Containerization and 12 Leasing Practices Learning Objectives After studying this chapter, you will be able to understand © the concept of containerization # the history of containerization + about the different types of containers ‘ the benefits of containerization # the chartering practices in the container business # the concept of inland container depots Cargo carrying containers are now an integral part of the modern maritime transportation business. Containerization facilitates both the unitization and carriage of cargo through different modes of transportation. It is due to these advantages that the share of containerized cargo in world trade is increasing every year. More and more countries are building infrastructure for easy movement of containerized cargo. This includes building highways to carry large heavy-duty containers, running special trains to exclusively carry containerized cargo, modernizing ports to handle different types of containers, creating warehousing facilities to accommodate containerized cargo, and building ships, trucks and other modes of transportation to carry the containers across continents. In fact, containerization has revolutionized the transportation industry. The term intermodalism is, now, nearly synonymous with containerization, with the container holding the cargo being exchanged between modes (Wood and Wardlow 2002). CONTAINERIZATION—CONCEPT AND OPERATION Containerization is a shipping system based on large up to 48 feet long cargo-carrying containers that can be easily interchanged between trucks, trains, and ships without rehandling the contents.198 Export Import Management ‘A container is a single, rigidly sealed, reusable metal box in which merchandise is shipped by vessel, truck or rail. A freight container is defined as an article of transport equipment with the following characteristics: . Itis strong enough for repeated use. 2. In is specially designed to facilitate the carriage of goods by one or more modes of transport, without intermediate reloading. 3. It is fitted with devices permitting its ready handling, particularly its transfer from one mode of transport to another. 4. It is designed for easy filling and emptying. 5. It has an internal volume of at least 1 m* (35.3 cu. ft.) or more. In other words, a freight container is a rectangular weather-proof article of transportation equipment for transporting and storing a number of unit loads packages of bulk material, which confines and protects the contents from loss or damage and which can be handled as a unit load and transhipped without rehandling its contents. Containers are made of various types of materials such as steel, aluminium, plywood, fibreglass, etc. A steel container has a steel frame and steel cladding, but can also get rusted after four to five years of use. Aluminium containers have steel frame and aluminium cladding. They are light-weight and rust free, but have a shorter life as a result of erosion of metal due to frequent contact with sea water. Non-metallic containers like plywood or fibreglass containers have steel frame, but their walls, doors, and roof tops made of plywood with fibre glass coating. These containers have good insulation properties, but are very difficult to repair and expensive to manufacture. HISTORY OF CONTAINERIZATION Logistics experts had been trying for a very long time to devise a unit load of cargo. A variety of methods to devise unit loads were tried which would improve the efficiency of transport operations. The idea was that the cargo should not only be protected from the vagaries of nature, but also from all the risk it might encounter during long voyages, such as theft, pilferage, damage, etc. In addition, the unit load should be easy to handle and transport across all modes of transport, such as truck, rail, ship, etc. Malcolm McLean, often called “the father of containerization,” first conceived the idea of using the entire truck trailer to load onto and off a ship. He was in the transportation business and was familiar with both land transportation and shipping operations. In 1956, McLean adopted a ship for carrying containers. His first attempts to directly transfer containerized cargo from trucks to ships were successful. McLean later established a very successful multi-modal transportation company called Sea Land Inc. By200 Export Import Management Kong, and Dubai also sensed the business opportunities and created excellent and highly efficient ports and made themselves the hub of regional traffic. Discussing just transport. efficiency, however, hardly begins to capture the economic impact of containerization. A container not only lowers freight bills, it saves time, Quicker handling and less time in storage translates into faster transit from the manufacturer to customer and reduction in the cost of financing inventories sitting unproductively on railway sidings or in pier side warehouses awaiting a ship. The container, combined with the computer, makes it practical for companies like Toyota and Honda to develop just-in- time manufacturing, in which a supplier manufactures the goods only as the customer needs them and then ships them, in containers, to arrive at a specified time (Levinson 2006). There are several other ways of unitizing the load for easy handling. Unitization is combining small units of load into a single large unit, by strapping or binding them together. Unitization could also be accomplished with the help of pallet (a platform). The cargo contained in wooden boxes or bags could be strapped to the pallet. The pallet could be easily lifted on the twin forks of a forklift truck. The supporters of palletization wanted the pallet to be a world wide standard of unit load. To that extent, some of the ships had even been adapted to carry pallet loads. However, in the long run, the container proved itself safer for the cargo and easier to handle. Containerization is the most advanced form of unitization. It fulfils all the challenging requirements that repeated sea voyages and the safe carriage of cargo on each journey involve. Modern containers are 20, 40, and 45 feet long. The load carrying capacity of a ship is measured in terms of number of containers