability to choose what chassis they use and how long they use them?
L. Richard Mazur, a vice president with the North American Chassis Pool Cooperative, or NACPC, said he "absolutely" believes that an open choice chassis model is viable today.
"Choice is available today in pools for some ocean carriers. It works to the trucker's advantage, enabling them to operate more efficiently and ensures a competitive price for their chassis use," he said. "Unfortunately, truckers are still forced to use the equipment provider with which an ocean carrier has a business relationship. NACPC maintains that if a party is going to pay for a chassis, they should have a choice as to the chassis provider."
Joe Tovo, president and CEO of DNJ Intermodal Services, said he believes that the open choice chassis model is viable, and if motor carriers were able to choose which chassis they wanted and it was truly an enterprise system, there would be better chassis conditions across the board.
"If motor carriers started using chassis, for instance, that NACPC has, I'm quite confident that it would force all chassis providers to have nearly the same type of rate schedule, and the same quality equipment if they want to remain competitive in the marketplace," he said. "I think free enterprise is important and choice would allow that to happen."
However, David Underwood, a senior vice president with Dunavant Logistics Group, cautioned that the viability of an open choice system depends on the market and who would be the responsible party for managing and rebalancing the equipment within that region.
"If the expense is shared among the entire supply chain ecosystem, then the likelihood for success within that group of organizations is far greater than if only one type of stakeholder – most likely the draymen – has to bear the entire cost and operational burden," he said.
Milestone Equipment Holdings Executive Vice President Doug Hoehn remarked that open choice is a viable business model, but there is still a way to go to achieve it.
"As long as the ocean carriers continue to dictate to their shippers whose chassis to use, there won't ever be an open choice. Some of them still have contracts with existing providers that were forced onto the truckers," Hoehn said. "Once they allow other equipment providers to also participate in those pools, then I think you start to get to a real open choice."
Ocean Carrier Equipment Management Association Executive Director and General Counsel Jeffrey Lawrence said that the view of the ocean carriers is that the most efficient way to organize chassis provisioning – in terms of ensuring that the system is resilient to weather, volume surges, etc. to avoid service failures – is to have a gray regional chassis pool.
"You can have proper forecasting, repositioning and allocating of chassis to the places that they're actually needed, hopefully before they're needed" with a gray pool, he explained. "Then you don't have a Balkanized system where several different chassis providers are holding on to their chassis because they don't want to subsidize somebody else's operation.
"We believe the best way to avoid service problems is to have a gray pool," he continued. "And similarly, the best way to ensure lots of options and choices for those who use chassis is to have an open source pool.
FlexiVan Executive Vice President and Chief Commercial Officer Greg Moore also said that an open choice model is viable, as long as the system has guidelines.
"It simply requires corresponding pool rules to allow it. The ability for any motor carrier or other responsible party to select their chassis provider is needed," he said.
"Regrettably, 'box rules' and other pool policies effectively hinder these users from exercising 'open choice.' It burdens them with a higher cost than that afforded the ocean carriers who are still dictating terms regardless if they are including chassis use on the bill of lading – carrier haulage versus merchant haulage."
Systemic Changes
Others agree that changes would have to come to the system for it to work.
"The ocean carriers need to fully divest themselves of chassis," Tovo said. "They sold their chassis, and yet they dictate what chassis we must use on the majority of the moves." He said that ocean lines should not be involved in setting rates or billing terms for chassis.
"I'm not sure if they should be involved in that if they've sold all their equipment," he said. "It should be up to the trucker or motor carrier to decide what chassis he wants to use, but the steamship lines still have a lot of control over it. Until steamship lines loosen the control or give up the control, choice will not work."
"From an information systems standpoint, there needs to be a more universal way to manage the equipment so that everyone understands and has visibility to operate within that type of model effectively," Underwood added. "In addition, at the same time, specific markets need to have different adjustments – e.g., Chicago will be different than Dallas. Real estate costs for centralized depots needs to be considered, along with congestion issues and seasonal volume fluctuations that will be unique among different ports and ramps. Operationally, the business rules could be drastically different."
"Pools must be interoperable or gray," Mazur added. "A single interoperable pool in each region of the country with all ocean carriers allowing 'choice' is what would make it work."
The pools which are dictated by the ocean carriers would have to change, Moore said.
"Some pools allow limited choice if both the carrier and the chassis provider agree," he remarked. "Every pool should embrace open choice, and not depend on merchant haulage rates to subsidize carrier haulage use."
Choice Vs. Interoperability
Ryan Houfek, chief marketing officer for leasing and rental company DirectChassis Link Inc., said that "choice" and "interoperability" are "two different constructs," and that providing for choice "does not deliver interoperability between discreet chassis pools.
