The conundrum of supply or demand

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Despite a surplus of containerships, slots and rising freight rates, North American exporters are experiencing equipment shortages. With a relatively low US dollar, the global demand for North American agricultural goods and other high weight / low value items is on the rise. But the supply and demand equation is a conundrum, and solutions are elusive.“So we beat on, boats against the current, borne back ceaselessly into the past.” The last line of The Great Gatsby, F. Scott Fitzgerald

By George Lauriat, AJOTIt’s a conundrum: a riddle of supply and demand for slots and equipment. After two years of record declines in freight rates, massive ship lay-ups, and huge losses for ocean carriers, freight rates are again rising, but in North America there is a shortage of boxes for exports. Why?
For the past three decades the US has imported high value consumer goods and exported waste paper, agricultural products and other high weight / low value products that helped offset the costs of re-positioning containers, principally back to the Far East. At times, the imbalance of inbound freight was generally 35-45 to outbound, but at times ran as high as 20-80 and was even greater in terms of the dollar imbalance.
The entire system was designed around a flood of high value import boxes. Carriers designed their ships and schedules to accommodate double-digit growth inbound. It was less a supply chain than a great ocean highway with an HOV (high-occupancy-vehicle) lane that was never removed.
For example, in 1993 it is estimated that the US inbound box total from Asia was a modest 3.5 million teus, largely derived from exports from Japan and Taiwan. By 2007, imported teus from the Far East conservatively hit 13.64 million with over 10 million teus originating from China alone. (The total was probably higher as these figures do include Canadian transhipment cargo and miss some of the East Coast traffic – the UK based shipping consultancy firm Drewry’s generally runs a million teus higher). Conversely, in 2007 outbound teus were roughly 5.2 million and in 2008 with a falling dollar, 5.7 million teus.
Although export cargo was important to defraying costs of repositioning, an empty box rapidly moved through the system was often worth more than a loaded export box. It simply cost the carrier more to have the box out of the system than to have the box matched with international freight many hundreds of miles from the desired port of exit. Also, a heavy export box reduced the number of empties that could be repositioned by a vessel.
In North America, an entire logistics industry was constructed around mixing and matching ocean containers to cargo (frequently domestic) with routes to maximize box revenues. Even so, at times it was cheaper to build a new container in the Far East (particularly as carriers often had interest in the box builders) for shipment than the cost to reposition a box.
The result of the imbalance was an inconsistent approach to US exports. At times US-based foreign carrier sales representatives would relentlessly chase US freight to fill outbound boxes, at the behest of the home office, particularly freight located near base ports. Still other times, the effort was lukewarm as the high weight / low value and distances involved weren’t as important as getting the box back to be reloaded with high value goods for export back to North America or Europe. Even so, with a few notable exceptions (high value goods like chemicals, auto parts, machinery and reefer cargos), the real freight negotiations were always on the inbound side starting with the big retailers like the Wal-Mart, Costco, Lowes and Home Depot.
Freight Rate Cycles
Freight rates haven’t always followed the growth in freight from Asia. Ship-owners tend to follow each others lead and this led to a building spree that

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American Journal of Transportation