of TEUS it can carry. A TEU represents a 20-feet equivalent unit of a container. TYPES OF CONTAINERS Different types of containers are available for different applications. Also, containers are available in different sizes with different load-carrying capacities. The standard sizes of containers the world over are 20 feet and 40 feet (Fig. 12.1 and Tables 12.1 and 12.2). Following are the different types of containers. Most common types of containers are as follows: 1. Open top containers (Fig. 12.2 and Table 12.3) 2. Reefer containers (Fig. 12.3 and Table 12.4) 3. Flat rack containers (Fig. 12.4 and Table 12.5) 4. Platform containers (Fig. 12.5 and Table 12.6)Containerization and Leasing Practices 201 Fig. 12.1 20 feet and 40 feet Dry Container Some other types of containers include half-height containers, side-door containers, ventilated containers, bulk containers (Fig. 12.6), insulated containers, collapsible containers, and tank containers. Table 12.1 Specifications of 20-Feet Dry Containers Length (mm)| 5,926 | 5,932 Inside Measurement Width (mm) | 2,343 | 2,345 Height (mm) | 2,217 | 2,416 Door Opening Width (mm) | 2,330 | 2.344 Height (mm) | 2,119 | 2,308 Load Capacity (M3) 308 | 337 Container Weight (kg) 1,680 | 2,000 Maximum Loading Weight (kg) | 18,320 | 18,640 Dry Containers: 1. These containers are suitable for general cargo. 2. Forklift pockets are provided on containers. 3. Lashing devices are provided on the top and bottom longitudinal rails and the corner posts.(Gontainerizationiand Leasing Practices 203 Fig. 12.2 Open Top Container Fig. 12.3 Refrigerated Container Table 12.4 Specifications of a Refrigerated Container Length (mm| 1,674 Inside Measurement Width (mm)| Heighe (rom 2,509 | 2,509 [Door Opening Width (mm) Load Capacity (3) 253 | 275 | 25.3 | 286| 565 | 588 | 669 | 669 ‘Container Weight (kg) 2,520 | 3,460 | 2,890 | 3,300| 4.330 | 5,612 | 4,500 | 4,500 Maximum Loading Weight (kg) _| 16,860|17,800] 20,700| 21,110) 24,868 |26,150| 25,980|25,980 Reefer containers: |. These containers are suitable for cargo that constantly needs temperature above and below. freezing point, such as fruits, vegetables, and other perishables. 2. It is possible to get fresh air supply within the containers in the quantity required to keep the product inside safe. 3. The insulating material, polyurethene foam is sandwiched between two walls of the container. The temperatures can be set between +25 degree C and 25 degree C. scanned with CamScanner204 Export Import Management 5.899 Inside Measurement Width (mm) | 2,238 | 2,428 [Heighe (mm) | 2,116 | 2.325 Door Opening Width (mm) | — | — Side Opening Height (mm) | 2,173 | 2,325 Length (mm)| 5,424 | 5,702 Roof Opening Width (mm) | 2,260 | 2,260 Length (mm) 5,836 | 5,836 Load Capacity (M3) _ 27.9 312 | 288 Container Weight (Kg) 2,440 | 3,620 Maximum Loading Weight (kg) __ | 16,700 | 17,880 Flat Rack Containers: |. These containers are suitable for heavy loads and extra wide cargo. 2. The bottom has strong construction. 3. Fixed end walls allow bracing, lashing, and stacking. 4. Ideal Cargo: air conditioners, boilers, construction machinery, electric generators, newsprint scanned with CamScannerFig. 12.5 Platforrn Container 335, 20° 8 V1 14” 52,910 4,630 48,280 2 high Steel frame with softwood | 12,192] 2,438 | 610 45,000 | 4200| 40,800 floor w |e o 99210" | 9.260| 89,950 Platform containers: T. Platforms are most suitable for heavy loads and oversized cargo. 2. The bottom has strong construction. 3. Ideal Cargo: over- length, and over- height items, pipes, rods, plywood sheets, large irregularly- shaped items, and steel beans. canned wi amocanner206 Export Import Management Half-Height Containers These are quite similar to open top containers but are only half the height (4’ 3” instead of 8’ 6”). They are mainly used for extremely heavy and dense cargo, such as steel beams 6r coils of tinplate. Side-Door Containers As the name suggests, these containers have side doors. They are particularly suited for cargo, which fits the inner dimensions of the container, but still is too wide to fit through the end door. In other respects, this type of container is like a regular general purpose container. Ventilated Containers These containers are suitable for cargo that needs ventilation, such as coffee or cocoa. They have small openings at each corner that lets fresh air into/ ‘out of the container, but to block the entry of rain and sea water. Bulk Containers Bulk containers (shown in Fig. 12.6) are ideally suitable for the carriage of dry bulk cargo, Three equivalent manholes are provided for top loading. Forklift pockets and lashing devices are provided. Ideal cargo for bulk Containers would be grains, granules, sand, nuts, beans, malt, sugar, dry chemicals, ete. Fig. 12.6 Bulk Container Insulated Containers These are normal box containers with insulating material in the walls, top, and bottom. As a result, there is minimum temperature fluctuation inside. scanned with CamScannerContainerization and Leasing Practices 207 Insulated containers are also attached to a separate temperature control device (Temperature Control Containers). Collapsible Containers These are like normal box containers, but the box can be collapsed completely. These containers are used on routes where there is very little return cargo and containers routinely return empty. 