The Financials of Containerized Vehicle Logistics
For anyone new to containerized vehicle logistics it can be difficult to get a clear overview of the different cost items involved. When shipping cars in containers you will be managing slightly more complex loading operations than what you do while shipping general cargo; you are operating returnable equipment which are moving in and out of different custom zones and has to be returned to origin for consecutive uses; you are handling high value, "fragile" cargo that needs to arrive destination without a scratch.
In this post we take a deeper look at the financials of shipping cars in containers. We explore the different cost items to be aware of, before taking a more detailed look on the specific items where Kar-Tainer is able to directly help optimize a vehicle shippers cost, namely the cost of equipment and the operating costs related to loading & unloading cars in containers.
Cost Item Overview
As in all logistic setups, the specific cost items will be decided by the contract, however these are some of the typical cost items involved in a containerized vehicle solution:
Equipment Cost - the cost of equipment used to secure the cars inside the container. This ranges from returnable equipment solutions such as those offered by Kar-Tainer, to one-time use wooden pallets, straps, and other equipment.
Loading and Unloading Cost - the cost of loading and securing cars in the container at place of origin, and the following cost of unloading the cars at place of destination. This is an activity which can either be outsourced to a logistics terminal or other professional "vehicle loaders", or which can be organized internally; more on this below.
Container Transportation Cost - all costs related to moving the container around; drayage from container yard to loading compound, shipping/transport cost of moving the container loaded with vehicle from origin to destination; cost of re-depositing empty container; etc.
Vehicle Transportation Cost - cost of moving the vehicle itself from OEM plant or vehicle yard to the loading compound, and from unloading compound to yard or dealer.
Customs Clearance Cost - besides the standard costs for the export and import declaration of the vehicle itself, costs related to the temporary import/export of the loading equipment should be considered. This cost will however differ greatly from country to country. Some custom zones will allow equipment to be brought in custom free as "instruments of international trade" or under similar definitions, other countries might require a customs bond to be put up as a guarantee that the loading equipment will not stay on a temporary import status for longer than a given time period. Such costs will always depend on the country of origin and destination but will usually not have a big impact on the overall cost. Although, engaging local expertise is always advised.
Equipment Return Cost - besides being a combination of transportation cost and customs cost, this distinct cost item deserves a separate mention. First off, equipment return cost is only applicable when using returnable solutions, though any serious solution will usually do. This cost is only a fraction of the total cost but features such as a high empty load rate (the more empty equipment you can fit in one container) will affect this. It is usually a compound of the equipment handling cost at destination and origin, i.e. how much does it cost to load up the empty equipment in a container at destination and unload it from container back at origin, and the transportation cost of bringing the container from destination back to origin.
Cost of Risk - not a day to day cost that will be considered by most, nevertheless an item that can greatly affect OEM's overall cost when considering unforeseen cost items such as vehicle repairs, recalls and delivery disruptions. As we covered in a previous post on Safety in Car Shipping the damage rate for global vehicle moves fall in between 2% - 10% (on containerized moves usually much lower if right equipment and procedures are used), with an average cost per claim of over $440 adjusted for inflation, this can quickly add up to a significant cost if you are shipping big volumes.
In the next segments we look at the cost items where the Kar-Tainer solution and business model have great impact on helping our partners control the financials of their containerized vehicle moves.
When shipping cars in containers you will eventually rely on certain equipment to load and secure the cars. Be that sophisticated returnable cassette systems such as those offered by Kar-Tainer, customized wooden constructs or skids, or even the basic straps and wheel-clogs used in some instances when lashing cars directly on the container floor.
Reusable VS Expendable
The first topic to address is if you are using reusable or expendable equipment. In a solution where you use expendable equipment for securing vehicles in the container the cost of this equipment is straight forward.
Each vehicle shipped has an additional cost equal to the equipment cost used for each vehicle shipped. In its most crude form where only two cars are loaded in a container, this cost can be limited to lashings and wheel-clogs, usually in the area of $60 to $100 USD per vehicle. If specialized vehicle transport skids/pallets, which allows for external loading and tire-lashing are used, the cost can climb to $300 to $400 USD per vehicle. If customized one-time solutions built up of wood or steel which allows for loading three or more cars per container are used, the per unit cost can be expected to be even higher due to the high degree of material use and the complex loading and unloading operations required to operate such solutions. It also has the added downside of being much more prone to damage and accidents as the complex loading/unloading operations makes it difficult to control quality and standardize procedures.
In most situations, reusable/returnable equipment solutions will have a clear-cut advantage when compared with expendable solutions. Both from a financial and a quality point of view. Procedures can be standardized, safety are optimized, and the equipment cost can be spread over numerous vehicles instead of just one. As the cost is spread over several vehicles, what is important to keep in mind is that the equipment ROI is realized through usage, meaning that each time you ship a car on the equipment, you further pay down on the capital expense of implementing returnable equipment. Thus, the shorter your equipment turn-over time is, the more value you achieve. I.e. if you can use the same cassette 8 times in the same year as opposed to say 4 times, the cost of equipment will be much lower.
We make mention of this as we often find ourselves advising our partners to return equipment back to origin as soon as possible instead of choosing cheaper, and more time consuming, modes of return transport, or keep equipment idle at destination in hopes of utilizing the equipment also for the return leg. Eventually, the longer your turn-over time -> the bigger equipment pool is required to service your shipments -> the higher the cost of equipment.
