Most operational supply chain issues fall into a few clear categories that, when approached in an orderly way, do not require drastic measures to solve. Our Supply Chain Issues series explores each of these categories and provides hands-on solutions for key decision-makers. To read the entire series please click here.
The cost of shipping air around the globe just went sky high
How much air, meaning the space not taken up in a shipping container, is being shipped around the world? There are few statistics on this, but, in 2018, full container loads (FCLs) imported into the US were on average only 65% utilized.
Wasting available space in a shipping container is tantamount to wasting money.
Maybe that wasn’t front of mind for shippers in recent years, while the cost of shipping containers remained relatively low. But the COVID-19 pandemic changed all that. The cost for shipping a container from East Asia to the North American west coast, for example, tripled in the second half of 2020, and likewise the cost of shipping air!
A double-digit increase in container utilization can save millions
There are 67 cubic meters within a standard 40-foot shipping container. It isn’t always possible to max-load a container, but is that 65% average utilization of capacity really a good outcome? Increasing container utilization from 65% to 90% translates as requiring 28% less container movements. For a company that moves 10,000 containers annually from China to the North America west coast, in current freight costs that would translate to a staggering almost $12m annual saving.
Annual Freight Cost
Are underutilized containers simply the cost of doing business?
Time and again, we have come against a perception among shippers that the way a supplier stuffs the container is “the way it has to be done”. But this is a misconception. In China, for instance, with domestic shipments, it is common practice for shippers to provide the supplier with stuffing instructions.
It is unsurprising, then, that many shippers do not even realize they have a problem, or, rather, a potential opportunity to seriously reduce costs. But the tide has been changing. In the recent years we have increasingly helped shippers improve their container utilization. And it turned out there is a lot of cost-saving improvements that can be made. If it wasn’t before, it is high time now for shippers to educate themselves on making the most of the space inside their shipping containers.
This is what you can do to improve
There are numerous solutions to increase the utilization of containers. But most shippers do not have sufficient bandwidth or the in-house expertise to properly analyze potential options and evaluate the best solutions. The following sections explore three highly effective opportunities to improve utilization.
Change the packaging
The objective is to reduce space taken up by cartons thereby increase container utilization. Packaging considerations include whether the product packaging is “made-to-fit” the product inside, how much empty space there is within a carton and the use of void fill materials for protecting goods. Having right-sized packaging may even eliminate any need for void fill materials.
If the carton’s dimensions can be reduced it may be possible to fully use the available internal dimensions of a shipping container - the magical 100% capacity.
One of our customers was building full pallets 60 inches high which ruled out double stacking. They knew they were only using 60% of container space but thought this was the only way it could be done. They were making runs for each SKU nearly every week. The answer was simple, reduce carton size and double stack. With longer production runs for each SKU they now have fewer production issues and are completely filling containers.
Play Tetris with your load
Understand how to assemble and configure the optimal SKU load configuration into the most appropriate shipping containers and not the other way around. In other words, the objective here is to optimize how the container is stuffed and therefore increase the utilization of the container. Key aspects to consider are the SKU mix and how pallets are built up and loaded into the container.
Another aspect is considering container size. Pricing for a 40-foot-high cube is close to 40-foot standard pricing but has 10% more storage space, potentially providing the extra height for double stacking. There is one other large size, the 45-foot shipping container - however, because it is not a common size, there can be issues with supply.
Switching to floor loading, meaning packing a shipping container without pallets, is usually the biggest improvement in shipping container utilization a shipper can make.
Eliminating pallets will likely increase the utilization rate by more than 15%.
There is less risk palletizing shipments to specification at the country of destination.
Fumigation, certification and inspection of pallets costs money and risks delay.
Changing from palletizing to floor loading however requires some adaptation to the process:
Deploying appropriate material handling equipment (MHE) to handle the loading at origin as well as unloading and re-palletizing procedures at destination. With the right technology, the information on how to palletize should be included in the shipment. The operator simply scans in the instructions for building each pallet.
Skilling up workers. There will be an initial learning curve while loaders become lumpers. Whereas loaders unload pallets from a container with a forklift, lumpers use a variety of other techniques including slip-sheets with fork clamps, unloading conveyor belts or manual hand bombing. These skills are useful has long been common practice at CFSs.
Allocating more time and resources for unloading. It usually takes one or two hours to unload a palletized shipment with a forklift. It will take three hours or longer for two lumpers to destuff.
This is how smoothly floor loading works for one of our customers. Since switching to floor loading, they have been able to completely fill their containers. 100%. Packed in like Tetra. The destuff and pallet building instructions are electronically included with the shipment, so the operator builds each pallet according to the customer orders covered by the shipment. Their distribution center now works more like a cross dock. The container comes in, they build the order, then stage it for 24-48 hours while delivery appointments are confirmed. This customer has full control of their logistics services and are shipping faster and at less cost.
The cost of shipping air is outrageously high currently - that will change. However, when freight costs return to something like normal, there will still be tremendous gains for shippers to be made by increasing shipping container utilization. Consider again the example of the company shipping 10,000 containers annually from China to the North America west coast. If freight rates return to, say, $1,500 that would still translate to over $4m annual saving. Whether now or later, it makes good financial sense to stop shipping air.