OVERVIEW AND SUMMARY
The sea-based logistics industry has been severely disrupted by events related to the outbreak of the COVID-19 pandemic. Since early 2020, we have seen:
- Increased container rates from Thailand to the USA of about 10x
- Increased sea-voyage times of 2x
- Much lower reliability and frequent last minute scheduling changes
This short paper is intended to demonstrate how less-than-container load (LCL) shipments, and in particular contracted shipments, will be the best method for shipping sea-goods for small-medium enterprises (SMEs) until the end of 2024, and perhaps beyond.
A COMPARISION IN BASE COSTS OF 20’ AND 40’ HC TO EAST AND WEST COAST NOW
- Pre-pandemic, a typical 20’ or 40’ HC container (Laem Chabang to US West Coast (USWC)) could be booked for approximately $1,500 or $2000.
- As of early 2021, the same sized container will cost at least $16,000 or $20,000 respectively.
- Shipments to the US East Coast (USEC), would be approximately $2200 and $3000 pre-pandemic.
- However, as of early 2021, shipments will typically be about $24,000 and $32,000 respectively. *
20 foot container vs. 40 foot container. Even though a 20’ container is roughly half the size of a 40’ container, the booking cost is usually about 80% the cost of a 40’ container. It makes sense to send by 40’ or even 45’ as much as possible. However, weight restrictions sometimes limit exporters to only use 20’ containers.
* This does not include export or import paperwork, packing, trucking fees, clearance, drayage, import duties, etc. This is just the base sea-fare. Additional fees (not including import duties) can easily add about $10,000 - $15,000 per shipment, including Thailand-based costs.
TRUCKING COSTS WITHIN THE US
- Pre-pandemic, trucking costs in the US were predictable. You could gauge prices at about $100 per stackable pallet for ever 1000 miles (1600 km).
- Currently, trucking prices have increased about 2.5 x on average, and a stackable pallet will cost around $250 if delivering within a few hundred miles and range up to $750 if going cross-country.
- However, if you are able to stack pallets, the rates will almost halve.
- If you are able to book an entire full truck-load (FTL), your rates will substantially improve, and will go down about 30% from our experience.
- Thus, a 20’ container, filled with 20 stackable pallets, going from Los Angeles to New York (considered a FTL) should approximately cost
- o ((20 stackable pallets x $750) / 2) = $7,500
o $7500 with a 30% discount = $5,250
- This is an approximation, but this is due from handling many dozens of shipments in the US since the pandemic has started.
- The big takeaway from this is that if you compare sea-freight costs from Bangkok to the US. It is now generally cheaper for SMEs to send a full container to the west coast – and truck (or rail) it the rest of the way.
- Sending a 20’ equivalent from Thailand to the US east coast may now cost $24,000 by sea if using an eastcoast port, or via a west coast port, about $16,000 + $5,250 = $21,250. In actuality, the savings we have noticed have been even better than this. You will also generally save about 2-3 weeks in transit time. While Los Angeles/Long Beach still has the highest port congestion, all major ports in the US are undergoing severe congestion as other businesses look to ship elsewhere.
- We emphasize SMEs is because larger companies may have multi-container contracts in place that they are able to capitalize on.
- We are not including additional fees such as drayage, clearance, import duties, or customs bonds in this rough calculation.
HOW CONTRACTED VIRTUAL CONTAINERS WORK
Rather than contract a physical container, we are able to contract out the equivalent space, usually at a cheaper price. Thus, SMEs are able to contract a container out, over a set period of time. This means they do not have to ship out the contents at once. A typical structure is a 20’ container (20 pallets+) or a 40’ container (40 pallets+).
The SME would agree to ship the equivalent at 20 pallets over a set period of time, usually 2-3 month, at a fixed
Conceptually how "virtual” containerization works. Rather than book a physical container, the SME client books a container equivalent. We work with the SME to distribute the contents at the same or better price than shipping an actual container at a time.
This has 4 huge advantages for the SME:
- Just in Time Manufacturing meets Just in Time Logistics: Most SMEs when booking a container may wait until manufacturing has completed before shipping out the entire cargo. This often takes 6-8 weeks for smaller businesses. With JIT Logistics, the cargo can be shipped out as it’s completed. A typical contract may break down 20 pallets into 4 deliveries of 5 pallets each, (one every 2 weeks for an 8 week contract). The final end-customer (consignee) then receives the first batch of cargo a full 6 weeks earlier, with follow on shipments every 2 weeks. This allows the end-recipient more time to start selling goods, and saves them storage costs as goods are now flowing in.
- Spread-loading the risk. A shipment delay or COVID break-out at a major port will be less disruptive.
- Cost. Surprisingly this can be cheaper. 40’HC containers are significantly cheaper than 20’ containers when accounting for volume. By combining the cargo from several businesses into 1 container, the savings can be shared.
- Flexibility. We can create contracts for as few as 10 pallets, and in theory, unlimited pallets, though our typical contract sizes are range from 20 to 100.
The ocean timeliness index (pictured below), shows a worrying trend. This is the average time that cargo is ready (leaves the factory), travels across the ocean, and clears the destination port. Pre-pandemic it was approximately 2 months, and this has now jumped to 3.5 – 4 months for a trans-pacific route. This can be devastating for SMEs that rely on occasional sea-shipments. The way to mitigate the logistics situation is to send more frequently using LCL shipments. The way to mitigate the potential costs is to lock on contracts with flexible logistics partners.
- The skyrocketing costs of sea containers means that shipping by full container loads are often no longer the most efficient or cost-savings method of shipping by sea any longer.
- If shipping from Asia, docking to the east coast no longer has advantages over shipping to the west coast. A huge and growing trend will be towards shipping in batches using LCL, but built on a contract that guarantees the cost-savings of shipping by a container.
- Creative ways of mitigating risks such as virtual containerization contracts will become increasingly important in the next 2 years.