Ups and downs of tank containers

TRYING TIMES

MARKET • TANK CONTAINERS ARE IN GOOD SUPPLY AND DEMAND IS STRONG BUT EXTERNAL FACTORS ARE COMPROMISING THE SECTOR’S PROFITABILITY, ITCO REPORTS

THE PAST TWO YEARS have witnessed unprecedented conditions in the ocean freight market. How has this trading environment impacted the tank container sector? Despite appearances, it has not all been bad news, as a recent webinar hosted by TT Club heard. William Leigh-Pemberton of Bertschi, chair of the Operators Division at the International Tank Container Organisation (ITCO), explained that the sector benefited from the flexibility that the tank container concept offers in terms of both the movement and the storage of liquid chemicals, despite some reports that shippers were moving towards bulk consignments in order to avoid high rates demanded by liner operators and increasing congestion at many leading container ports.

Leigh-Pemberton reported that, despite those rising freight costs, more liquids cargoes have been moving in containerised transport, either in freight containers or tank containers, continuing a long-term trend. He quoted figures from Drewry Shipping Consultants that the share of tanks in terms of containerised liquid freight rose from 24 per cent in 2011 to 33 per cent in 2020; the share taken by drums and intermediate bulk containers (IBCs) fell over the same period from 70 per cent to 49 per cent. The use of flexitanks also increased sharply but, Leigh-Pemberton said, that is unlikely to continue, especially since the agreement at the COP26 meeting in Glasgow to urge a shift to the non-consumption of plastics rather than their recycling. ITCO has already done a lot to highlight the issue with flexitanks, noting that each ‘big bag’ is equivalent to some 7,000 plastics shopping bags, and Leigh-Pemberton said the message is getting through to shippers, many of them keen to promote their own sustainability credentials.

WHAT HAVE YOU DONE LATELY All sectors of the international liquid supply chains were affected by the arrival of the Covid-19 pandemic and its consequent impact on production and consumption levels. However, Leigh-Pemberton said, by late 2020 there was a surge in demand for tank containers as shippers were looking increasingly towards multi-sourcing as a way to protect themselves against volatility and uncertainty of supply.

However, that rise in demand for tanks was not necessarily good for operators, who derive a significant slice of their revenues from demurrage, when receivers keep hold of the tanks for storage. That picked up again in mid-2021, with a move away from just-in-time inventory management to higher stockholdings, again as a move to protect operational continuity.

The past 12 months has also seen an intensification in the consolidation in the tank container industry, both among operators and, more especially, leasing companies. Trifleet Leasing was acquired by GATX Corp; Den Hartogh acquired MUTO; and Suttons took on the international operations of VTG Tanktainer. As Leigh-Pemberton put it, such deals are like buses: “You wait ages for a big deal then three come along at once.”

These trends have combined to generate a “great re-think” in the business, LeighPemberton said. Logistics service providers (LSPs) are now being recognised as an

indispensable and valued partner in the supply chain and shippers are increasingly willing to pay more for that service. Reliable and safe transport is now seen as being vital by shippers, who in the past had rather taken it for granted. “There is now a genuine recognition that LSPs are an integral part of the business,” he added, suggesting that the supply chain function may soon be appearing at board level in the shape of a chief supply chain officer.

SHOCK TO THE SYSTEM Leigh-Pemberton also looked closely at the “ocean freight shock” of 2021. This was caused by a combination of factors, not least the Covid pandemic and the impact that hygiene restrictions placed on supply chains, but also the closure of the Suez Canal as a result of the grounding of the new containership Ever Given, and a consumer demand boom, mainly in the US but also in Europe, that pulled in a massive volume of products from China and elsewhere in Asia. That led to ships being tied up as ports did not have the capacity to handle the additional volumes and ongoing driver shortages meant that inland connections could not cope.

This came at a time when there were very few new ships entering the container fleet, an issue that has been evident since 2016 when the major liner operators responded to the bankruptcy of Hanjin Shipping by slowing their own fleet growth. During 2021 there was also a shift of vessels onto key trades, including some being repositioned onto trans-Pacific operations, causing shortages elsewhere. Tank container operators rely on liner shipping companies to move their tanks but space has become severely constrained and, as a result, costs have risen sharply.

A WAY FORWARD Leigh-Pemberton warned that this situation does not look likely to ease in the near term. There is little new capacity scheduled to join the global containership fleet until 2023, while demand for space remains strong. Worse still, it is already evident that the lines are prioritising their own containers, reserving all space in 2020 for ‘company owned containers’ (COCs), creating even more uncertainty for third-party or ‘shipper-owned containers’ (SOCs) and meaning there are “almost zero tender offers” for SOCs.

Elsewhere, the success of the tank container concept has delivered consistent growth in the global tank fleet for many years but the provision of tank cleaning and repair depot capacity – crucial to the seamless and efficient flow of tanks around the world – has not kept pace, especially in Asia, where many existing depots have been forced to close because they cannot meet increasingly stringent environmental conditions. Similarly, there is a growing lack of haulage capacity and those vehicle operators specialising in tank container transport have been unable to expand capacity quickly, with long lead times for new trucks and serious problems with driver recruitment.

To overcome the difficulties it faces, the tank container industry must stress the importance of partnerships between cargo owners and LSPs, Leigh-Pemberton stressed. Current trading conditions offer the prospect of being able to leave the old “cost-down” and short-termism behind and move towards an era of collaboration to create safe and secure supply chains. www.itco.org

TANK CONTAINER OPERATORS ARE PRESSING FOR MORE

INVESTMENT IN HIGH-QUALITY TANK CLEANING AND

REPAIR FACILITIES IN ORDER TO REMOVE ONE OBSTACLE

TO SEAMLESS AND EFFICIENT GLOBAL MOVEMENTS

OF PRODUCT