The problems associated with chassis are legendary. But as the ocean carriers exit the business, new business is emerging.
In the drawn-out and oftentimes fraught saga over who provides marine container chassis to truckers, how it’s done and who picks up the cost, there may finally be an end date: 2016.
“In two years, 95% to 99% of anyone owning chassis will be neutral chassis pools and chassis leasing companies,” says Kevin Lhotak, president of Reliable Transportation Specialists Inc., a trucking concern based outside Chicago. It’s a prediction generally supported by many others.
There are several asterisks to this, however, and they are big ones. Ocean carriers in some cases continue to dictate terms even though they may no longer own the chassis. Los Angeles and Long Beach are only now looking at options for transforming the terminals. Other West Coast ports are also slow to the table.
On the other coast, the Port of New York and New Jersey faced a serious chassis shortage earlier this year. That underscored a chronic congestion issue. Initial recommendations on possible solutions by a taskforce aren’t expected until June and no one expects quick action.
Meanwhile, drayage companies struggle through the changes. “It has been very complicated, confusing and frustrating for us,” says Mark George, chairman of Memphis-based IMC Companies, which owns more than 1,000 trucks. “We still have a long way to go.”
In the half-century annals of containerized freight, the chassis – basically a wheeled frame that accommodates a container for road travel—has been a necessary component, but one that is grossly underappreciated, often neglected and sometimes abused. In more recent times, it’s also been an unwanted burden, a major reason for terminal congestion and a whispered incentive for more business.
That the issue of the chassis has yet to be fully resolved in the United States speaks to a unique ownership issue by steamship lines and a piecemeal solution to getting out of that business.
“It’s not been an easy transition,” says Howard Finkel, executive vice president of Cosco Container Lines Americas Inc. “The problem is, this process has not been done in lockstep. It’s been done state-by-state, month-by-month. Each carrier has a different timetable.”
“The carriers have been all over the ballpark on where they do what,” adds Gary Ferrulli, a longtime shipping industry stalwart, now a director with Ocean World Lines, a non-vessel-operating common carrier (NVOCC). “We’re unfortunately a couple years away from resolving the major issues.”
Ocean Carriers & Chassis One industry source estimates ocean carriers continue to hold 25% of marine chassis in the U.S. Still, that’s down from about 50% in 2009. Ocean carriers in recent years have sold some chassis most often to leasing companies, while placing others in cooperative pools. These chassis are being sold off more gradually.
Three leasing concerns—DCLI, TRAC Intermodal and Flexi-Van Leasing Inc. – now dominate the field. TRAC is the largest, with more than 200,000 marine chassis, or about a 40% market share of the estimated 500,000 marine chassis in operation today.
The change is being felt across the industry.
Unlike elsewhere in the world, ocean carriers in the U.S. traditionally owned the chassis and, until recently, lent them to motor carriers cost-free. They didn’t bill shippers for the equipment, either.
It was an economic and operational anomaly. Steamship lines collectively owned hundreds of thousands of marine container chassis, representing an investment in equipment that totaled in the billions of dollars. (New chassis are now valued at about $9,000 to $10,000 each.) But the carriers never actually held them, were hard-pressed to know even what was where and made absolutely no money off them.
“Trying to manage the chassis situation was a nightmare,” says Finkel.
Huge overcapacity and equally big under-utilization were the results. Take Denver, for example. No more than 2,000 containers move through the container yards daily, one industry source estimates. Some ocean carriers may have needed just 100 containers on a particular day, while others required 500. But, says the source, the eight major lines each had to insure for maximum usage. So the yards held maybe 6,000 chassis, at least three times what was actually the necessary amount.
Truckers, for their part, grumbled about the time and hassles needed to obtain the correct equipment, but since carriers grudgingly absorbed the chassis cost, complaints were muted.
After the 2008 recession, however, freight rates plummeted and carriers had a major rethink.
“It’s idiotic that carriers agree to offer chassis,” says Finkel. “It’s taking money out of carriers’ pockets at a time when they need to make money.”
Maersk Inc. led the way in chassis divestment. Five years ago, the American subsidiary of world container line leader A.P. Moller-Maersk Group created a leasing subsidiary for its 66,000 strong chassis fleet Direct ChassisLink Inc. In early 2012, it sold DCLI to a private equity firm Littlejohn & Co., LLC for an undisclosed price.
