Executive Briefings

Searching for a Solution to Chassis Management

It's been about five years since ocean carriers began selling off their chassis in the U.S., forcing shippers to obtain the equipment elsewhere. But the new regime is anything but settled.

Searching for a Solution to Chassis Management

While a number of solutions for supplying chassis have emerged, questions remain about who's responsible for owning, maintaining, repairing, repositioning, inspecting and paying for the units.

As of today, approximately 85 percent of chassis owned by ocean carriers have been transferred or sold to another party, according to Keith Lovetro, chief executive officer of equipment lessor TRAC Intermodal. The rest are likely to follow.

Beginning with Maersk Line, carriers began shedding their chassis in an effort to cut overhead, as well as align U.S. operations with international practice. In other parts of the world, shippers have long been accustomed to getting their chassis from other sources, mostly truckers and third-party providers.

That fact hasn’t made it any easier for the U.S. intermodal and over-the-road networks to adjust to the change. Some of the biggest port complexes, including Los Angeles and Long Beach, have had a tough time managing the chassis flowing between their terminals, and figuring out who has jurisdiction over such practices as inspection, maintenance and repair.

Equipment-leasing companies have stepped into the vacuum. TRAC has purchased nearly 60,000 chassis from carriers over the past three years. The industry’s two other big lessors, Flexi-Van Leasing Inc. and Direct ChassisLink Inc., have made similar moves. But that doesn’t mean the principals have completely figured out the new economics of chassis management.

Lovetro says ocean carriers still pay for roughly 60 percent of chassis use. That would appear to negate the reason for divesting the equipment in the first place, but carriers appear loath to hit shippers with the full bill for chassis-management all at once.

“If they had their choice, they would have turned that switch a long time ago,” says Lovetro. “But you can imagine BCOs’ [beneficial cargo owners’] reaction if they were suddenly asked to pay for chassis.” It’s a matter of convincing shippers of the need to absorb the expense, then figuring out how to keep the change economically neutral, Lovetro says.

There’s a certain irony in the recent moves by carriers to shed any expense that doesn’t relate directly to their port-to-port operations. A couple of decades ago, they were touting their intermodal prowess, promising door-to-door under a single bill of lading, while retaining direct control over every stage of the move. Then, in a bid to cut costs and focus on the construction of ever-larger containerships, they gradually began selling off all manner of nonessential assets, including marine terminal divisions, stack-train services and other intermodal assets. Shippers have had no choice but to adjust, and seek their equipment elsewhere.

The most popular concept in the wake of the carriers’ sell-off has been that of equipment pools, which can take several forms. There’s the gray pool, which is run cooperatively by lessors and a fast-dwindling number of shipping lines, and involves chassis that are essentially generic in nature. The units can be easily transferred between marine terminals and storage yards. “It’s a very simple product to use,” says Lovetro. “It adds to fluidity at the port.”

In addition, lessors have launched private pools, which cover more specialized equipment such as tri-axles, 40-foot marine units and chassis equipped with GPS tracking. The option provides shippers with additional flexibility, Lovetro says.

Under the gray and private pools, maintenance and repair of units are a fairly straightforward manner. In each case, a single manager is assigned the task of keeping the equipment serviced and operable. Billing, too, is handled in a centralized fashion.

The latest iteration of the concept is the “pool of pools,” which combines multiple private pools yet retains individual managers overseeing the interests of their respective members. As a result, they can enforce policies and practices that conform to specific customers. From the standpoint of the market, however, the blended pool operates as a single entity. That’s the approach that TRAC has taken at the ports of Los Angeles and Long Beach, in partnership with Flexi-Van, DCLI and the pool operations of marine terminal operator SSA Marine. Together they account for an estimated 95 percent of chassis within the dual-port complex.

These various pool types promise to stabilize the chassis business and help alleviate the logistical nightmares that have plagued port operations in recent years, especially in Southern California. Lovetro believes lessors and terminals could resolve a number of the thornier issues related to chassis management, including where on the docks the equipment will be stored, within the next six to 12 months.

Now, however, shippers find themselves contending with another complication: union jurisdiction. Under its latest collective bargaining agreement with terminal operators, the International Longshore and Warehouse Union claims the right to inspect chassis on the docks. Equipment-leasing companies say the union has no such authority. None of the big three is a signatory to the labor contract, Lovetro says. Nor is ILWU a party to the lessors’ agreement.

Federal law mandates that a chassis must be inspected at time of pickup by the driver, Lovetro says. But ILWU clerks are insisting on checking the equipment a second time, when it exits the facility. The extra step adds cost, slows operations and exacerbates congestion, he said. What’s more, lessors argue, the employers who contracted with ILWU had no right to assign workers the job of inspecting lessors’ chassis in the first place.

The issue threatens to disrupt the new longshore contract, which was delayed for months in part because of the chassis jurisdiction issue, and on which the ink is barely dry. The American Trucking Associations and equipment lessors are seeking relief from provisions of the contract through pleas to the Federal Maritime Commission and Federal Motor Carrier Safety Administration. Court action is a strong possibility.

What they fear most is a return to the horrific port congestion that was engineered by ILWU workers up and down the West Coast while the last contract was being negotiated. Just when lessors, shippers and carriers seem to be bringing the issue of chassis management under control, a union beef could hand them a significant setback. You have to wonder whether ocean carriers, at the time they decided to dump their chassis, had any notion of the trouble that would ensue.

