Executive Briefings

How the Intermodal Chassis Became a Hot Potato

Nearly all major ocean carriers have announced plans to stop providing chassis to U.S. truckers at key shipping locations. But it's far from clear how that decision will play out.

Maersk Inc. got the ball rolling in late 2009 and early 2010, ending direct ownership of chassis at most major intermodal transfer points. (Maersk didn't actually dump its chassis outright; it formed an equipment subsidiary known as DirectChassis Link, Inc. (DCLI), which it subsequently sold to the private equity firm of Littlejohn & Co., LLC.) Rival carriers quickly fell in line, eager to shed themselves of this particular drag on their balance sheets.

Shippers in the U.S. oceangoing trades weren't especially happy about the change, but there's plenty of precedent for it. For the most part, ocean carriers don't supply chassis in other major markets. The problem isn't so much the additional burden on U.S. truckers as the confusion that has ensued. Where are the chassis going to come from? Who's going to supply, maintain and manage them throughout the intermodal system? Who's going to pay for them? These questions have yet to be fully answered.

A new system for providing chassis can take several forms. Some possibilities:

- A neutral chassis pool. Here, an independent provider either operates the equipment directly or leases it out. (Maersk's DCLI, notwithstanding its former ties to the ocean carrier, is such an entity.) Charges are based on daily usage. Up to now, this kind of setup has been used mostly to support ocean carriers at intermodal rail terminals. No reason why it can't serve truckers or shippers instead.

- A common, or cooperative, pool. It draws on equipment from multiple carriers, operating under the terms of the Intermodal Association of North America's Uniform Intermodal Interchange Agreement. These co-op pools can typically be found at port and marine terminals.

- Equipment owned by motor carriers and shippers. This option might involve long-term lease or purchase arrangements with equipment providers. Maintenance and repair can be part of the deal. According to the industry lobbying group known as the Waterfront Coalition, the setup works better in terminals where containers are grounded rather than on wheels, because the motor carrier is not charged a "flip fee" for using its own equipment. Unfortunately for truckers, most U.S. ports and railroads are still wheeled facilities, although there could be a change in terminal layout as operators strive to get the most out of limited acreage.

Ocean carriers, who aren't exactly objective parties in the matter, argue that the change in chassis ownership will benefit shippers. "Aligning provision, control and use will result in greater efficiency and better chassis management practices throughout the supply chain," according to a statement by the Ocean Carrier Equipment Management Association (OCEMA). What's more, the group says, "the new policy will reduce diesel emissions associated with intermodal transportation."

So this shift is a quadruple win for ocean carriers, truckers, shippers and the environment? Perhaps. First, though, the parties involved must sort through a number of complexities. For one thing, the change doesn't affect all chassis moves. It applies largely to so-called merchant haulage, where the shipper or consignee arranges for drayage from the port. For carrier haulage, where the ocean carrier is making the intermodal arrangements under a "store-door" delivery contract, chassis could still be provided in the traditional manner. Other issues to be clarified include liability for equipment loss and damage, union jurisdiction at pool operations and the guaranteed availability of neutral equipment during periods of peak demand.

Blame for the uncertainty can be spread around. "In theory, I like the change," said Monica Noyes, North American logistics manager with Cargill Cotton. "But over the last couple of years, I've found that we as an industry are nowhere near prepared to actually go that way."

Noyes was one of several industry experts to address the chassis issue at the recent annual meeting of the Agriculture Transportation Coalition in San Francisco. She had her own opinion about who is best suited to provide leadership in the transition.

Not truckers, Noyes said. "They're too fragmented." Not leasing companies. "They're partisans with a clear profit motive." Not shippers. They have little say in equipment matters, beyond complaining about the bills. And the margins on agricultural commodities are too slim to withstand the additional cost of equipment ownership and maintenance. Not the Federal Maritime Commission - the issue doesn't fall within its mandate. And ocean carriers? Been there, done that.

That leaves port and rail authorities. In Noyes's view, they are the best candidates for guiding the discussion and determining which operational changes need to be made. At the same time, she stressed, "we need some help from all stakeholders."

Jeffrey F. Lawrence, executive director of OCEMA, cited terminal configuration as another challenge to be addressed. The move from wheeled to grounded operations at port and rail terminals entails "a major infrastructure effort," he said. Weight-bearing capacity and internal control systems will need to be altered to ensure safety and efficiency.

There's still plenty of grumbling over the change, especially from the trucking side. Jason Wakefield is director of sales with Central Cal Transportation, a regional drayage operation headquartered in California's Central Valley. He raised the issue of the timely and accurate billing of chassis charges. Bills often are received by trucking companies long after loads are completed. Agreements between ocean carriers and shippers vary widely. "There's quite a bit of murkiness," he said.

Wakefield challenged ocean carriers' efficiency argument, raising concerns about the time to be spent by drivers securing quality equipment, and potential delays caused by equipment repairs within the terminal. The answer, he said, lies in trucker investment in private chassis fleets, coupled with vigorous driver-training programs.

Who wants to handle this hot potato? Good solutions are out there, but everyone needs to get involved. Growing pains are virtually guaranteed. "Eventually this model will be integrated into the American shipping industry," said Wakefield, "but I don't think we're close."

