Missing boxes in Europe case

The problem

This paper looks into the case of missing boxes in Central Europe, which focuses on the challenges experienced by Jessica Gluck and the Global Forwarder Inc in the Munich office. Jessica Gluck experienced challenges in getting the containers she needed for the transportation of a client’s products. However, the problem of shortage of containers was also being experienced by freight forwarders in the Hinterland of Austria and Southern Germany. There are a variety of reasons why the containers we not available.  One of the reasons for the shortage of containers is the Chinese New Year’s Festivals, when factories shut down and migrant workers who work in the factories go home for the holidays. The holidays usually entail migrant workers taking three weeks off work during this period, despite the public holiday only taking one week.  Some of these workers do not return to their jobs in the cities, thus resulting in a shortage of labor and impacting the supply of containers. Furthermore, there is usually delay in the handling of freight going to Chinese during the pre-Chinese New Year rush.  In addition, container lines during the Chinese New Year cut capacity in the form of missed port calls and blank sailings. This usually takes place in a bid to limit the decline of freight rates on Major East-West trades. Sustainability is also an important part of the supply chain, since clients of freight forwarders are concerned with ensuring sustainability especially since companies that fail to meet sustainability standards are likely to be named and shamed in newspaper articles. This is in turn likely to affect their business. The lack of containers in close proximity to Global Forwarder’s means that they will have to be transported from ports in land through the use of trucks which is unsustainable. TBCG as a sustainable company and is opposed to this, thus are dissatisfied. Furthermore, the transportation of the containers inland through the use of trucks is costly and reduces the margins of Global Forwarder Inc.  This raises the question of trade-off between sustainability and transportation costs. This is especially important since without containers, the goods will be transported the old-fashioned way through the use of regular trucks to ports where containers are more readily available. This is counterintuitive as it costs more and it wastes more money. Furthermore, there are longer waiting times, as well as lead times and more bottle necks, in addition, to not being sustainable, which is a major concern for clients.

Global Forwarder Inc does not own its own containers as this is seen to be costly. However, this leaves freight forwarders at the mercy of carriers to supply the containers. This is especially a major problem since a shortage of containers is a recurrent problem. In addition, Global Forwarder’s has a light-asset strategy, which does not allow the company to purchase their own containers.

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Background

The global shipping container market in 2019 was valued at 8.70 billion dollars and is anticipated to reach 12.08 billion dollars by 2027 (Singh, 2020). A shipping container is a container with strength that is suitable to survive shipment, storage and handling. The containers range from ubiquitous corrugated boxes to large re-usable steel boxes used for intermodal transportation. These containers handle a variety of cargo and goods, in order for easier handling and movement.  The containers are built to size and type and abide by specifications and regulations formulated by the International Organization for Standardization (ISO).

China is one of the major manufacturers of shipping containers and started producing containers in 1980 following the formation of CIMC in Shenzhen, China. Since 1996, CIMC has been the largest producer of ISO containers globally and by 2007 China produces over 80 percent of all world supply of ISO containers (Singh, 2020).  The rise in demand in transportation of cargo through waterways has also resulted in an increase in demand for containers. This may explain the occasional shortage that occurs when there is a decline in the production of containers during the Chinese New Year holidays.  This is because behavioral influences from culture have an impact on the supply of containers and the overall supply chain. The European summer holidays also affect the supply of container and the supply chain that is managed by freight forwarders. Global forwarders Inc has the option of buying containers. However, this may not be a viable solution owing to the costs involved in such an operation. In addition, the purchase of containers may also eliminate carriers as middle men, which may be disruptive to the supply chain that currently exists. Despite Global Forwarder’s reliance on containers from China, there are other container manufacturers across Europe.  However, the majority of the leading container manufacturers are located in China. Some of the container manufacturers in Europe who are among the top container manufacturers are YMC container solutions which is located in East Yorkshire in the United Kingdom and Maersk Container Industry (MCI) which is based in Copenhagen, Denmark (BizVibe, 2020).  MCI specializes in the manufacturing of refrigerated containers and machines used in the intermodal industry. However, Maersk is an integrated logistics and transportation company with several brands. This suggests that MIC is a competitor of Global Forwarders Inc.

The selection of container suppliers is based on the price of containers and freight rates. Containers from China are attractive owing to the fact that they are affordable. This is attributed to the low cost of labor in China, as well as the available of migrant workers who work in container manufacturing in China.  In addition, the supplier must also work with ports that have the ability to handle the containers and facilitate the transportation of the containers to their destination.

