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When it works, the flow of containers through our supply chain can be a beautiful thing to watch. A ship comes to shore. Every couple of minutes, almost metronomically, a crane lifts a container to shore. Dock workers lift the container onto a neat holding stack. A truck pulling a chassis pulls up, the container is loaded onto the chassis, and the trucker drives it to a warehouse or a railroad intermodal terminal.
In the U.S. we don’t handle containers nearly as efficiently as many ports in Asia and Europe – but the process generally works. But to work, each piece of the process must be in place:
- The ship arriving to the dock;
- Labor to operate the crane and other port equipment;
- Space at the port to stack the container;
- A truck and driver available to come to the port to pick up the container; and
- A trailer chassis on which to load the container.
If any one of these pieces is late or missing, the system slows down, and can even grind to a halt.
Currently, there are hard challenges facing some of these pieces – such as the difficulty in finding drivers, or the port congestion from too much volume. Solving any of these problems will come at a cost; not solving them is likely to result in a much bigger cost. However, one very solvable problem is the shortage of chassis available to move the containers out of the port.
The chassis shortage has gotten a lot of press during the “COVID supply chain crisis.” But this is not a Covid issues; there was a chassis shortage years before anyone had even heard of COVID-19. In the last twenty years, several things have caused this shortage:
- Larger vessels, bringing more boxes in at the same time, causing spikes in demand;
- Sophisticated supply chains, in which deliveries are more precisely scheduled to meet demand – causing a higher “peak”;
- Higher chassis prices, partially driven by stiff tariffs on imported chassis and steel;
- Port-based limitations on which chassis a trucker can use;
- Chassis being held longer before being returned, such as when a retailer chooses to store goods in a container in the parking lot rather than unloading into the warehouse; and
- Increasing numbers of chassis falling into disrepair.
Reviewing these factors, three things are clear: (1) relative to total container volume, we need more chassis than we did a few years ago, (2) we need better economic incentives for getting a chassis back in operation, and (3) we must find ways to better match chassis supply with demand. A new chassis costs in the range of $15-25K, yet the economic loss of not having the chassis available – goods not getting to market, extreme inefficiency in the capital-intensive port operations, idle time for valuable truckers, etc., can easily dwarf that cost over time.
The logistics industry must deal with the chassis issue as both as a near-term crisis and a long-term structural problem by taking action:
- Accelerate maintenance and rebuild of mothballed chassis, even if this means paying a premium to increase the number of roadworthy chassis out there;
- Broaden chassis pooling arrangements to eliminate artificial barriers restricting which chassis can be used at a port, and ensure that chassis owners can capture an economic rent that justifies their investment;
- Leverage software solutions (similar in concept to Uber) to better match chassis supply and demand, as long as artificial barriers are removed;
- Provide incentives for shippers to return chassis earlier, by substantially raising chassis rental rates after a certain number of days in use; and
- As chassis rental rates increase to match demand, investors will order more chassis to increase the chassis pool over time.
Over time, we must address the full range of complex issues that plague our supply chain and find ways to balance resilience with efficiency. Solving the chassis problem is relatively straightforward; addressing it swiftly would be a sensible and effective place to start.