4 x 20° collapsible containers in their collapsed form have exactly the same dimensions as 1 x 20° regular box. There is a substantial space savings on returning empties. Tank Containers ‘These containers are suitable for chemical products, such as flammables, oxidizing agents, toxic substances, and corrosives, These are also suitable for food products, such as, alcohols, fruit juices, edible oils, and food additives. BENEFITS OF CONTAINERIZATION Containerization has brought about enormous benefits to the shipping industry. It has revolutionized the concept of cargo management by bringing about major changes in the areas of land transportation, shipping, procedures and documentation, excise and customs rules, etc. These changes have benefitted shippers, ship owners, as well as port authorities. Benefits to Shippers One of the major beneficiaries of containerization is the shipper who sends valuable cargo across the seas. The shipper’s business depends upon the speedy and safe passage of cargo to the destination abroad. The following are the benefits of containerization enjoyed by shippers: Reduction in Transportation Costs There is a major saving in transportation cost because for the same volume, the ocean freight for containerized cargo is less than break bulk cargo. Shipping lines are in a position to offer very attractive rates for containerized cargo because they can pass on the various cost saving benefits to their customers, i.e., shippers. Also, ship owners and shippers are entering into global contracts, where multi national corporations are using their global volumes to get price discounts from shipping lines. Saving in Port Charges Port authorities charge less tariffs for containerized cargo on account of ease of handling. It is much more facile to handle containerized cargo as compared208 Export Import Management to break bulk cargo, Overhead cranes and forklift trucks can very easily and quickly handle containerized cargo. Reduction in Warehousing and Inventory Costs The containerized cargo has to spend less time in warehouses and in transit, which substantially brings down the warehousing’and inventory costs. This saving results in better competitiveness and larger market share for export products. Reduction in Packing Cost One of the most important features of a container is that it provides a protective metallic cover to the cargo. The container protects the cargo from theft, pilferage, and also to an extent, damage from oil, water, etc. The shipper need not use a very expensive packing material, because the container provides protection from most of the hazards of an ocean voyage. Reduction in Insurance Premium The insurance companies charge lower premium rates for containerized cargo because of the better protection provided by the container to the cargo inside. Since there are lesser chances of damage, theft and pilferage in containers, insurance companies perceive containerized cargo as more safe and secure than the general cargo; thus, they charge lesser premium, Consequently, the shipper can offer more competitive prices to the importer abroad on account of lower insurance premium. More Convenience Containerization of cargo enables door-to-door delivery of cargo. Once the cargo is stuffed in the container at the factory, the entire responsibility of its carriage is borne by a multi-modal transportation company. The formalities of central excise and customs are also completed at the time of stuffing the cargo. Since most of the formalities are completed prior to despatch of the cargo from the factory, containerization offers greater convenience to the shipper. Better Acceptance Ports all around the developed world prefer containerized cargo, Since developed countries are the most attractive markets for the goods from developing countries, shippers who offer to send their cargo in containers find better acceptance in the markets of developed countries. scanned with CamScannerContainerization and Leasing Practices 209 Emergence of New Markets The ocean freight cost today is much less as compared to that 10, 15, or even 20 years ago; cheaper transport now enables the shipper to peneterate newer markets. Also, new technological developments like Electronic Date Interchange (EDI) have reduced the transaction cost. All these factors have made global trading more attractive to an increasing number of companies. In conclusion, it can be said that the shipper can save a substantial amount of money in transportation if the cargo is sent in a container. The savings in cost of warehousing and inventory, packaging, port charges, and insurance help the shipper to offer more attractive prices to the buyer abroad. Better prices result in more business for the shipper and finally for the entire shipping industry. Benefits to Ship Owners The following are the major benefits of containerization to ship owners: Reduction in Turn Around Time Containerization has speeded up cargo handling on the ports. Container ports and container terminals have to employ efficient material handling systems for quick loading and unloading of containers. Due to this, ships calling on the container ports have to spend less time on the ports. This results in the reduction in the turn-around time of the ships. More Cargo Carrying Capacity A containerized ship can carry more cargo as compared to general cargo ships. In addition, higher operating speeds enable the ships to complete the voyage relatively quickly. As such the cargo carried per voyage has increased alongwith the number of voyages made by a ship on a particular trade route. In the early nineties the average capacity of a container ship was 3000 TEUs but now the ships of 6000-TEU capacity are being built. Lesser time spent on the ports means more time spent on the sea. For a ship owner the time spent on the port is idle time. A general cargo ship has to spend around 50 per cent of its total voyage time on various ports. In comparison a containerised cargo ship spends relatively lesser time on the port. This improves the productivity of a ship tremendously. Higher Return on Investment Inspite of the higher purchasing price of a container ship, the ship owner finds the return on investment very attractive due to the higher returns they achieve. scanned with CamScanner210 Export import Management Global Contracts ‘The ship owners and shippers are now entering into global contracts with multi national corporations like Procter & Gamble, General Motors, and Nestle. These MNCs use their global volumes to get discounts on the ocean freight. The shipping lines use these large volumes as their base cargo to make their voyages more profitable. Higher Profitability ‘The cost of a large, modern container ship exceeds US$ 75 million and also the high operating cost of a container vessel being up to US$ 50,000 per day, means each day saved at port adds to the profitability of the shipping Inland Operations Containerization has motivated the ship owners to consider undertaking inland movement of containers. Inland operations also add to the revenues of