- Robert J. Bowman, SupplyChainBrain

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Nearly all major ocean carriers have announced plans to stop providing chassis to U.S. truckers at key shipping locations. But it's far from clear how that decision will play out.

Maersk Inc. got the ball rolling in late 2009 and early 2010, ending direct ownership of chassis at most major intermodal transfer points. (Maersk didn't actually dump its chassis outright; it formed an equipment subsidiary known as DirectChassis Link, Inc. (DCLI), which it subsequently sold to the private equity firm of Littlejohn & Co., LLC.) Rival carriers quickly fell in line, eager to shed themselves of this particular drag on their balance sheets.

Shippers in the U.S. oceangoing trades weren't especially happy about the change, but there's plenty of precedent for it. For the most part, ocean carriers don't supply chassis in other major markets. The problem isn't so much the additional burden on U.S. truckers as the confusion that has ensued. Where are the chassis going to come from? Who's going to supply, maintain and manage them throughout the intermodal system? Who's going to pay for them? These questions have yet to be fully answered.

A new system for providing chassis can take several forms. Some possibilities:

- A neutral chassis pool. Here, an independent provider either operates the equipment directly or leases it out. (Maersk's DCLI, notwithstanding its former ties to the ocean carrier, is such an entity.) Charges are based on daily usage. Up to now, this kind of setup has been used mostly to support ocean carriers at intermodal rail terminals. No reason why it can't serve truckers or shippers instead.

- A common, or cooperative, pool. It draws on equipment from multiple carriers, operating under the terms of the Intermodal Association of North America's Uniform Intermodal Interchange Agreement. These co-op pools can typically be found at port and marine terminals.

- Equipment owned by motor carriers and shippers. This option might involve long-term lease or purchase arrangements with equipment providers. Maintenance and repair can be part of the deal. According to the industry lobbying group known as the Waterfront Coalition, the setup works better in terminals where containers are grounded rather than on wheels, because the motor carrier is not charged a "flip fee" for using its own equipment. Unfortunately for truckers, most U.S. ports and railroads are still wheeled facilities, although there could be a change in terminal layout as operators strive to get the most out of limited acreage.

Ocean carriers, who aren't exactly objective parties in the matter, argue that the change in chassis ownership will benefit shippers. "Aligning provision, control and use will result in greater efficiency and better chassis management practices throughout the supply chain," according to a statement by the Ocean Carrier Equipment Management Association (OCEMA). What's more, the group says, "the new policy will reduce diesel emissions associated with intermodal transportation."

So this shift is a quadruple win for ocean carriers, truckers, shippers and the environment? Perhaps. First, though, the parties involved must sort through a number of complexities. For one thing, the change doesn't affect all chassis moves. It applies largely to so-called merchant haulage, where the shipper or consignee arranges for drayage from the port. For carrier haulage, where the ocean carrier is making the intermodal arrangements under a "store-door" delivery contract, chassis could still be provided in the traditional manner. Other issues to be clarified include liability for equipment loss and damage, union jurisdiction at pool operations and the guaranteed availability of neutral equipment during periods of peak demand.

Blame for the uncertainty can be spread around. "In theory, I like the change," said Monica Noyes, North American logistics manager with Cargill Cotton. "But over the last couple of years, I've found that we as an industry are nowhere near prepared to actually go that way."

Noyes was one of several industry experts to address the chassis issue at the recent annual meeting of the Agriculture Transportation Coalition in San Francisco. She had her own opinion about who is best suited to provide leadership in the transition.

Not truckers, Noyes said. "They're too fragmented." Not leasing companies. "They're partisans with a clear profit motive." Not shippers. They have little say in equipment matters, beyond complaining about the bills. And the margins on agricultural commodities are too slim to withstand the additional cost of equipment ownership and maintenance. Not the Federal Maritime Commission - the issue doesn't fall within its mandate. And ocean carriers? Been there, done that.

That leaves port and rail authorities. In Noyes's view, they are the best candidates for guiding the discussion and determining which operational changes need to be made. At the same time, she stressed, "we need some help from all stakeholders."

Jeffrey F. Lawrence, executive director of OCEMA, cited terminal configuration as another challenge to be addressed. The move from wheeled to grounded operations at port and rail terminals entails "a major infrastructure effort," he said. Weight-bearing capacity and internal control systems will need to be altered to ensure safety and efficiency.

There's still plenty of grumbling over the change, especially from the trucking side. Jason Wakefield is director of sales with Central Cal Transportation, a regional drayage operation headquartered in California's Central Valley. He raised the issue of the timely and accurate billing of chassis charges. Bills often are received by trucking companies long after loads are completed. Agreements between ocean carriers and shippers vary widely. "There's quite a bit of murkiness," he said.

Wakefield challenged ocean carriers' efficiency argument, raising concerns about the time to be spent by drivers securing quality equipment, and potential delays caused by equipment repairs within the terminal. The answer, he said, lies in trucker investment in private chassis fleets, coupled with vigorous driver-training programs.

Who wants to handle this hot potato? Good solutions are out there, but everyone needs to get involved. Growing pains are virtually guaranteed. "Eventually this model will be integrated into the American shipping industry," said Wakefield, "but I don't think we're close."

- Robert J. Bowman, SupplyChainBrain

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