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September 17 2018

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www.joc.com Trading Places 102 The Journal of Commerce | September 17 2018 Peter Tirschwell COULD THE DECADE-LONG search for a viable approach to chassis in the US finally be nearing an end? The model taking shape at the ports of Charleston and Savannah, aimed at solving a chronic chassis shortage that was threatening growth at two of the fastest-growing US ports, offers hope. Ironically, the solution comes from truckers — the source of the problem in the first place. In the US, the first container carrier was started by a trucker, Malcom McLean, who saw the ocean leg as only one step in what his view was an end-to-end trucking move. Thus, the ocean car- rier under this vision was obligated to provide a chassis for the portion of the transit moving over land. That original sin saddled ocean carriers operating in the US with a costly burden that they accepted until, faced with billions of dollars of losses during the financial crisis, they finally took steps to push the burden of providing chassis onto someone else. (Outside the US, where forward- ers or their precursors dominated shipping going back to the middle ages, there was never a question that they would handle the inland com- ponent of a container move.) The carriers' solution involved selling their chassis to lessors under terms that often required the shipper or trucker to use the same chassis even though it was no longer owned by the ocean carrier. It led to a situation where chassis costs were subsidized by truckers and BCOs while container carriers received below-cost chassis for carrier haul- age moves. Intermodal truckers naturally didn't like being on the receiving end of a deal made between the carrier and the lessor, and they were advised that entering the market as a chassis pool provider was a better option than suing. "What motor carriers had an issue with in that evolution was how the line did a deal with the leasing company and the leasing company billed the trucker," said David Manning, president of TCW, an intermodal trucker, and the North American Chassis Pool coop- erative. "If the trucker is paying the bill, the trucker should select who the provider will be. "The carrier subsiding their cost through the higher merchant haul- age rate, that is an issue for motor carriers," he said. The existing chassis pool model in the Southeast provided little incentive for lessors, also known as intermodal equipment providers (IEPs), to add new equipment to the region. As the existing units got older, required more maintenance, and experienced more down time, it was starting to impact growth within the fastest-growing US port region. Charleson and Savannah were the fastest-growing of the Top 10 US ports in total volume from 2009-2017, growing at an 8 percent and 7 percent cumulative annual growth, respectively, versus 4.3 percent for all US ports, according to American Association of Port Authorities figures. "There was a 51,000-unit chassis pool that is getting older and older and older and no migration path to improve the quality of the fleet. The average utilization rate last fall was over 85 percent, and in Charleston and Savannah, we were out of chas- sis," South Carolina Ports CEO James Newsome said. The solution involved Savannah and Charleston collaborating to bring in the trucker-led North Amer- ican Chassis Pool Cooperative to form a new pool called the Southern States Chassis Pool. It will have a reach across six states, and the model could be scalable well beyond that. The key difference: Chassis will be provid- ed "at cost," with the benefit to truckers coming not through profits on chassis usage but rather due to the new equipment breaking down less frequently because of anti-lock brakes, LED lights, and radial tires. The model is intended to address the remaining inequities stemming from carriers' lingering involvement in chassis provision. "When we say 'at cost' is our model, the carriers have negotiated a below-cost model, because the BCOs and the truckers are paying above cost. So when you come into this new pool arrangement, what that means in the market is that the trucker and BCO rates will go down dramatically, and the marine carrier rate will go up dramatically," Man- ning said, noting that this fact will require a transition period as carriers segue from one model to another. "We think of the chassis as an electric utility," Newsome said, with the idea being to upgrade the full regional fleet within 18 months of the new pool going live some time in the first half of next year. "The model solves the conun- drum that exists currently on how you upgrade the quality and quan- tity of the equipment. None of the current models deal effectively with that," Manning said. "The market is not going to do it on its own. It is going to take someone pushing to get there." JOC email: peter.tirschwell@ihsmarkit.com twitter: @petertirschwell Pooling toward solutions "If the trucker is paying the bill, the trucker should select who the provider will be."

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