the shipping lines. Benefits to Port Authorities Containerization is beneficial to the Port Authorities in the following ways: Less Port Congestion Containerization has substantially reduced the time spent by a ship at a port. In other words, the “turn around time” of the ships has reduced due to faster loading and unloading of containerized cargo. As a result of containerization and the resultant increase in sea borne trade, the governments have recognized ports as a major source of revenue and have created good road, rail, inland transport and feeder links. Ports have thus become hubs of international trade. Singapore, Hong Kong, and Dubai ports have created world-class cargo handling and warehousing facilities and have emerged as major trans shipment points. These ports are generating thousands of jobs for the local people. Time Saving Each container has a unique serial number, which helps in easy its recognition and the cargo within. With the advent of computerization, the serial number of the container is fed into a computer, which helps in quickly locating it on sprawling container ports. This saves a lot of time for the port authorities, Scanned with CamScannerContainerization and Leasing Practices 211 Fast and Convenient Loading and Unloading Easy identification of containers also helps in the quick loading and unloading of the cargo at the port. In comparison, it is much more difficult to locate, load and unload break bulk cargo (general cargo). Less Marketing Efforts In the pre-containerization days, the strategy of the shipping line was to “follow the cargo”. It means that the shipping line would chase the cargo. However due to containerization, the cargo follows the container ship. The reason is that the shippers prefer to select those ports where there are excellent container handling and storing facilities. Such ports are also the preferred ports of call of container ships. The ports with such traffic concentration have become regional container load centres. Hence the shipping lines need not chase the shippers for marketing their services. Rationalization of Cargo Handling Charges ‘The port terminals could charge cargo handling charges in a less complex and easy to understand method as compared to the complex and detailed tariffs of the break bulk era. GLOBAL TRADE AND CONTAINERIZATION The process of globalization and containerization are irrevocably linked; ‘one without the other is barely imaginable. Wherever industry locates and produces, containerization follows (Baird, 1997). We are living today in a world where consumer needs are getting homogenized. As a result, the successful global organization must treat the whole world as their market. Global corporations, such as McDonald’s, Coca-Cola, and Levi Strauss sell virtually the same products in the same way everywhere. For such corporations, the ideal business strategy is to export the standardized product from their plants, which manufacture ‘on global scale. A distribution network to cater to various markets across the globe can be worked out in consultation with logistics experts (Levitt, 1983). For shipping lines, these global corporations are important customers. Shipping lines lift the cargo from the manufacturing plants of global corporations and ship them to various comers of the world where the markets exist. Large multinational corporations, such as Toyota, Procter & Gamble, Nestle, Ford, and Daewoo are tying up with shipping lines and scanned with CamScanner212. Export Import Mandgement entering into global contracts with them. Under such contracts, the shipping lines offer special discounted freight rates to the MNC against the large volumes of cargo they get to carry from the various plant locations across the world to hundreds of guarkets where the corporation’s products are sold. As per door-to-door contracts, MNCs expect competitive freight rates, minimum transit time, and high-quality services from shipping lines. Global carriers have to be more responsive to the needs of their customers and offer them high quality of service at the lowest price. Shipping lines can cut costs by employing bigger ships, and catering to selected major ports. The global carriers should also be in a position to forecast the business strategies of their customers in order to respond quickly to emerging market needs. For example, if a shipping line knows that a MNC is going to start a new manufacturing plant in India, the shipping line may decide to open an office in India to mark their presence in the Indian market and to begin marketing efforts towards getting future business from the MNC. World Container Trade The containerization of world trade has grown dramatically in the last few decades. The total world container traffic in 1980 was only 39 million TEU (Twenty feet equivalent units) and it is growing rapidly as Asian countries, particularly China, is expanding the throughput of its container ports rapidly. Global Container Service Operators The shipping industry is dominated by 20 major container service operators, as shown in the following table. Between them, these operators carry 4.27 million TEU of shipboard capacity, which is almost 50 per cent of the world’s total shipboard capacity. Interestingly, out of these 20 container lines, nine are Asian, and the remaining are either European or American, Considering this trend and also in view of plans to increase the tonnage, Asian lines are likely to dominate the markets in the near future, The | present leader in terms of total TEU capacity is the Denmark based AP ] Moller, which has almost double the capacity of its nearest rival PRO Ned Lloyd. Top Ten Container Service Operators Top 10 container service operators on the basis of TEU deployed (October 2005) is given in Table 12.7.Containerization and Leasing Practices 213 271,316 1,007,617 152,583 622,817 363,594 788,088 Source: Containerization International Yearbook 2006 The number of vessels on order suggests that the top 10 container service are in an expansion mode. These expansion plans in capacity are the result of expected increase in world trade volumes in the near future. The Chinese and Indian economies are growing at a rapid pace, fuelling the