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While a number of solutions for supplying chassis have emerged, questions remain about who's responsible for owning, maintaining, repairing, repositioning, inspecting and paying for the units.

As of today, approximately 85 percent of chassis owned by ocean carriers have been transferred or sold to another party, according to Keith Lovetro, chief executive officer of equipment lessor TRAC Intermodal. The rest are likely to follow.

Beginning with Maersk Line, carriers began shedding their chassis in an effort to cut overhead, as well as align U.S. operations with international practice. In other parts of the world, shippers have long been accustomed to getting their chassis from other sources, mostly truckers and third-party providers.

That fact hasn’t made it any easier for the U.S. intermodal and over-the-road networks to adjust to the change. Some of the biggest port complexes, including Los Angeles and Long Beach, have had a tough time managing the chassis flowing between their terminals, and figuring out who has jurisdiction over such practices as inspection, maintenance and repair.

Equipment-leasing companies have stepped into the vacuum. TRAC has purchased nearly 60,000 chassis from carriers over the past three years. The industry’s two other big lessors, Flexi-Van Leasing Inc. and Direct ChassisLink Inc., have made similar moves. But that doesn’t mean the principals have completely figured out the new economics of chassis management.

Lovetro says ocean carriers still pay for roughly 60 percent of chassis use. That would appear to negate the reason for divesting the equipment in the first place, but carriers appear loath to hit shippers with the full bill for chassis-management all at once.

“If they had their choice, they would have turned that switch a long time ago,” says Lovetro. “But you can imagine BCOs’ [beneficial cargo owners’] reaction if they were suddenly asked to pay for chassis.” It’s a matter of convincing shippers of the need to absorb the expense, then figuring out how to keep the change economically neutral, Lovetro says.

There’s a certain irony in the recent moves by carriers to shed any expense that doesn’t relate directly to their port-to-port operations. A couple of decades ago, they were touting their intermodal prowess, promising door-to-door under a single bill of lading, while retaining direct control over every stage of the move. Then, in a bid to cut costs and focus on the construction of ever-larger containerships, they gradually began selling off all manner of nonessential assets, including marine terminal divisions, stack-train services and other intermodal assets. Shippers have had no choice but to adjust, and seek their equipment elsewhere.

The most popular concept in the wake of the carriers’ sell-off has been that of equipment pools, which can take several forms. There’s the gray pool, which is run cooperatively by lessors and a fast-dwindling number of shipping lines, and involves chassis that are essentially generic in nature. The units can be easily transferred between marine terminals and storage yards. “It’s a very simple product to use,” says Lovetro. “It adds to fluidity at the port.”

In addition, lessors have launched private pools, which cover more specialized equipment such as tri-axles, 40-foot marine units and chassis equipped with GPS tracking. The option provides shippers with additional flexibility, Lovetro says.

Under the gray and private pools, maintenance and repair of units are a fairly straightforward manner. In each case, a single manager is assigned the task of keeping the equipment serviced and operable. Billing, too, is handled in a centralized fashion.

The latest iteration of the concept is the “pool of pools,” which combines multiple private pools yet retains individual managers overseeing the interests of their respective members. As a result, they can enforce policies and practices that conform to specific customers. From the standpoint of the market, however, the blended pool operates as a single entity. That’s the approach that TRAC has taken at the ports of Los Angeles and Long Beach, in partnership with Flexi-Van, DCLI and the pool operations of marine terminal operator SSA Marine. Together they account for an estimated 95 percent of chassis within the dual-port complex.

These various pool types promise to stabilize the chassis business and help alleviate the logistical nightmares that have plagued port operations in recent years, especially in Southern California. Lovetro believes lessors and terminals could resolve a number of the thornier issues related to chassis management, including where on the docks the equipment will be stored, within the next six to 12 months.

Now, however, shippers find themselves contending with another complication: union jurisdiction. Under its latest collective bargaining agreement with terminal operators, the International Longshore and Warehouse Union claims the right to inspect chassis on the docks. Equipment-leasing companies say the union has no such authority. None of the big three is a signatory to the labor contract, Lovetro says. Nor is ILWU a party to the lessors’ agreement.

Federal law mandates that a chassis must be inspected at time of pickup by the driver, Lovetro says. But ILWU clerks are insisting on checking the equipment a second time, when it exits the facility. The extra step adds cost, slows operations and exacerbates congestion, he said. What’s more, lessors argue, the employers who contracted with ILWU had no right to assign workers the job of inspecting lessors’ chassis in the first place.

The issue threatens to disrupt the new longshore contract, which was delayed for months in part because of the chassis jurisdiction issue, and on which the ink is barely dry. The American Trucking Associations and equipment lessors are seeking relief from provisions of the contract through pleas to the Federal Maritime Commission and Federal Motor Carrier Safety Administration. Court action is a strong possibility.

What they fear most is a return to the horrific port congestion that was engineered by ILWU workers up and down the West Coast while the last contract was being negotiated. Just when lessors, shippers and carriers seem to be bringing the issue of chassis management under control, a union beef could hand them a significant setback. You have to wonder whether ocean carriers, at the time they decided to dump their chassis, had any notion of the trouble that would ensue.

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Searching for a Solution to Chassis Management