The Perfect Storm: Weathering a Chassis Crisis

Tags: Trucking, Ports

Economic recession, cost-conscious ocean carriers, a half-baked federal mandate, and ambivalent ports have dropped another heavy load on the U.S. trucking industry. But who’s the real victim of a widespread chassis shortage? And who’s to blame?

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In April 2009, while guiding a tour of Maher Terminals’ container yard at Port Elizabeth, N.J., corporate vice president Ivo Oliviera pointed to an out-of-service chassis “graveyard,” a holding space for the wheeled trailers used to move shipping containers in and out of ports. His comment elicited a few chuckles from the group of logistics professionals preoccupied by a rare inside look at the Port Authority of New York & New Jersey’s crown-jewel facility in a post-Sept. 11 world.

Absent a steady flow of containerships, the terminal was flush with empty space. The derelict chassis stockpiled on a small parcel of yard were a sign of bad economic times. No one knew it was an omen of worse things to come— in better days.

Juggling “live” chassis was always a difficult proposition for Maher Terminals and other port operators across the United States. It was a challenge that required collaborative partnership and solutions well before the recession seized hold.

“We have an off-site chassis pool cooperative close to the terminals,” Oliviera explained. “When an Evergreen container comes off a ship, it doesn’t have to be paired with an Evergreen chassis. It’s a gray chassis pool. We’re taking assets off-terminal and greatly improving stevedoring.”

By pooling chassis, Maher Terminals was helping improve asset utilization and turns. “Today, Evergreen needs 700 chassis instead of 1,000,” Oliviera added. “Using an equipment depot off site considerably reduces capital expense. And there is increasing demand for a port-wide chassis pool.”

Two months later, Oliviera’s casual observations hit home in a big way. The Federal Motor Carrier Safety Administration (FMCSA) began enforcing its Requirements for Intermodal Equipment Providers and for Motor Carriers and Drivers Operating Intermodal Equipment Rule— now known as the “Roadability Rule.”

The FMCSA regulations called for providers of intermodal equipment such as container chassis to register assets; establish a systematic inspection, repair, and maintenance program; document their maintenance program; and provide a means to effectively respond to driver and motor carrier reports about intermodal chassis mechanical defects and deficiencies. Simply, it required greater diligence at equal expense.

At the time, the new mandate was largely overshadowed by an economic recession. Containers weren’t moving and chassis were idling in varying states of decay.

Fast forward to 2011. There is a scarcity of roadworthy chassis at U.S. ports and the FMCSA’s Roadability Rule is finally exposing its regulatory teeth. With the economy showing signs of rebound, container traffic is building. There is incentive to resurrect dead chassis, make them serviceable again, and bring new equipment on line. But who’s going to do it?

During 2010, a number of large ocean carriers— including Maersk Line, Yang Ming, CMA CGM, OOCL, NYK Line, and Evergreen— announced they would no longer provide chassis at select U.S. ports. Recognizing that the role of intermodal equipment supplier was no longer a viable business, steamship lines dropped chassis in favor of floating containers.

Ports have been largely silent on the issue. They are casual observers to a building drama where taking sides is inconvenient. In fact, they stand to gain ground. A change in chassis ownership means equipment will no longer be stored on port property, reducing safety and liability exposure while increasing yard capacity.

In contrast, terminal authorities are looking to facilitate collaborative solutions— as Maher Terminals has endeavored— so they can keep storage and staging areas clear and container movement fluid.

Through it all, shippers and drayage companies are left wondering what they need to do and how much it will cost.

The neutral gray chassis pool and the gravitas of equipment left to oxidize in early graves— details that illustrated Maher Terminals’ predicament in 2009— are now acquiring new meaning for shippers and drayage companies across the United States. Chassis ownership and accountability is a gray area between modes. And it’s becoming a serious concern for port users who have to find alternative solutions and reconcile additional costs.

“The shipping lines are not negotiating this point. Carriers have simply advised they will no longer pay for chassis. We don’t have the means to negotiate these costs out of our contracts.”
— Shipper respondent to IL\\\\\\\'s survey

Exploring Perspectives

Inbound Logistics reported on the shortage of chassis at U.S. ports in November 2010. The feedback we received from readers encouraged further survey of the market to investigate two threads: the severity of the situation; and what shippers, intermodal drayage companies, and intermediaries are doing about it.

We conducted a straw poll of readers via Web and email outreach to gauge their perspective. Their response was immediate and overwhelming. Fifty-one companies provided both quantitative and anecdotal feedback.

The general consensus (88 percent) is that chassis availability is a concern for port users. More telling, 80 percent have already experienced a drop in chassis availability at ports— with 18 percent identifying no change and only two percent reporting an increase in available assets.

Maintaining chassis in an uncertain economy has become a financial burden for intermodal equipment suppliers, especially now that the government is mandating providers comply with regular inspections— and face fines for failing to do so. Despite the FMCSA’s new rules, many ocean carriers realize that providing intermodal equipment is not a core business anymore, and therefore not in their best interest.

One respondent explains that the FMCSA ruling is not the predominant reason steamship lines are exiting the chassis business. Instead, it has more to do with the economic downturn and the expense of managing underutilized assets. A chassis parts supplier that favors the new mandate agrees, saying, “This rule simply outlines responsibilities for maintaining equipment.”

Others, notably on the trucking side, are less forgiving.

