Where to from here? With the international containerized supply chain in a continuing state of disarray, it’s probably too late to salvage 2021. But what about next year, and thereafter? Surely a failure of such magnitude offers lessons for the future. What changes need to be made to prevent a repeat, or at least, make it less likely?

Last month’s column examined the composition of the current service crisis, concluding that it is a product of many factors. The most important is probably the fragmentation of the intermodal system, wherein individual parties logically act in pursuit of their individual best interests, with consequent deleterious results as their incentives/interests are misaligned. A second cause is the magnitude and speed of last year’s pandemic rebound which put the industry into a hole from which it couldn’t dig out. The lack of spare capacity at various levels of the chain is a third factor.

The danger is that the interconnected nature of the current crisis could well become the excuse for inaction. If “everything” needs to change, then nothing will change. The reality is, however, that changes can be made unilaterally by key players — changes that won’t necessarily “solve” the problem, but certainly will help.

At the recent Intermodal Expo in Long Beach, I had the opportunity to sit in on a panel titled “Building Resilience into the Intermodal System.” Three panelists — the president of a dray carrier, a port official, and a railroad intermodal executive — were asked to name the one thing to change that they thought would have the greatest impact. Remarkably, all three had the same answer: chassis.

The industry has had countless discussions of the “chassis problem,” without much, if any, change resulting. The current crisis indicates that further inaction is not an option. This is not a problem that will be solved by simply buying more chassis. The future course of the industry depends on addressing the current dysfunctional system.

One of the most urgent changes is for the railroads to move away from wheeled inland terminals toward grounded operations as fast as possible. The prevalence of wheeled operations represents a legacy of intermodal’s trailer heritage. In a wheeled terminal, containers off an inbound train are unloaded from the railcars directly onto street chassis, which are then conveyed to a parking area for pickup by the drayage carrier. There are attractive aspects to this method of operation. Most significantly, it makes the drayage carrier’s task of picking up the container as frictionless as possible. Simply locate the proper parking slot, tie onto the container/chassis, and go. Wheeled terminals also provide compatibility with TOFC (trailer) operations if they are still accommodated at that particular terminal.

But there are important disadvantages as well. Crucially, an adequate chassis supply is required for smooth functioning of the terminal. Not enough chassis, and the train doesn’t get unloaded and turned around to head back toward origin. The need to have a chassis at trackside to accept an inbound container off the train has allowed the inland chassis shortage to creep back up the supply chain toward origin due to its negative impact on train operations.

The wheeled terminal has also required the establishment of neutral chassis pools in order to avoid the operational complexity of matching specific chassis to specific boxes, which would require the storage of multiple chassis fleets on-terminal. These neutral chassis pools offer theoretical advantages in terms of utilization, but in practice it has proved difficult to properly match their capacity with the need on an ongoing basis. An intrinsic problem is that the chassis pool operator is not incentivized to provide the surge capacity needed to avoid shortages.

Further, wheeled operations are space intensive, a mounting consideration as volumes rise but available land in urban locations is not available.

Wheeled terminals have been the conduit whereby inland chassis shortages have been allowed to creep back up the supply chain toward origin. The railroads have prudently acted to conserve their scarce chassis supply to keep the trains moving. But the cost has been stacks of containers awaiting delivery with no chassis. Despite the railroads’ best efforts, clogged terminals have slowed operations, affecting intermodal car velocity.

Problem unique to US

This is a problem that exists nowhere else on the globe, because elsewhere the standard approach is to ground and stack the containers in the terminal, with the trucker bringing the wheels. This better aligns these two key capacity limiters. The truckers control their chassis destiny. They have a direct pipeline to shipper and can provide pressure to better turn the equipment. All of the friction regarding locating a chassis, verifying its condition, the trouble ticket, et al. is eliminated.

For this to work, the terminal needs to have an effective low-friction operation for mounting the container on the trucker’s chassis quickly and easily. This is obviously easier said than done, particularly when one is trying to adapt a terminal that was designed to work in a completely different manner. In addition to the investment requirements, there is no guarantee that a grounded operation can be implemented in a formerly wheeled terminal without increasing ongoing lift costs. It may well require more equipment and personnel. But this is a tradeoff that the railroad should be willing to make, because if properly executed, grounded operations would result in a dramatic improvement in service quality (i.e. consistency) and take costs out of the system in other categories.

A second necessary change is the end, once and for all, of box rules. The ocean carriers have been a big contributor to the current crisis because of their unrelenting focus on their line-haul operations with the hidden assumption that once the container was unloaded off the vessel the subsequent operations were “someone else’s problem” — be it the port, the railroad, or the port cartage trucker. At the very least, the ocean carriers should not be adding to the already considerable friction in the system by dictating the chassis provider for merchant haulage moves.

There are many other changes that need to be made, but these two are, to me, the most urgent and in some respects, the most achievable. The railroads can unliterally make the changes in their terminals. The ocean carriers may be reluctant to change their profitable chassis practices, but the miserable performance in 2021 plus the potential heavy hand of regulation in the form of the Federal Maritime Commission may sharpen their focus. They would be well advised to stop fighting the change and start shaping it.

A crisis is a terrible thing to waste. The current difficulties have already levied a high cost on all participants. If we don’t learn from it and make changes, now THAT would be a tragedy.