Most other ocean carriers ostensibly followed Maersk’s lead. (Evergreen is the major holdout. China Shipping has announced it will exit most terminal operations this May.) Carriers, however, have tended to phase out operations, often port-by-port, terminal-by-terminal.
Carriers didn’t necessarily divest wholesale like Maersk, but instead sold some chassis and placed others in non-profit pools administered by an independent third party. Leasing companies and some motor carriers contributed chassis as well to these pools, which are gaining in popularity and preference. (An SEC filing by TRAK showed that at the end of 2012, the leasing company had placed 94,000 or 32% of its marine chassis in neutral pools.)
On an at-cost basis, Consolidated Chassis Management now manages almost 140,000 chassis in neutral pools that stretch over about 250 sites throughout the Midwest and Southeastern U.S. Formed in 2005, CCM is owned by a 19-ocean carrier consortium called Ocean Carrier Equipment Management Association, or OCEMA.
Advantages are obvious for this kind of gray or neutral pool, which is sometimes likened to a rental car model. A trucker can grab any chassis that’s available, rather than search for a particular ocean carrier’s chassis to match the branded container. These chassis can be stored in yards away from the terminals, liberating acres and acres of space. Once terminals become equipped to do so, containers can be stacked, further freeing up terminal space.
However, motor carriers complain that actual practice can work quite differently and that they get caught out.
Port terminals managed by CCM are becoming easier to operate and maneuver, say trucking concerns. However, as more and more shipping becomes intermodal, drayage companies must increasingly grab containers from rail ramps. The railroads have little appetite for lifting containers off trains and onto trucks with chassis. Instead, they unload both chassis and container. If truckers require just a container, they must wait in line for a lift and pay a so-called swing fee that can tack as much as $100 to the bill.
“I pay for the privilege of using my own chassis,” says George, whose company bought 1,500 chassis and added them to the cooperative pools.
In carrier haulage, so-called “store-door” delivery, a shipper contracts with an ocean carrier. So, the ocean carrier can dictate whose chassis truckers must grab. Critics charge certain ocean carriers, for example, can favor a particular chassis leasing concern, sometimes as a condition for the sale of chassis to that company. One source cites TRAC and CMA-CGM; another cites TRAC and APL.
If motor carriers use, say their own chassis in an attempt to save time, or someone else’s for that matter, it’s on their own dime.
Chassis rental fees range from $15 to $35 a day, say trucking concerns. “They’re becoming an accepted part of the landscape,” says Ferrulli.
Not surprisingly, however, who pays for chassis usage has become a hot-button issue. Many shippers, long used to chassis costs being absorbed by carriers, have balked at the charge. “Something you give away is hard to take back,” says Ferrulli. The response from motor carriers, he says, is simply to hike the costs elsewhere if shippers refuse to pay the chassis charge.
Those ocean carriers cutting deals with shippers that include the absorption of chassis costs only muddy the waters, say those in the industry. “We’re in such a tough competitive environment, some carriers use any tool they can to build market share,” says Finkel.
Motor carriers accept chassis fees are here to stay. That doesn’t mean they’re happy about it. “Operations have become much more difficult,” says Ferrulli.
Picking up and dropping off a chassis might entail driving miles from the container terminal and could add an extra day. Billing can be tricky and truckers complain they often don’t know who will be sending the bill and when. Smaller drayage companies lack the ability to enter into any kind of long-term contract with, say a leasing company, and find themselves at the mercy of a spot market.
Then there’s the ongoing issue of maintenance. Truckers have long complained that chassis are poorly maintained. They also point to a lack of radial tires and outmoded lights.
“My company spends $100,000 a month repairing chassis that go up and down the highway,” says George. “That’s a lot of money spent on someone else’s chassis.”
A fan of neutral pools, Lhotak, for one, believes that new chassis owners and managers are beginning to grapple with these equipment issues. “Chassis are starting to become better,” he says.
That’s just part of the transformation process, Lhotak believes, who’s philosophical about the pace of change. “During any transition, there’s some resistance,” he says.
Even the harshest critics believe improvement will come, however gradually.
“I’ll be glad when we get further down the road,” says George. “Motor carriers will have more options how to use chassis and ocean carriers will become less and less engaged.”