need for imports and increasing the exports every year. The new vessels ordered are likely to cater to the needs of increased movement of cargo. Although it remains at the top slot in terms of fleet capacity, the AP Méller-Maersk Group comes at the eighth position for market share growth, a rank achieved thanks to the 2005 purchase of Royal P&O Nedlloyd, which allowed it to boost its market share from 12.5 per cent to 18 per cent overnight, corresponding to an increase of 51 per cent compared with that in January 2000 (Salle). The economic life of containers is around 10 years. Container service operators try to maintain a relatively new fleet of containers and avoid increasing maintenance and repair costs associated with ageing containers. ‘As such, the old used containers are sold globally to second hand container buyers, Such second hand buyers are generally small time container leasing firms, NVOCC, and merchants. Major Container Ports The ports with an annual throughput exceeding 1 million TEU can be214 Export import Management categorized as a major container port. Most of these ports act as trans- shipment ports or hub ports. These ports attract direct calls by large mother vessels, which in turn are serviced by smaller feeder vessels which then carry the cargo to smaller ports. At present, the higest number of large container ports is in Asia with at least 15 of them exceeding an annual throughput of 1 million TEU (see Table 12.8) Table 12.8 Top Twenty Container Ports July/August 2007 (" Irhroushput|Ti tankin [2006 TEUs | 20 1 24,792,400 | 23,199,252 2 2 23,539,000 | 22,480,000 3 3 21,710,000 | 18,080,000 | 3,630,000 4 4 [Shenzhen [China 18,468,890 | 16,197,000 |2.271,890| 14 5 S [Busan [South Koreal 12,030,000 | 11,840,000 | 190.000| 2 6 6 [Kaohsiung | Taiwan 9,774,870 | 9,470,000 | 305,000| 3 7 7 [Rotterdam [Netherlands 9,603,000 | 9,286,757 | 316243| 3 8 9 [Dubai UAE 8,923,465 | 7,619,000 | 1,304,000| 17 9 8 Germany | 8,861,545 | 8,087,545 | 774.455| 10 10 USA 7 484,624 3 i China 6,307,000 2 USA (China 7,289,365 | 6,709,818 | $79,547 9 7,068,000 | 5,208,000 | 1,860,000 36 1,916,000 16 14 5,540,000 | 760,000 | 14 7 | 16 x 4,801,000 | 1,149,000 | 24 18 17 |New York! [USA 5,092,806 | 4,785,318 | 307,488| 6 New Jersey 9 19 | Tanjung Malaysia 4,770,000 | 4,177,000 | 593,000; 14 Pelapas 20 21 [Bremerhaven [Germany | 4,400,000 | 3,735,574 | 664426| 18 Source: Container Management, July/August 2007 The Jawaharlal Nehru Port at Nhava Sheva near Mumbai is India’s biggest port. However, its world ranking was 33rd with a 2.58 million TEU throughput achieved in the year 2005, In 2004, the port was ranked 32nd; thus, it slipped in its ranking in 2005 in the fast developing world of container ports. scanned with CamScannerContainerization and Leasing Practices 215 Ee out cent: rt in India and remaining No. | port in India. The port handled 44.82 million cones of cargo during the financial year 2006-07 as against 37.84 million tones of cargo handled during the last financial year 2005-06, The port crossed 3 million TEUs mark in container handling during the year. Source: The Economic Times, 23 April 2007 There is a keen competition among ports to attract big shipping lines. ‘The shipping lines now have more bargaining power while negotiating with the ports, More direct service obviously means more benefits to ports. However, the decision to provide direct service to a port is exclusively the shipping line’s call. The port authorities can do very little to influence the decision of the shipping line except to improve their performance. With globalization and increasing world trade, the demand for additional port capacity and new ports is also increasing. Some of the new ports which have recently commenced or are likely to commence operations are Subic Bay Philippines (Cap.1 million TEU), Batam Island Indonesia (25 million TEU), Shenzen, China (3 million TEU), and Gioia Tauro Italy (2 million TEU). The new ports offer the following advantages: Excellent facilities in terms of water depth, large cranes, and sufficient storage capacity. + New ports are generally located near shipping lanes, therefore require minimum deviation time. © Good roads, rail, inland transport, and feeder links. © Located far from main city areas, they do not suffer from problems, which are faced by ports located in large cities. At present the number of ports with capacity over 1 million TEUs is about 80, CONTAINER LEASING PRACTICES Containers are largely owned by shipping lines and by some of the leading scanned with CamScanner216 Export import Management freight forwarding organizations around the world. Additionally, some companies owning containers lease them out to ship-owners, forwarders, or sometimes even directly-te shippers for certain time periods. The practice of leasing containers is important because there is a constant fluctuation in the shipping business. Sometimes the trade volumes in the world markets are very low. During this time, the containers remain idle in different parts of the world. During other periods, there is an upsurge in the shipping volumes and corresponding shortage of containers. Containers being very expensive, the shipping lines do not own beyond a certain number of them. In case of need, shipping lines would lease from the leasing companies to meet the temporary demand. Another reason for the popularity of leasing is that on Trans-Atlantic route, for example, a liner operator must own for each of its vessels a minimum of three sets of containers, one in Europe, one in North America, and one on the high seas. The shipping lines in such cases resort to short-term or long-term leasing. Types of Leases Different types of leases available for containerization are discussed as follows. 1. One-Way Lease In this case, the container is leased only for outward journey. For example, if a container is leased for a trip from Chennai port to Dubai, the container is leased in Chennai and returned empty and clean to the leaser’s depot in Dubai. 2. Round Trip In this case, the container is leased for both outward as well as inward journeys. This is used when either the shipper has bothways movement of cargo, or when there is no return depot at the port of destination. 