Solution

There are a variety of solutions that can be used to address the shortage of containers that is experienced by Global Forwarders Inc. These solutions include: getting the containers that were located in Hamburg instead of the local depot; reserving containers in local depots located in close proximity to Munich; Sending customers directly to carriers; stock piling containers through keeping the containers that came inbound and using them for outbound shipments; and finally, Global Forwarders purchasing their own containers to solve this recurrent problem.

Getting the containers that were located at the port in Hamburg is costly to freight forwarders is as there are pickup fees involved in the transportation of the empty containers from Hamburg to Munich. The containers are in turn transported to the client where they are picked up after a few days and transported to the nearest railway. This is likely to result in longer lead times than if the containers were available in Munich. In regard to sustainability, the transportation of the containers is an environmental disaster, which is likely to damage the reputation of the company and its clients. This makes this solution less viability.

Reserving containers in local depots located in close proximity to Munich is another possible solution. This is a viable solution in the future in order to guarantee that the company has a continuous supply of containers to meet its clients’ needs. However, it is likely that will be a shortage of containers in the event that every freight forwarder in Global Forwarders Inc reverses containers.  The reservation of containers is also likely to increase the costs for the company and it is not a sustainable solution in the long run, thus not a viable solution.

Another solution entails Jessica arranging a change from merchant haulage to carriage haulage. This would mean Jessica giving up all of her margins and offering control to the carrier. This is disadvantageous since Jessica and the company will lose its earnings and any future business with the client. This is not a sustainable solution, since the company and Jessica will end up losing all of its clients to its carriers.

The fourth option entails keeping containers that come inbound and using them for shipments that are outbound. However, this raise concerns pertaining to demurrage and detention, which are likely to increase costs for the company. This is because demurrage entails a charge the merchant pays for keeping gear beyond the free time that is given by the carrier for the delivery of goods in the port, the depot and the terminal. Detention, on the other hand, is a charge that the merchant pays for the detaining the carrier’s equipment outside the terminal, port and depot beyond the allotted free time. However, this does not include reefer services and storage costs. This means there is likely to be a significant increase in costs for Global Forwarders Inc. However, this is unlikely to be sustainable in the long run despite resulting in shorter lead times.

The final and recommended solution entails the company purchasing its own containers in order to solve the problem of missing boxes that is recurrent. However, this is a costly solution, especially considering that the company has a light-asset strategy. The asset-light model entails the outsourcing of non-core strengths, reliance on supply chain service providers to undertake rapid expansion of sales channels, as the business focuses on design and manufacturing to a much shorter time, less fixed assets and less capital, as well as the development of more lucrative and faster industrial profit chain link (Surdu, 2011). However, owing to the recurrent problem of the missing boxes and the number of clients that are lost as a result of this problem, Global Forwarders Inc should purchase their own containers, especially a quantity enough to off-set the shortage. This means that the company will have to move away from an asset-light approach to an asset-heavy approach. The asset-heavy approach will allow for the company to have greater control over its operations (Surdu, 2011). However, an asset-heavy approach will tie up significant capital for the company and make the company less flexible in a fast-changing environment (Kachaner & Whybrew, 2014). This will result in an increase in costs, but will be sustainable in the long term. In addition, the business will benefit from a reduction in lead time as the containers will be readily available for use by the clients. However, there might be an increased cost for the storage of the containers. However, the company will be sustainable in the long term, since there will be reduced reliance on carriers. The containers can also be distributed in different locations in order to allow the operation to be sustainable. This will make it easier for the containers to be transported to clients easily, as the containers closest to the client’s location will be used. This will allow for sustainability of the extent to which trucks are used in picking up containers from Global Forwarder Inc to the client.

Conclusion

The problem of missing boxes in Central Europe as a result of shortage in shipping containers has been a major problem that companies in the logistics and transportation industry have been experiencing for a long time. The problem is recurrent and is in part attributed to behavioral influences such as the Chinese New Year, which disrupts the supply chain of containers. There is a need to find a long-term solution, and despite Global Forwarders Inc having an asset light approach, the viable and long-term solution that should be embraces is the company buying its own containers. This solution while costly in the short term will pay off the long-term through the reduction of reliance on carriers. In addition, the solution is sustainable and allows for much shorter lead times.

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