27.11.2024
The article below highlights the evolving challenges in the U.S. inland container market, particularly concerning one-way SOC container pricing. Leveraging first-hand insights and historical trends, the analysis below explores the root causes, implications, and strategic recommendations.
The U.S. inland container market is experiencing rising prices and increased volatility due to (amongst others) shifting rail practices and systemic supply chain challenges. Demand for inland transport remains strong, but container availability is tightening, driving up costs for Shipper-Owned Containers (SOCs).
This analysis identifies the key factors behind the price surges and operational hurdles facing SOC users currently.
Key Developments in Inland Container Movements
In 2024, the U.S. inland containers market has witnessed a bumpy road, stemming from labour negotiations between rail operators and carriers.
As part of efforts to improve efficiency and address worker demands, rail operators have implemented new KPIs focused on reducing empty railcar movements. These measures mandate that for every 10 inbound containers, at least 7 must be loaded on return trips. However, the current backhaul loading rate is only 2–3 containers per 10 imports.
This imbalance places additional financial burdens on SOC users, as these SOC containers are rarely loaded for return journeys. Consequently, rail operators charge shipping lines for the extra costs associated with repositioning empty containers. As a result:
- SOC inland rates, such as those from Vancouver to Toronto, have increased to $1,900 for 20GP containers and $2,900 for 40HCs—significantly higher than rates for carrier-owned containers (COCs), which range from $1,200 to $1,900.
Key Drivers Behind Rising Inland Container Prices
1. Healthy Demand, Limited Supply: Strong demand for resale containers in the US hinterland persists, but tighter SOC availability and escalating operational costs are constraining supply, especially for small and medium-sized traders in the U.S.
2. New Rail Utilization KPIs: Rail operators now require higher backhaul loading rates to reduce empty railcar movements. SOC containers, primarily used for one-way trips, fail to meet these new standards, leading to increased rail transportation charges. This cost pressure is reflected in higher inland SOC rates, such as $1,900 for a 20GP and $2,900 for a 40HC from Vancouver to Toronto. As a result, fewer SOCs are used for cargo into US inland locations, limiting the supply of these boxes as resale containers.
3. Systemic Challenges:
- Geopolitical Tensions: U.S.-China trade disputes and tariffs are disrupting container flows.
- Labor Tensions: Strikes and unresolved disputes on the U.S. East Coast are delaying shipments.
- Election-Driven Tariff Policies: Proposed universal tariffs and targeted duties on Chinese imports are increasing operational costs for traders relying on SOCs.
Evolving Operational Strategies
Historically, container carriers absorbed the costs of repositioning empty inland containers to address inefficiencies through methods like:
- Consolidation: Carriers have reduced empty returns by consolidating goods into fewer containers at inland facilities.
- Depot Swaps: Some carriers now exchange inland containers for others already at coastal depots, reducing repositioning costs.
Steve Park, Regional Sales Manager, Container (North America), SeaCube shared with Container xChange, where he confirmed that the empty container back haul issue has been an ongoing problem for quite a while.
“Over 20 years ago, ocean carriers didn’t fully consider the costs of returning empty containers from inland locations to ports, so they had to bear these costs themselves. This imbalance occurred because imports into the U.S. far outweighed exports, leaving many containers empty on their return journey.”
“To address this, some carriers introduced strategies to reduce the number of empty containers that needed to be repositioned. One approach involved consolidating goods from multiple smaller containers into fewer larger containers at inland facilities, which lowered the number of containers requiring a return trip. Another solution came from container leasing companies, allowing carriers to exchange inland containers for others already at coastal depots, eliminating the need to physically transport empties back.”
“However, rail companies still faced problems with too many containers moving one way and not enough loaded containers for the return trip. This imbalance has now extended to Shipper-Owned Containers (SOCs), which are owned by freight forwarders instead of carriers. Rail companies can’t directly charge the freight forwarders for these inefficiencies, so they may pressure carriers to impose additional surcharges on SOC shipments.”
“The outcome is likely to be higher shipping costs and reduced SOC usage on inland routes, making containers even scarcer and more expensive in these areas.”
Implications for the SOC Market
SOC users, in particular, are grappling with mounting surcharges, operational hurdles, and rising costs in the U.S. inland container market:
- Scarcity of inland Containers: A tightening supply and escalating prices are severely limiting the availability of shipper-owned containers (SOCs), creating significant challenges for small and medium-sized traders who rely on these flexible solutions.
- Cost pressures: The rising costs of meeting new rail utilization standards have significantly driven up inland container prices. SOC users are now facing inland rates that are considerably higher than those for carrier-owned containers (COC), with SOC rate discrepancies reaching as high as 30-50% on certain key routes.
Looking Ahead
The U.S. inland container market is likely to face continued price volatility and operational uncertainty. US container traders need to broaden their supply base in order to stay competitive.