Container pooling tackles some important hidden costs in the inbound supply chain. But are the opportunities offered by the approach being ignored as OEMs and suppliers struggle with larger problems?
Packaging in the inbound automotive supply chain is complex and difficult to get right. As a result, it has probably received insufficient attention by an industry that is otherwise rigorous in its search for the elusive combination of low cost, high quality and immediate availability.
But the industry has actually made some important improvements in its approach to packaging, as carmakers seek to eliminate single-use wooden or cardboard containers in favour of returnable, re-usable solutions. This change has eliminated one challenge: the disposal of large quantities of used packaging. And it has certainly helped to improve quality by cutting damage in transit. There is no free ride, however, and the addition of large populations of returnable containers into the supply chain has created its own problems. Each of these containers, once it has delivered its load to line-side, must be rounded up, loaded onto a truck and returned to its source to be refilled. Along the way there are numerous new opportunities for containers to be miss-routed, lost or broken. Loading a big vehicle with a few empty containers and transporting them hundreds of kilometres can also significantly erode the environmental advantages these containers are supposed to deliver.
Container pooling companies claim to provide the answer to many of these problems. At their simplest, container pooling agreements simply entail the outsourcing of most of the inconvenient aspects of reusable containers to a third party organisation that has the skills and enthusiasm to do them well. In this model, the container pooling provider worries about finding the empty containers in the factory, inspects them for damage, makes repairs where necessary and handles transport back to source.
Such an arrangement can make a lot of sense. Even the logistics specialists at carmakers are naturally focussed on the movement of parts, not empty boxes. A dedicated service provider is likely to do a better job. By renting containers from the pooling companies instead of buying them outright, companies also make a useful capital cost saving, something which can be particularly helpful for cash-strapped suppliers.
The real value of container pooling, however, comes when pooling companies can take action to deliver savings that car companies and their suppliers couldn’t achieve on their own. These savings come from two principal sources. Pooling companies can share containers between multiple customers, so improving the use of each box and, potentially, reducing the distance it must travel empty. They can also find new roles for old containers when vehicle programmes change, selling or renting them elsewhere in the supply chain, for example, or re-purposing them for other industries.
Scale helps the pooling providers to deliver real value, by maximising the opportunity for sharing and by reducing the distance containers have to travel to find their next load. One company that uses scale it its advantage is Chep. The company started in Australia during World War II as a governmentowned logistics organisation. Today, Chep has expanded worldwide, with 500 service centres in 46 countries, employing around 7,000 people. The company manages 300m pallets and containers, moving around 3m of them every single day.
Automotive work accounts for roughly 5% of Chep’s $4 billion turnover, although the company does not publish financial results for individual business units. According to Rainer Sandow, Chep’s vice president, automotive Europe, this business involves all the major automotive OEMs and around 5,000 supply locations worldwide.
Ensuring that containers spend every possible minute of their lives carrying paying cargo also requires the availability of a large number of customers who have a need for them, and who are willing to use the available types. This, says Sandow, calls for standardisation, which as in many other aspects of the automotive industry, is patchy at best.
Germany’s VDO standard, says Sandow, is probably the most successful example of container standardisation at the moment. He believes that customers all over the world are increasingly recognising the benefits of standardisation. “Container standardisation is the basis of the pooling concept. Standard containers offer the biggest logistics and cost efficiencies.” The main savings in container pooling, he argues, come from lower container costs and shorter empty travel distances, which standard containers allow.
Elsewhere, de-facto standards are emerging, allowing the growth of “natural” container pooling in which containers are exchanged freely between OEMs and suppliers on the assumption that, largely, all will gain as much as they lose from the exchange. “Today, if you have two competing tier suppliers like JCI and Lear providing parts to the same OEM, containers are already consistently overlapping,” says Drew Merrill, vice president of business development and strategic planning at Container and Pooling Solutions (Caps), a major US-based pooling service provider. Recent steps by Ford, General Motors, Chrysler and major tier suppliers may lead to an agreed pooling protocol to formalise this practice, he notes.
Standardisation is not a panacea, however. For a start, many parts require additional protection to prevent damage in transit. “As soon as you add fixed dunnage inside a container, you create a ‘non-poolable’ bin, which adds complexity to your operation,” notes Merrill.
