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CONTAINERIZATION

the 'hot potato system' —

By John Darker AMBIM ATHREE-DAY international conference in London this week has provided a forum for speakers representative of the providers and users of container services. Sponsored by our associated journal Freight Management the conference theme, "Container transport economics" was well chosen because in the next year or two containers in undreamed of numbers will be used by the major exporters and importers in this country, with incalculable consequences to transport organization as a whole. Quite evidently, road haulage operating methods and equipment will undergo major changes from now on; hence the need for all concerned to be fully aware of the many facets of the transport revolution of our time.

In his paper, "Problems facing Continental freight forwarders", Mr. Hans Hatt, president of Danzas Ltd., of Basle, stressed that container services could only, be most economical when there was a two-way traffic flow such as existed between the United States and Europe. Forwarding agents had to be able to offer clients a transport service which was not only safe and quick but as cheap as possible. They required an agents' network or specialist contacts all over the world so that they could practise with containers the so-called "hot-potato" system, keeping containers constantly on the move and preferably always fully loaded.

Significant factors An interesting survey of the likely timing of large-scale container movements was given by Mr. E. H. M. Price, senior economic adviser, Ministry of Transport, in his paper, "Containerization—the economic revolution".

Mr. Price said the timing depended on a host of individual reactions to other individual decisions but in his view six factors would be significant: (i) The extent of the potential savings through containerization and the distribution of this pay-off between the shipper, the ship-owner, the inland transporter, and the port authorities. Speed with which the organizations providing part of the transport system come together to offer an integrated service.

(iii) Speed with which the existing enormous number of flows, through a multitude of ports, and catered for by a large number of operators, become concentrated to enable greater economies of scale in terms of container ship size on ocean routes.

(iv) Attitude of governments to containers particularly in relation to inland clearance depots, and away-from-port examination.

(v) Extent to which International Standards for containers are accepted.

(vi) Extent of sutplus shipping capacity.

Mr. Price said shipping companies operating container services would try to maintain conference rates in the early years but a possible over-capacity of ships might erode the conference set-up, with a depressing effect on rates. The conference systemmight survive intact but it was possible that there would be a fundamental change with a separate container conference offering suitably lower rates. It was conceivable that freight rates based on ad valorem principles would give way to a straight charge per container for the route in question reflecting the full savings of containerization.

He thought palletization could have an important role to play on routes where trade volumes were comparatively small, seasonal, and of a type easily packaged and of low value, but palletization/containerization cost comparisons referred only to portto-port costs. When inland costs (including handling systems) were taken into account the integrated container system appeared to have an edge. Moreover, as there was a constant tendency for labour costs to rise relatively to capital costs the capital intensive system (i.e. the container) could be expected to get the largest slice of the cake in the end.

'The American experience' In his paper, "The American experience," Mr. J. MacNaughton Sidey, chairman, Ferrymasters Ltd., said his firm for the last 18 months had been UK sales and operating agents for the Sea-Land Service Inc. of New Jersey. He had watched developments on the East and West coasts of the USA on regular visits. Container sizes, he said, represented a compromise depending on the trades using them. Although the International Standards Organization had agreed container sizes 10ft, 20ft, 30ft and 40ft long with an 8ft by 8ft cross-section the two largest container ship operators in the US, Sea-Land Service and Matson Navigation, used containers of 24ft and 35ft length. He quoted recent figures of container sizes in use by US Flag Carriers, as follows:

Container Current Millions of Container size number of cult. of cube lift as "lifts" per container a per cent year capacity of total

lifted industry annually 20ft 79,768 87A 9.58 24ft. 101,140 144.3 15.82 35ft. 264,212 551.7 60.48 4Ctft. 57,720 128,8 14.12 Source: A. T. Kearney and Co. Inc. survey, September, 1966.

Compromise Container size, said Mr. Sidey, was a compromise between the land haul requirement of maximum cube and the ship need for minimum waste cube. Road hauliers wanted maximum cube since much of their freight was more voluminous than freight moving in international trade. Often, US hauliers moved domestic freight on one leg of the land haul; the sea-going container must give them adequate cube if hauls were to be economic.

He hoped the carriage of domestic freight in foreign-owned containers in the US would soon be legalized, and that US containers abroad would equally be freed to carry return loads.

Rail hauls of containers were growing in the US, said Mr. Sidey, and the rail share was likely to increase to 25 per cent or possibly more as traffic passed from "piggy back" trains to container trains. He quoted US department of commerce figures indicating that for distances of up to 300 miles from the nearest major port about 51 per cent of export freight traffic would go by road. From 300 to 600 miles 25 per cent would be shared by road and rail, but over 600 miles most container traffic would be railed.

Rail trucks in the US, said Mr. Sidey, were 90ft long offering real flexibility in container lengths but road regulations were generally inflexible so that road dictated container sizes. Ideally, marine operators should give road hauliers containers similar to their domestic equipment; on average, road haulage profit margin was about 4 per cent, so that it took little to make the land haul unattractive.

The Pacific states allowed "doubles" with a tractor hauling two semi-trailers (the second linked to the first by a towing dolly. Overall length was 60-65ft, allowing semitrailers 24-28ft long. The Eastern states did not permit doubles but the 50-5511 overall length permitted a single semi-trailer of 40ft length. So great was the attraction of "doubles" that 31 states now allowed them.

Effect on Profits

Their effect on profitability was considerable. In 1964 one Eastern states carrier using 4011 trailers with revenues over $25m made a tiny profit. Yet the carrier had calculated that if able to use "doubles" its profit would have exceeded $1m. A Western road haulier using "doubles" and with revenues of $17m and a profit of $1m would have barely broken even if forced to use 40ft semi-trailers.