3. Short Lease A short lease implies that the container is leased for 60 or 90 days. 4. Long Lease In a long lease, the container is leased for two, three, or more years, 5. Master Lease In this case, shipping lines enter into a master lease contract with leasing companies.Containerization and Leasing Practices 217 Whenever a leased container is returned, the owner makes receipt (known as the EIR or Equipment Interchange Receipt) in which the following information appears: 1. Date/place of pick-up 2, Name and other details of lessee 3, Full identification of container 4. Condition of container when leased and when returned Most leased containers are covered by a Damage Protection Plan (DPP); however, the cost of normal wear and tear, i.e., rust holes, etc, need not be borne by the lessee. Leasing companies are helping the process of containerization in many innovative ways. In developing counties, they assist in building up container services by leasing container ships and container cranes to regional operators. ‘The leading players in the container leasing business are—CTI, ICCU, NIC, CS, XTRA, UNIFLEX, INTERPOOL, TOL, CONTRANS, SEACONTAINERS, ITEL, GENSTAR, ete. Advantages of Leasing Advantages of leasing include the following. 1. It is possible to lease a container at a short notice in case of a sudden surge in demand for the containers. 2. Containers can be returned to the leasing company as soon as the demand of the shipping line is over. 3. Leasing saves shipping lines from blocking their capital (which would happen if the lines were to own the containers). Most shipping lines have a policy regarding the percentage of containers owned against percentage leased. 4. The newly formed shipping lines can start off with leased containers, without investing their capital in the ownership of containers. 5. At many places, the leasing companies waive off drop-off and pick-up charges when there is a slump in the demand for containers, 6. The entire business of Non-Vessel Operating Common Carriers (NVOCCS) is built on leased equipment. INLAND CONTAINER DEPOTS ‘The container base forms an important part of an integrated international transport system designed to link with inland centers the container terminals where ships are handled. This is achieved through a rail system or road218 Export Import Management haulage distribution network (Branch). Such bases are called Inland Ports or Inland Container Depots (ICD). An inland port is a site located away from traditional land, air, and coastal borders, It facilitates and processes international trade through strategic investments in multimodal transportation assets and by promoting value added services as goods move through supply chain. Inland Container Depots play a significant role in international supply chains. They are now an integral part of global logistics and are established in different parts of the world to |. provide transportation logistics services for exportimport as well as domestic cargo in containers; 2, facilitate trade to and from the industries based in the hinterland (i.e., areas far from the sea ports and international airports); 3. reduce the bottlenecks at sea-ports by freeing up storage space in container yards; and 4. to create employment opportunities and development in rural areas. The ICD performs the same functions as a port, except for the loading and unloading of ships (the stevedoring operation). In this way, a container will bypass the port container depot and be processed nearer the consignee or shipper. Inland container depots are also called dry ports, since they have all the facilities, which a normal port has for handling the export- import cargo. An ICD is a large enclosed/secure area where cargo-carrying Rail sidings Secutiy Fence Si0s Peee TROT ELT SUCK eee STITT eee ey Geese ae sets euapee 45 ee Fs 9 es Oe EE Gg tats ‘Train Handling Area ‘Loaded Container Storage Area CFS Transit Shed Source: Handbook on the Management and Operation of Dry Ports, UNCTAD, 1991. scanned with CamScannerContainerization and Leasing Practices 219 containers are stored under customs bond. The ICDs are connected to seaports by rail or by road or both and such movements are carried out under customs bond. ICDs also store empty containers before they are sent off for stuffing. Prior to the creation of ICDs, import containers were transported from seaports to importer’s factory/warehouse in the hinterland. After de-stuffing of cargo, the empty container would return to the seaport. Similarly for export cargo, the empty containers had to be called from the seaport. This was a wasteful exercise in terms of time and money. After the creation of ICDs, the shippers can save time and money by calling the containers from a nearby ICD; the excise and customs clearance can take place at either the shipper’s premises or at ICD; and documentation is simplified, Freight Forwarders help in handling ICD related work for and on behalf of customers. Duties and Responsibilities of an ICD The various duties and responsibilities of an ICD are as follows. Gate-in Check All containers entering the ICDs are checked for damage or contamination. Empty containers are examined both internally as well as externally. The stuffed containers are examined only externally on arrival. Damages are reported to the container owner so that repairs can be carried out either at the ICD or any other repair facility of the owner's choice. Gate-out Check Normally, all the containers are checked for their condition on their way out of ICDs. Damaged empty containers are not sent for stuffing. In such a case, the owner is informed and his/her instructions are sought. Documentation An Equipment Interchange Receipt (EIR) is issued every time equipment is interchanged between two parties. The EIR contains details, such as the names of the parties involved, container number, seal number (for stuffed containers), name of the transporter, vehicle number, etc. Reporting All the movements of containers in and out of an ICD is notified to the owner of the containers. The communication is carried out through e-mail, fax, and where ever it is available, through Electronic Data Interchange (ED). Scanned