"In all but the most complex of markets, such as [Los Angeles]/Long Beach, we support a multi-pool environment where equipment providers compete on multiple dimensions – geographic footprint, asset quality, ancillary physical and technological services, maintenance practices, price – to create robust options or choices for customers," Houfek said of his company.
"Due to DCLI's size and our broad-based ocean carrier customer relationships, our Direct ChassisLink pool model enables us to provide interoperability within our own pool network, manage the supply of chassis required by those customers with greater visibility, and operate a premium pool that generates significant benefits to our customers and our customer's customers. A single-source chassis model eliminates the ability for asset owners to differentiate and can stifle investment in both the quality and supply of chassis."
If an "open source" chassis model was to come to fruition, what are the technical, financial and legal issues that would first need be addressed? Opinions differ. Moore said that there are "very few" hurdles, like determining the responsibilities for use of chassis on terminal, for terminal and ocean carrier convenience.
"Also, some pools may require small system adjustments for assigning usage," he said. "Generally, we think the changes are rather simple and current practices create financial and legal issues that would be resolved with a viable, sustainable open choice approach."
Issues to Address
Underwood, on the other hand, said any adjustments to the system would likely not be small, but large and perhaps complicated.
Technical issues such as who is actually going to be hired to operate the open choice model would need to be addressed before implementation, he explained.
"One of the main questions that comes to mind is who actually owns the chassis?" Underwood said. "For those that don't participate in ownership, which would probably be a shared group of stakeholders, do the non-owners get access to the chassis, what is the fee, or does usage become exclusive to only parties with joint ownership?"
Issues that would have to be addressed, he said, include how equipment and financial transactions are settled among stakeholders would require firm and concrete business rules established within that operating model.
"I believe there are some successful and efficient best practices that exist among the current pools in the U.S. to use as working examples of what to emulate," he remarked. He also added that determination of who is liable for all things involved to operate an open source model would have to be ironclad, or at the very least, a process would have to be in place for navigating such situations.
"Determining who covers at fault damage and repair costs during the normal course of business, and even worse in the event of an accident are very important," he explained. Other items that would need to be clarified, he said, are circumstances when there is theft, vandalism and intentional damage to the equipment while in a stakeholder's possession.
Third Party Input
Regarding BCOs and other non-chassis owning stakeholders like railroads and 3PLs, how much say should they have in the process of providing chassis for motor carrier use? Underwood said the question is a very important one.
"To lobby for a successful program and seek its implementation, especially when a system is broken in specific market, e.g., Memphis, it must engage partners from all modes and BCOs involved within the layers of the supply chain," he said. "Having a 'I just want my container moved' mentality among key stakeholders on the BCO side of the business is potentially damaging to the success of a chassis program like this.
"As a 3PL, sometimes finding the right equipment when the next guy can't is a huge differentiator and not something easily given up," he continued. "Having a more universal and efficient chassis model in place becomes something that has to demonstrate a benefit to the greater good of the industry and helps providers and BCOs operate their entire networks more efficiently."
In an interoperable pool, Mazur said, 3PLs, BCOs and others would be free to have chassis providers compete for their business instead of an ocean carrier mandating box rules and not offering choice.
"Railroads should be able to mandate a single interoperable chassis pool which allows choice, is open to all contributors, has adequate quantity of chassis and is upgraded with radial tires, LED lights and antilock braking systems, like what the South Atlantic terminals did over a decade ago," Mazur said. "This would greatly improve the operating efficiency of the terminals and the motor carriers. No more looking for the right color chassis. No swings needed when a container that was slated for a blue chassis was put on a red chassis. No gate restrictions on what chassis leave under what box."
Kiswani Freight Vice President Azmi Kiswani said that third party stakeholders ought to have input, but should not dictate things.
"Should they have a say? Sure, give me your opinion, maybe you will come up with a greater idea. But at the end of the day, we're really the ones that should be calling the shots. We pay the price for this," he said.
"The chassis pool, has it come a long way from what it used to be with the steamship lines? Sure. It is a little bit easier as far as selection, but it didn't solve any of the problems that we had – it just changed the dynamics. We're looking for solutions. I'm not looking for changes with no solutions.
"Maybe these pools need to become leasing companies and lease out these chassis to the truckers," he continued. "That way, there's no shortage, there's no maintenance problem and everybody leaves a lot happier. I guarantee you the drivers would be a lot happier. We've been calling for it for years."
Than Seeds of American Intermodal Management summed it all up by saying that open choice is a goal to work toward but that the various obstacles, such as getting carriers and steamship lines to buy in, make it a vexing proposition
"Aspirationally, open choice is a good idea," he said. "Practically speaking, it's very hard to do."
