The business models behind container leasing in maritime freight market

From a vantage point over the freight industry, it can be argued that international trade owes a lot of its growth to the humble intermodal shipping container. Pioneered and made mainstream in the 1950s by the U.S. transport entrepreneur Malcom McLean, containerization has revolutionized freight movement and is essentially the lowest common denominator among shipping processes that frequently change across borders.

Within the maritime container vertical, there are two distinct business models that shippers can choose from while they look to move their cargo – the carrier-owned container (COC) and the shipper-owned container (SOC). FreightWaves spoke with Florian Frese, director of marketing at container logistics startup xChange, to discuss the need for shippers to perceive the differences between the two models and to choose the model that suits their shipping needs.

“With a COC, you get a full-service package. All you need to do is reach out to a shipping line and tell them your needs. They will give you a container, pick up the cargo, and do the shipping for you. However, this is not exactly flexible, as shipping lines are always interested in a quick turnaround of their containers. This means that even if they give you a container, you’ve got four or five days to unload your cargo and return the container at a depot or terminal, and if not, they charge you anywhere between $50 to $400 in per diem charges,” said Frese.

COC would be an ideal solution for shippers that are moving freight in corridors that have a high surplus of container movement. This is because shipping lines will invariably need to keep their containers moving from one end of the corridor to the other, to essentially curb the overstocking of empty containers at one terminal. Shippers can make the best use of such situations, as carrier lines often give out freight rate discounts to even out their container density across ports.

“However, this is not the situation that shippers witness when they move between smaller stretches that aren’t crowded – say between Jakarta, Indonesia, and Colombo, Sri Lanka. In such stretches, it would be harder to find a big shipping line and reasonably priced containers,” said Frese.

The general rule of thumb suggests that shippers should look to use a COC when the point of return has an equal number of exports compared to its imports. For instance, the port of Shanghai with a lot more exports than imports would be an attractive point of return for shipping lines, and thus an ideal situation for shippers to use COC.

However, if the point of return is the port of Colombo, it would make the corridor unattractive to carrier lines because the number of imports outweighs the number of exports – thus exponentially increasing COC costs. Slower customs processes at remote ports may also bring detention and demurrage charges, which will increase a shipper’s costs.

This makes COC, albeit an easy procedure on paper, a complicated and at times an expensive process. On the other end of the spectrum is the SOC. Though SOC is not as convenient as a COC, it makes up for it by being a flexible business model where trade conditions and corridor specifications have no bearing on its availability and shipping rates. SOCs are traditionally used by freight forwarders, beneficial cargo owners (BCOs), and non-vessel operating common carriers (NVOCCs) that usually own or organize a container, while hiring shipping lines separately to move the freight.

“The benefits of using a SOC is that you control the containers and thus can escape issues arising out of container ownership as with the COC model. That apart, you can also avoid unexpected demurrage and detention costs as you are not obligated to move or return the containers to the carrier within a certain time frame,” said Frese.

xChange goes a step further in the SOC leasing process by aggregating hundreds of container owners across the globe, and providing the capacity to shippers who can lease out containers at the click of a button on the xChange platform. “Our users will only have to type in their pick-up and drop-off locations, and our system generates a list of potential partners. Users can connect with them for the containers, get visibility over the whole journey, and even have the option of adding third-party services like insurance to the process,” said Frese.

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Vishnu Rajamanickam, Staff Writer

Vishnu writes editorial commentary on cutting-edge technology within the freight industry, profiles startups, and brings in perspective from industry frontrunners and thought leaders in the freight space. In his spare time, he writes neo-noir poetry, blogs about travel & living, and loves to debate about international politics. He hopes to settle down in a village and grow his own food at some point in time. But for now, he is happy to live with his wife in the middle of a German metropolitan.

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