Other organisations believe that a narrower approach to standardisation may prove to offer optimum efficiencies for automotive companies. Among these is Surgere, a US-based supply chain and packaging specialist. “The packaging industry has worked to get to as few standard container designs as possible,” says Bill Wappler, the company’s president. “But in reality you need to think about product, density, container load optimisation and the function of presenting the part at lineside. Standards keep the price of the packaging down, but the overall costs of using a small set of standards can actually be greater.”
Surgere, says Wappler, is working on an alternative approach, which seeks to optimise container designs on the basis of these considerations, deviating from standards wherever there is an economic advantage in doing so. Departing from standards in this way will not eliminate the opportunities for savings through pooling, since “you can redefine standards by area of manufacturing. As examples, there will probably be standards that work better for drive train, or for interior products, or for fascia as independent users.”
In each of these areas, he suggests, OEMs and suppliers could share the benefits of highly optimised packaging supply chain designs.
The success of a container pooling organisation, of course, is directly linked to the production volumes of its customers, and Sandow reports that low volumes last year did, indeed, take their toll on Chep’s European business. “We retained all our customers through the crisis,” he says, “But volumes were certainly reduced. Now there are signs that demand is picking up to the same sorts of levels we saw before the crisis.”
Deeper penetration of established markets, says Sandow, depends to a large degree on a change in the way automotive companies think about the costs of their packaging operations. “At the moment, manufacturers and their suppliers have limited visibility of their total packaging costs, so when they compare what they think they are spending with our offering, they do not in all cases compare apples with apples,” he says.
Drew Merrill, at Caps, describes similar challenges in the US market. “You have complex buying circles for container pooling, including purchasing, logistics, materials management and corporate sponsorship. We still need to do a lot of work educating all of these groups about the benefits of pooling.”
Continued difficult conditions in the market may not be entirely bad news for the container pooling companies, however. “Access to cash for tier one and tier two suppliers continues to be limited,” says Sandow. “So these companies are keen to talk to us about the possibility of pooling rather than investing in their own packaging. We are also in a financially strong position, which allows us to purchase existing customerowned container pools and manage them, which is a cash injection for the customer.”
According to Drew Merrill, the automotive downturn presented a similar mixed picture for Caps. “We actually saw our automotive business grow by 12% last year,” he says. “But much of this growth resulted from what we call ‘term rental’, when customers just rent containers from us on a temporary basis for a daily fee. This service is primarily used for bank builds, facility moves, plant closures or the storage of excess inventory.”
The chaotic conditions of last year, Merrill suggests, drove the demand for ‘term rental’ as production backed up and automotive companies de-sourced distressed suppliers. “Our pooling business, on the other hand, dropped in line with falling volumes.”
This year, Merrill expects Caps’ automotive business to remain broadly flat, as gains in the pooling side of the business are offset by a drop in demand for term rental containers.
Current challenges but future opportunity
One hangover from the overall drop in industry volumes will continue to limit the growth of pooling in the US, at least in the short term, says Merrill. There is still an abundance of idle assets, with thousands of empty containers sitting on the back lots of automotive plants. “As long as they exist, the efficacy of pooling will be limited. That situation won’t last forever. Assets will be consumed, resin prices will go up and the economics of container pooling will become even more compelling.”
While Chep’s largest automotive market, Europe, reports steady progress, Sandow suggests that more dramatic growth is likely to come from the frontiers of automotive production, in places like Turkey, China and India. “We are seeing signs of growth in these emerging markets, and the US,” he says. “But we expect the recovery in Europe to be much slower.”
Long range supply chains create their own difficulties for pooling companies, however, as Sandow explains. “In some countries, the customer regulations create difficulties for us. They don’t look at an empty container in the same way they would a pallet, for instance, so they want to charge import duties just to bring the containers back to their source.”