Leasing VS Purchase of Equipment
As most OEM contracts will have a timeframe of around 3 years, it can often be difficult to justify purchasing equipment to service a given contract. Specialized returnable vehicle containerization equipment costs several thousand dollars apiece, and in many scenarios the pure equipment investment required to service a single project will run in the millions of dollars. This can often be a substantial capital investment to undergo for a project with a limited timeframe. Especially for operators striving for asset light operations, the cost of capital tied up to purchasing equipment can be hard to stomach.
The alternative, as offered by Kar-Tainer, is equipment leasing. By leasing equipment, operators are able to more directly allocate each dollar spent to a specific vehicle, and the cost of equipment will become a cash-flow item as opposed to a long-term investment that has to be paid down. Through engaging with a leasing partner, the operator will also have an extra security net through the ongoing engagement of the leasing partner. In a pure equipment purchase scenario there will usually be a certain warranty period, if anything goes wrong after this warranty period has ended the operator will be left to his/her own devices. In a leasing scenario, both parties are reliant on continuous successful operations. Thus, service level and risk mitigation can be expected to be at a much higher level compared to a pure equipment purchase setup.
Loading and Unloading Cost
Another cost item that is often the make or break item of any containerized vehicle setup is the loading and unloading cost. This cost varies greatly depending on where in the world you are operating and can be anywhere from $30 to $300 USD per vehicle loaded. Loading cars in container can be a labor-intensive task, so in high-cost regions, expect price to grow exponential to the amount of labor required for the task at hand. Therefore, it is important to have solutions that enables for standardized operations, lowers the time spent to load/unload each vehicle, and ensures the safety of vehicle and operators at all times.
As mentioned above, there is two ways to go about loading and unloading cars in containers. You can outsource to a partner with an established logistics facility that has operators and machinery ready, or you can set up your own operations with own personnel and everything else required. Below we go through the two scenarios and the important aspects to keep in mind for each.
Outsourced Loading & Unloading
Unless you are a globally operating shipping line, freight forwarder or terminal operator with self-controlled compounds at your disposal at both origin and destination, you will likely find it necessary to outsource activities on at least one end of your operations. This will in most instances be the safest and easiest setup to get your container loading/unloading operations on the feet in a short time. Established compounds have the facilities and equipment required to handle containers; empty container depot will be on site or close by; personnel is either already available or a operator team can easily be assembled through your local partner; everything required is pretty much on hand and you do not have to make any major investment before getting things going. The only caveat on outsourcing your loading or unloading operations is that you are cost wise at the mercy of your sub-contractor. You will usually get a flat per unit or per container cost, but have little to no control on how this cost is made up.
Self-Operated Loading & Unloading
The alternative would be to setup your own operations where you carry the cost of compound, equipment, and personnel. This provides more flexibility on how you control your cost, but it also involved taking on more responsibility. You are most likely signing a long-term lease for a terminal, compound, warehouse or similar; you are hiring your own personnel and have to service a payroll no matter how high or low the loading volume is at any given time; you have to purchase or rent equipment like forklifts and other container handling equipment; and you take on full liability for all activities also during loading/unloading of the vehicles.
When choosing a location for your loading and unloading activities, be that through cooperation with a local sub-contractor or by keeping the operations inhouse, there is certain things to keep in mind which can help control your cost:
How far is your loading compound from the place you collect vehicles;
How far is your loading compound from port/terminal of container discharge;
How far is your unloading compound from vehicle yard or dealership where you will deliver vehicles;
How many container handlings are required to move empty container from depot to your loading compound at origin, and in reverse from your unloading compound back to depot at destination;
Which facilities and equipment will be required to run the loading and unloading operations;
Are you required to load or unloading in a bonded zone;
How is the local labor situation: will it be hard to find operators to handle your loading and unloading activities; are you operating in a unionized terminal; etc.
And how is the general logistics infrastructure in the area where you will be loading and unloading vehicles;
How can Kar-Tainer Help Optimize your Financials
No matter how you decide to solve your loading and unloading operations, by partnering with Kar-Tainer for your containerized vehicle operations you have a partner on hand who will support you.
Through our equipment leasing model your equipment cost becomes a cash flow item and you are able to more accurately plan your budget over the course of a project, without having to account for huge capital expenditures before even getting the project started. The ongoing engagement and commitment that is created through this type of business relationship ensures that you have access to the know-how and service that might be required to solve unforeseeable issues arising throughout your project, and you will not have to budget for huge maintenance fees once/if there is any issues with your equipment.
As mentioned above, loading, and unloading cars from containers can be a highly labor-intensive task. It is not uncommon to hear from people in the industry of "how it took over 4 hours to unload my cars". The design and functionality of the Kar-Tainer cassette systems allows for extremely efficient loading and unloading activities, where loading of a container can be done in less than 15 minutes and unloading in even as little as under 5 minutes. Reducing the amount of time required to handle each car, and in effect the amount of labor input, the loading and unloading cost can be drastically reduced.
In addition to this, the low infrastructre requirements for loading and unloading cars in containers using the Kar-Tainer system gives you great flexibility in where and how you arrange your operations. The fact that the cars can be loaded and unloaded with the container still on truck chassis enables you to perform such operations pretty much anywhere. The very basic requirements is flat ground and a forklift.
If you have interest in learning more about how Kar-Tainer can help optimize your costs related to shipping cars in containers, get in touch with your closest Kar-Tainer representative or reach out to us through the website contact forms, on www.kar-tainer.com