Mr. Sidey said that Sea-Land operated more than 20,000 non-standard 3511 by 8ft by 811 6in. containers. If Sea-Land changed to 2011 it would make heavy losses and even 40ft would greatly reduce its profitability. Obviously standardization had much to commend it but care was needed to see that it did not stifle innovation or improvement in operating conditions, detracting from the best possible customer service and reducing profitability of container services.

A key factor in container operations, said Mr. Sidey, was the control of containers. In the US a set of working rules was emerging largely drawn from road haulage practices. Computer methods were essential. Containers could be deliberately hoarded, they could disappear or stay too long under repair. Control must be down to each individual container. Operators must know what each container was doing and had done and what it had earned. It was necessary to maintain inland haul balance to maximize profit and often it paid better to carry lowrated freight originating nearby than to go for higher-rated traffic entailing a lot of empty inland mileage.

Mr. P. W. Yarwood, managing director, Associated Container Transportation Ltd., in his paper, "Is the shipper ready for containerization?" said ACT envisaged road transport playing a significant part in the UK and in Australia, not only on collection and delivery work but on trunk routeings to and from port terminals when other modes of transport were less attractive. He saw road transport being used for movements between shipper and inland depot; inland depot and consignee; inland depot and port terminal; port terminal and inland depot; shipper and port terminal; and port terminal and co nsig nee.

Inland depots, said Mr. Yarwood, would provide facilities for grouping cargo or would form the focal point of the catchment area for less than container loads (1.c.1.). They would provide for transfer points between road and rail and for Customs clearance and would enable through service operators to concentrate container routeing densities to minimize transport costs. In the UK depots were being set up at Orsett (near Tilbury), Birmingham, Manchester, Liverpool, Leeds and Glasgow. In Australia inland depots at Sydney, Melbourne, Brisbane, Fremantle and Adelaide were being established.

Mr. Yarwood said the user would not be encouraged to learn by which route or by which ship or mode of transport his goods were being moved. His main concern would be overall performance, rate for the job and delivery time.

A substantial proportion of traffic would move in full container loads (fa), said the speaker. It was necessary for shippers to look at their dispatch bays to ensure that artic vehicles 4211 7iin. by 811 could get through factory gates and manoeuvre into position. Loading facilities were important and if alterations were called for shippers should consider the likelihood that 40ft containers would one day be used.

Mr. J. Posner, International Container Services, Eastern region, British Railways, described the growth and economics of the many roll-on/roll-off services by road and rail to the Continent. He wondered whether the traditional price regulator, competition, would be superseded by a new one, scale of automation. Could the delicately balanced British economy afford indefinitely the cost of fragmentation?

Mr. Posner said land haul costs averaged between 60 and 70 per cent of overall costs and to achieve a reasonable overall cost system it was of limited use to effect economies in the sea portion alone.

Road operations had predominated hitherto and the vast majority of containers— more than 80 per cent in the port of Rotterdam—were forwarded by road.

Comparative costs

Comparative costs per ton for road and rail movements of a 30ft container carrying 10 tons were given by Mr. Posner, as follows: Distance UK UK Europe Europe in miles rail road rail road 100 37s 30s 80s 30s 200 49s 60s 120s 60s 300 65s 90s 126s 90s 400 83s 120s 146s 120s Notes: (1) Published delivery charges from rail terminal have been added in the case of UK and European rail rates.

(2) Road rates are for hire of tractor only, i.e. trailer, container, etc., is provided by the customer.

(3) All rates are gross and disregard commission, rebates, etc.

(4) The rates are for laden movements and given on the assumption that there is no empty movement debited to the transaction This means in effect that the difference between rail and road on the Continent is not quite so great in practice.

(5) The UK rail rates are based on the Freightliner tariff, i.e. on the costing of complete train loads, whereas the European rates have been arrived at on the strength of a provisional tariff based on the movement of individual wagons.

(6) To complete the picture the following are the rates per ton based on the same unit for the sea portion (in this case from Harwich to Zeebrugge, a distance—for purposes of comparison—of about 100 miles): Unit load (roll-on/roll-off) rate 96s.

Container (cellular ship) rate 60s.

Concluding, Mr. Posner said that a more forward-looking approach by Continental rail administrations could be looked for. The figures given showed that, at present, even a comparatively low level of sea freight was twice as costly as the cheapest land costs. It was within our grasp when fullscale economies had been effected, to achieve parity, and such parity was forecast by 1971.

Only when transport costs over, say, 500 miles from the UK (including the sea crossing) were equal to the cost of land haul for a similar distance in Europe would British industry compete on level terms. He thought this could only be achieved by a full and capital intensive container system coupled with full unit trains.

Big development

Mr. A. C. Boehme, assistant general manager, Associated Steamships Ltd., and director, Seatainer Terminals (Pty) Ltd., described the extensive development in Australian container transport. The labour problem had been a great worry but displaced labour in Australia could be readily absorbed. Seatainer Terminals anticipated using highly skilled crane drivers on container cranes attired in spotless white overalls and operating from air-conditioned cabins—a far cry from the man with the bale hook!

Vice-Admiral J. Hughes Hallett, in his paper, "The effects of containerization on the shipper", stressed the urgency of a new International Convention to facilitate the technical possibilities inherent in the system. Governments needed to act speedily, not forgetting that consequential municipal legislation would be called for.

Container packing would require expert knowledge and close supervision of packing staff. Large firms could be expected to assemble container traffic from a number of factories, establishing their own packing station, but some would prefer to dispatch goods to the nearest inland container depot.

Exporting firms would need to make decisions on the merits of their particular needs including distribution arrangements at the country of destination.

Imported goods would have to be cleared from inland depots within three days of Customs clearance, stressed Admiral Hallett. Export lorries would have to arrive punctually by appointment.