Even without the difficulties caused by border crossings, pooling companies are having to adapt as they expand into new markets. Roger Corns is the director of sales at Chep’s automotive division in India. The company entered the Indian market about two years ago and currently has programmes running with six different automotive OEMs and around 45 suppliers. Persuading Indian companies of the benefits of pooling has been challenging, says Corns. “In India, we are working in the automotive sector and in fast moving consumer goods (FMCG). In FMCG, although local offices have the freedom to negotiate specifications for the Indian market, Indian multinational corporations are influenced by what their affiliate offices abroad are doing: they issue pallet specs and the suppliers often pick them up. The automotive industry, by contrast, is very India-specific. So we can’t use our automotive clients abroad to create demand.”
Instead, says Corns, he and his colleagues have had to educate their customers about the potential benefits of pooling. “The suppliers here are always looking for new ideas, but they are extremely cost-focussed. We need to show them their true supply chain costs so they can see how we might help.”
Chep has also taken steps to improve its own costeffectiveness for the Indian market, and has begun to manufacture containers in India for local customers, although Corns is at pains to point out that the tooling and material standards of the Indian containers are identical to those used by Chep elsewhere in the world.
In practice, he notes, it has been Chep’s skills in keeping track of its assets that have proved to be among the biggest benefits to its Indian customers. “Our customers say that they are used to losing a lot of crates inside the OEM plants. We have helped them to really cut down on that.”
A second big driver in emerging markets, according to Corns, is the growing importance of improved environmental performance. “Many companies are now looking at the ISO14001 environmental standard,” he says. “And reusable packaging can be an important element of that.”
In South Africa, Tap du Plessis, CEO of container pooling pioneer TrenStar, agrees that the environmental benefits associated with the replacement of single use packaging with a pooled, returnable solution have proved compelling in many industries. He points out, however, that the rapid, highly integrated nature of the automotive supply chain also lends itself extremely well to the delivery of straightforward economic benefits.
“In South Africa we have shown that you can service a relatively large industry, with a relatively small population of returnable packaging units,” says du Plessis. “The nature and focus in the industry means you can turn a container in the automotive sector faster in a year, whereas in retail a longer cycle is expected.”
Another company offering a container pooling system and assets is Goodpack, however it is one geared more toward exports and international sea containers. Based in Singapore. Goodpack has a fleet of more than 2m intermediate bulk containers, which are galvanised, steel boxes that do not require dunnage and which fit into sea containers. Goodpack’s primary product, the MB5 (pictured below), is fully collapsible and believed by the company to be appropriate for moving automotive parts. Sixteen MB5s fit into a 20ft container, according to George McFarlin, vice president of global sales and marketing, and its steel frame means that it helps to reduce damage.
Goodpack currently dominates other verticals, notably natural rubber, 60% of which is shipped in Goodpacks, according to McFarlin. But he currently sees automotive as a market with great potential, not least because of its global nature and high use of container shipping. The company currently has about 5,000 delivery and collection points in nearly 70 countries. Without the need for capital outlays, and the option for pay-as-you go rentals, McFarlin sees his company to have low cost benefits for OEMs.
The ability to ensure containers are in the right place at the right time relies as much on the right IT infrastructure as it does on having people and transport assets on the ground. For all the container pooling companies we spoke to, a sophisticated software offering has become a critical part of their value proposition. Caps, for example, offers its proprietary ‘Caps-Trac’ application on a software-as-a-service basis for customers who want to manage their own container pools.
At TrenStar, Tap du Plessis says that the addition of integrated business intelligence on the client’s product movements to its own tracking software is allowing customers to analyse their container and product movements in evergreater detail, identifying opportunities to improve their logistics efficiencies.
The next step, says Chep’s Rainer Sandow, is more complete integration of the software that tracks pooled containers with car companies’ logistics management systems.
“Customers want to have complete transparency of movement at the container level, at the package level and, ultimately, at the part level,” he says. Pooling companies like Chep see their own sophisticated tracking systems as the ideal platform to offer such transparency.
As the automotive industry emerges from recession, it expects to continue operating in an environment where cash is hard to come by and where creative collaborative approaches to cost reduction become the norm. It may not have happened yet, but container-pooling companies look set to benefit from this culture. As Drew Merrill of Caps points out, “So far, car companies and 3PLs have focused primarily on parts. Packaging is one of the last pieces of the automotive supply chain with opportunities for optimisation and cost reduction.”