“There will come a day when all steamship lines will need to start making money on ocean freight and leave inland transportation to truckers,” says one reader. “It’s coming soon. Ocean carriers have leeched on to the trucking community far too long, making us do their work for free; running bad chassis to maintenance and repair; then waiting. It will all come back to haunt them.”

Such vitriol sounds extraordinary for a piece of intermodal equipment that ferries containers to and from ports. But a chassis’ role in the grand scheme of supply chain management is important— much like a pallet in a warehouse. It’s always undervalued, and the cost to own and maintain it is generally perceived as a non-core business expense.

Unfortunately for shippers, that expense is arcing sharply in the wrong direction. When IL asked survey respondents whether they had experienced any changes in port drayage pricing, 67 percent reported that costs were higher, 31 percent the same, and two percent noted cheaper rates.

Framing the Problem

In the past few months, with the economy and container trade showing signs of recovery, the chassis conundrum has begun to trigger concern in much the same way as truck capacity and driver shortage worries.

The most obvious recourse for shippers is to negotiate with steamship lines and redact chassis and related liability costs from their contracts. But this is easier said than done. Only 35 percent of surveyed respondents have pursued such options, with the remaining 65 percent yet to reconcile ocean carrier pricing with “dropped” service.

“The shipping lines are not negotiating this point,” says one shipper. “Carriers have simply advised they will no longer pay for chassis. We don’t have the means to negotiate these costs out of our contracts.”

The exodus of ocean carriers away from the chassis business has left port users in a fix. And with the FMCSA’s Roadability Rule becoming more visible as container volume and chassis demand builds, intermodal trucking companies and shippers are bearing the consequences.

For truckers, the grudge is consistent. Government is placing the burden of responsibility, in terms of inspecting and maintaining equipment, directly on drivers— something that might not sit well in certain ports where unionized labor has leverage. In effect, the new protocol is decentralizing asset control.

This is a major source of contention for draymen operating at ports. Many truckers believe that chassis waiting in terminal staging areas or at off-site depots should already be vetted and roadworthy before they even enter the equation. Instead, intermodal equipment providers are depending on driver discretion to discern whether chassis are usable— opening up a can of worms in terms of liability for non-compliant assets.

While debate over chassis chain of custody continues, some truckers are dealing with the problem head-on. “We are buying chassis and charging our customers the additional cost,” says one drayage company.

For shippers, the options are just as limited. Some are outsourcing the problem entirely. Many have entered contracts with chassis leasing companies to secure equipment. Others are buying their own chassis and augmenting capacity when necessary by negotiating with smaller equipment pools.

“We have purchased a small amount of chassis for our special commodities and we signed contracts with leasing companies to guarantee availability of equipment to our customers,” explains one shipper.

Pooling Resources

On Jan. 31, 2011, Maher Terminals issued a notice to customers at its Port Elizabeth facility: Please be advised that due to a surge of import cargo, the Steamship Line Co-Op Chassis Pool is experiencing shortages of 20-, 40-, and 45-foot chassis. We encourage anyone that may have 20-, 40-, and 45-foot co-op chassis in their possession to return them to the depot.

The shortage was partly due to winter weather conditions in the New York metro area, which made it difficult for drayage companies to turn and return equipment. But it’s also an indication of how a growing impasse over chassis ownership, availability, and accountability could impact container throughput at U.S. ports moving forward.

Many observers agree that the current predicament was inevitable, because ocean liners had too much control over intermodal assets for far too long. In most parts of the world, chassis are owned and/or operated by shippers, consignees, and drayers.

“Steamship lines are in the water business, not the road business. Ocean carriers providing chassis may have been a good idea 20 or 30 years ago, but it has moved out of their control,” says one source.

To point, Malcom McLean invented the shipping container and Sea-Land pioneered the ISO chassis— in Port Elizabeth— with no idea how global trade might one day explode. So it’s little wonder ocean carriers serving U.S. ports have always held on to the rolling linchpin critical to intermodal transport.

Today, steamship lines are getting back to basics by divesting intermodal assets. In some cases, they have spun off separate chassis-leasing divisions, as Maersk did with Direct Chassis Link (DCL). The carrier rolled out the new company in August 2009 at the Port Authority of New York & New Jersey.

Truckers hauling Maersk containers from marine or rail terminals at the port are now required to participate in the program. Draymen can use the same chassis from DCL for multiple trips during the same day. Maersk has already begun rolling out this pooling system to the Southeast and Gulf inland regions.

Other ocean liners are getting out of the U.S. chassis game all together. In July 2010, Evergreen Lines “donated” 1,700 units to Maher Terminals’ Port Elizabeth MetroPool network, which is operated in concert with TRAC Intermodal, North America’s largest chassis pooling provider.

Maher Terminals has been on the leading edge of chassis pooling since the early 1990s, when it first began supplying equipment for terminal users at Port Elizabeth. As vessel-sharing agreements became more common and customers began calling on other facilities at the port, it made sense to locate chassis depots off-site.

The current chassis predicament is the manifestation of a perfect storm: an economic recession, ocean carriers looking to reduce operational costs, and a well-intended, but half-baked, federal mandate that is dropping another heavy load on a decimated and distracted trucking industry.

Now that companies are forced to reckon with a new way of operating around ports, there is a great deal of confusion and uncertainty. Looming capacity and driver shortage threats notwithstanding, a lingering chassis deficit creates a worse problem— supply chain bottlenecks at the most important pivot in the U.S. supply chain.