with CamScanner220. Export Import Management Repairs and Maintenance Any repair work undertaken at an ICD must conform to customs approval standards. The International Institute of Container Leasers (ICL), which is based in the United States, has developed these standards, which are the best-known standards in the industry. In case of reefer containers, the routine maintenance of refrigeration equipment is essential. Before the cargo is loaded, the thermostats are set to maintain the right temperature and other equipment are suitably calibrated. Storage ICDs have to make suitable arrangements for safe storage of containers. Empty containers are stacked one on top of the other. ICDs must have suitable material handling equipment for moving the containers within the premises. Despatch ICDs arrange for road and rail transportation of the cargo to the ports. They also undertake stuffing and de-stuffing operations, if required. Miscellaneous Duties and Responsibilities ‘These include sealing the containers, lashing, securing and bracing odd size cargo, conducting container conditioning surveys, etc. Container Corporation of India In India, the Container Corporation of India (CONCOR) has established a network of ICDs in the different parts of the country, CONCOR was established in March 1988 under the Ministry of Railways. The company was set up with the objective of developing multimodal logistics support for India’s international and domestic containerized cargo and trade. The task was to provide customers the advantages of direct interaction and door-to- door services that formed the backbone of road transport, while capitalizing on the robust and more economical option of rail movement on the Indian Railways network, Objectives CONCOR provides logistics services and support for both international and domestic cargo industry and is currently the only means by which shippers may obtain containerized freight transportation by rail in India. The objectives of CONCOR are to scanned with CamScanner‘Containerization and Leasing Practices 221 1, provide transportation logistics services for export-import as well as domestic cargo in containers. 2. expand CONCOR’s terminal network in the country so as to enhance its market share in the container business. 3. bring back less than trainload general goods cargo from road to rail in containers through extensive marketing efforts. 4. provide multimodal transportation logistics consultancy services to Potential operators who would help CONCOR grow its business, CONCOR's Core Business Three distinct categories of CONCOR's core business are as follows. CONCOR as Carrier CONCOR provides the rail or road link between ports and terminals. It is the sole provider of containerized rail transport in India. Some of the terminals like Pithampur (Indore), Malanpur, Mulund, and Milavittan, etc., are linked to the ports by road. But the majority of ICDs and Container Freight Stations (CFSs) are linked by rail. The rails freight is almost 20% cheaper than road freight. CONCOR passes on this cost advantage to its customers. Indian Railways also provide leased land for container operations and railway wagons and operational support to CONCOR. The rail link reduces the dependence of the exporters on road transport and also helps reduce traffic congestion on roads. CONCOR as Terminal and Warehouse Operator CONCOR began its operations in November 1989 with seven ICDs. Today, it has a network of 51 terminals of which 44 are export-import container depots, and seven are exclusively domestic container depots. While most of the depots have rail links, seven container depots are connected only by roads. A CONCOR terminal provides all the facilities of a dry port to the shippers, including customs clearance. Other facilities include warehousing, container storage and repairs, etc. These terminals are categorized as deep and medium hinterland, portside and within port terminals. Each category serves a different segment of clients who have differing needs. CONCOR as CFS Operator In its role as CFS operator, CONCOR provides value added services by offering transit-warehousing facility to import/export cargo. The shippers can also enjoy the benefits of CONCOR’s bonded warehouse from where they seek partial releases of their cargo, thereby deferring duty payment. As CFS operator, CONCOR provides the following services; Transit warehousing for import and export cargo. Bonded warehousing that enables shippers to seek partial release of their cargo, thereby deferring duty payment. Scanned with CamScanner222. Export Import Management Consolidation of Less than Container Load (LCL) cargo. * Clearance of air cargo using bonded trucking. Containerization has changed the face of world trade. The concept of unitization of load was introduced by Malcolm McLean for facilitating the loading of cargo on board a ship, He could not have imagined that this concept would change everything from port infrastructure to shipping documentation. Modern ports are being built specifically to handle containerized cargo. These ports rely more on heavy cranes and other material handling equipment and less on manual labour. Container ships are being designed to carry more and more cargo in order to achieve better economies of scale. The Emma Maersk, the largest container ship ever built has a length of 398 meters and can carry 11,000 to 15,000 TEUs. Large ships typically have a lower cost per TEU-mile hour than a smaller unit with the same load factor (Simhan 2006). Roads are being built with container-carrying trucks in mind. Railway tracks are being laid exclusively for single-stack and double-stack container trains. Warehouses are equipped to handle and store containerized cargo. Customs authorities across the world are geared to examine increasing volumes of containerized cargo. In fact, the customs laws are being amended to ease the clearance of containerized cargo. Information technology is helping shippers track their containers on high seas. In short, the innovation of Malcolm McLean has come a long way and changed the maritime sector. The reason for this change is that it has benefited all the stakeholders, CONCEPT REVIEW QUES aby ep 1. What are the characteristics of a container? Explain the history of containerization, 2, Discuss the various types of containers and their utilities. 