Over the years, containerization has helped narrow the distance among economies in terms of trading. It has allowed exporting countries such as Japan, China and others to bring their products like electronics and furniture to large economies like the United States and European nations safely and in large quantities (CBP, 2002). As a matter of fact, it has allowed these suppliers to sell even their perishable products like vegetables, fish and many more using refrigerated containers. On the flip side, containerization has benefited receiving nations since it has not only enabled the buying nation access to these products but more importantly, it has dramatically lowered down the cost per unit (Levinson, 2006, p. 2). In the foregoing discussion, we will be dealing with the various operational obstacles faced by the container industry in the hope of providing a better appreciation on how to solve these problems. In summary, there are four issues that form the core of these container operation challenges, namely 1) Empty Containers; 2) Maintaining Schedule; 3) Ship Underutilization and; 4) Trade Imbalances. This essay addresses these issues using a simple cause and effect method for each, which are shown in the succeeding sections:
Problem 1: Empty Containers
Empty containers are the inventory of cargo containers at a certain port that are unlikely to be used immediately and are therefore taking up substantial amount of storage space (Hanh, 2003, p.11).
Cause: The proliferation of empty containers in one port is primarily caused by trade imbalances for that certain country (Aboobaker, 2006, p.1). Simply put, the volume of importation is relatively high compared to the amount of export activities to allow for the economically-viable return trip of these container units.
Effect: As initially mentioned, the increase in the inventory of these unused containers at the ports of receiving nations has reached an alarming level. This has added to the space constriction in these large economies where space is very expensive (Hanh, 2003, p.11).
Short Term – As discussed in various literatures, this surge in the container inventory has indeed been alarming. Immediate remedies comprise of finding ways to reposition these empty containers to deficit areas without going overboard in terms of cost (Hanh, 2003, pp. 10-11).
Long Term – While repositioning may provide a reprieve for the short term, the rate at which these containers are arriving may eventually catch up on any repositioning activity that will be undertaken, hence, a long term approach should be devised to address this scenario. Some of these approaches include converting these containers into low cost housing and working space which are now being considered specifically by a New York City architectural firm (Angelo, 2009).
Problem 2: Maintaining Schedule
A critical factor in the Logistics business is being able to facilitate the shipment of the containerized goods from the point of origin to its destination within the set delivery period. The dilemma however is that a large amount of the activity depends on some factors beyond the control of the operator and while being conservative in quoting delivery time to clients is an option, in this competitive industry (Hanh, 2003, p. 11), closing the deal is largely dependent on this criterion, i.e., delivery time.
Cause: Scheduling is a sub-activity of planning hence, to arrive at the most realistic schedule for a given shipment, ample and quality information should be made available to the operator (Hanh, 2003, p.12).
Effect: Failure to meet the committed schedule to the customer entails a wide array of unfavorable consequences ranging from additional expenses on the operator’s side at best to loss of repeat transaction due to loss of customer trust in the service provider’s ability to deliver (Hanh, 2003, p. 12).
Short Term – Addressing this problem is an immediate and tall order for the operator. One of the solutions being used currently is updating the database of the operator to come up with a realistic and competitive schedule for any given shipment route (Hanh, 2003, p. 26). This can be done thru periodic operations review.
Long Term – An updated database, while an effective tool in scheduling, may not entirely enable the operator to forecast the eventualities of any shipment. The closest thing that the service providers of this industry can come to visualizing the prospects of any shipment is thru an IT-based monitoring system (Hanh, 2003, p. 26). In many modern service providers, Global Positioning Systems have been put into place alongside integrating their tracking systems with allied systems such as shipping, port activities and weather, to name a few.
Problem 3: Ship Underutilization
The cost effectiveness of any shipping operation is being able to maximize the load capacity of the vessel. This is not an easy task considering the variation in the shipping activity at any given time (Moller, 2009).
Cause: As mentioned above, it is very hard to ensure maximum vessel load utilization (Moller, 2009) without having to incur additional cost like demurrage expense and loss of repeat sales. This is due to the fact that for any vessel, the loaded containers are owned by different accounts with different fixed deadlines of their own hence, waiting therefore for the ship to reach maximum load is the least of the operator’s concern, business wise.
Effect: With the increasing cost of fuel and other incidental expenses in the deployment of a vessel, it is difficult not to consider any area that would likely contribute to cutting down of operational cost. Ship underutilization comprises a bulk in any shipping company’s deployment expense and therefore would largely contribute to company savings and subsequently, the bottom line (Moller, 2009).
Short Term – A short term remedy to this is to offer discounts for accounts that can advance their shipping schedule. The cost for this discounting scheme should be substantially lower than the cost of ship underutilization (Moller, 2009).
Long Term – Most shipping companies now have been practicing alliance with competition in the form of vessel load leasing (Moller, 2009). This simply means that a certain load is allocated for a lessee for a given vessel deployment.
Problem 4: Trade Imbalance
In the United States, trade imbalance is very apparent, particularly skewed on trade deficit for these goods, which is the case when importation outnumbers exportation (Aboobaker, 2006, p.4).
Cause: The opening of China to the world has created an influx of low cost goods made from China (Made-in-China, 2009) on top of existing supplying nations like Japan. On the other hand, the main driver of the economy of America is not electronics, rather offsite engineering and military infrastructure projects and oil trading.
Effect: Because of this imbalance in the trade of goods that require containerization, an increase in the inventory level of unused containers is now an issue in the United States (Hanh, 2003, p. 9).
Short Term – An immediate solution to the trade imbalance is addressing the immediate effect, which in this case, is the increased inventory of unused containers. Since this trade imbalance causes high inventory of idle container units, finding ways of putting to use these container units like recycling or converted to housing or work spaces, as previously mentioned, is highly recommended and is in fact, one of the points of discussion in most related literatures (Angelo, 2009).
Long Term – A more concrete solution is targeting the cause which is the influx of low cost goods from Asian countries. While regulating their entry to the US has far reaching negative effects, modifying trade agreements to include activities that will enable the US to bridge this gap is a more likely option. Such activities may include requiring supplying countries to buy back the containers that were already converted to low cost housings and work spaces (Angelo, 2009). To make this viable however, the cost per unit should compose only of the development and shipping cost. Profit would come from reduced carrying cost of these idle container units.