3. What are the benefits of containerization to (a) Shippers (b) Ship owners (c) Port authorities 4, Write an essay on the impact of containerization on world trade. scanned with CamScannerContainerization and Leasing Practices 223 5, Explain the container leasing operations. What are the benefits of leasing to the various segments of shipping industry? 6, Write a short note on Inland Container Depots. 7. What are the functions of an ICD? Discuss their duties and responsibilities towards the shipping industry. 8. Discuss the role-played by CONCOR in promotion of multimodal transport in India. OBJECTIVE QUESTIONS In the following questions, choose the correct option. 1. Which of the following statements is NOT true? {a) Containers are strong enough for repeated use. (b) Containers are specially designed to facilitate the carriage of goods by only one mode of transport, (c) Containers are fitted with devices permitting its ready handling particularity its transfer from one mode of transport to another. (d) Containers are designed for easy filling and emptying. 2. The concept of containerization was first introduced by (a) Captain Cook (b) Christopher Columbus (c) Malcom Mclean (d) Marco Polo 3. What does TEU stand for? (a) Ton Equivalent Unit (b) Twelve Equal Units (ce) Ten Feet Equivalent Units (d) Twenty Feet Equivalent Units 4. Which of the following is NOT among the top FIVE container ports in the world: (a) Singapore (b) Hong Kong () Shanghai (d) Dubai (e) Shenzen 5. Which of the following is NOT a benefit of containerization: (a) Big container ports dominating the shipping industry (b) More cargo carrying capacity on a ship Scanned with Camocanner224 Export Import Management (c) Higher return on investment (d) Less port congestion State whether the following statements are True or False. 6. Jawaharlal Nehru Port is among the top 20 container ports in the world. 7. AP Moeller Group is the top container service provider in the world. 8. Tank containers can be used for carrying perishable cargo. 9. Containers being expensive, shipping lines would rather lease the containers than buy them. 10. CONCOR is a large shipping line. EXERCISES 1. Mark the locations of the top five container ports on a world map. 2. Mark the locations of Inland Container Depots on the map of India 3. Visit the websites of Singapore port and Jawaharlal Nehru Port and compare the infrastructure of these two ports. 4. Visit the nearest Inland Container Depot to your place and write a short report on your visit. 5. List down the material handling equipment typically used at a container port. Baird Alfred, 1997, ‘Globalization, Container Shipping and the emergence of new port network’, Tenth World Productivity Congress Paper Chile. Barry Rogliano Sales Report, January 2006, Alphatiner report, 11-05 Branch Alan, 1994, Export Practice and Management, Thomson Learning Levinson Mark, 2006, The Box: How the shipping container made the world smaller and world economy bigger, Princeton University Press, New Jersey. Levitt T., 1983, ‘The Globalisation of Markets’, Harvard Business Review, May-June (3) 92-102 Raja Simhan T.G, 2006, ‘India must think big on Ports’, The Hindu dated 16th October 2006. Wood, Barnes and Murphy, Wardlow, 2002, International Logistics, AMACOM Publication, New York www.concorindia.com, last accessed on 14th September 2007. www.lectlaw.com, last accessed on 10th September 2007, www.ttitamu.edu, last accessed on 14th September 2007 scanned with CamScannerComtainerization and Leasing Practices 225 DOWNSIDE OF CONTAINERIZATION Case Study Itis a known fact that the members of shipping conferences enjoy a monopoly in the shipping industry. This monopoly is a continuous source of conflict between some large carriers and the shippers. This is mainly because the conferences do not consult shippers while deciding their pricing policies. It seems that shipping conferences are only interested in maximizing their revenues, irrespective of the hardships faced by the shipper. This problem is particularly acute in developing countries where the regulatory bodies are not strong enough to challenge the conferences, Today, the shippers have to pay a variety of charges in addition to freight costs. For example, today the cost of sea borne transportation could be Transport cost = Freight + Terminal Handling Charges (THC) + Bunkarage Adjustment Factor (BAF}+ Currency Adjustment Factor (CAF) + Peak Season Surcharge + Destination Delivery Charges (DDC) + Bill of Lading or documentation fees + War risk surcharge This is a long list of charges, which seems endless. One of the acrimonious issues is the ever-increasing terminal handling charge (THC). This is a tool used to generate extra revenue for the carriers. THC is an unfair pricing mechanism based on an 18th century principle known as the ship's rail costing (hook-to-hook). However, this is no longer applicable, as after the containerization of cargo was introduced in the 1960s, the method of handing over goods to ship or receiving goods from the ship has changed. Technically, it is only on the basis of break bulk cargo that the original Free On Board (FOB) point remains demarcated at the ship’s rail. Prior to containerization, the shipper was responsible for handing over/ picking up the cargo along side ship (quay), so that the ship's hook (crane) would unload/load cargo (alongside). This system justified the cost of port charges to be borne by the shipper, as he/she was responsible for bringing cargo alongside the ship on the quay. However, with the introduction of the containers, cargo is not only stuffed at the manufacturer's door, but it is also handed over to the ocean carrier in the container yard within port premises. Hence it is clear that today the shipper's responsibility ends with handing over the cargo in the container yard. The shipper no longer moves the cargo alongside ship. This is also the point where the carrier takes responsibility (in case of exports) or hands over the responsibility (in case of imports) to and from the shipper. scanned with CamScanner