Global trade unboxed: The innovation behind multimodal container logistics
One of the most vital factors of multimodal transportation, shipping containers have shaped and standardized how goods are transported worldwide, enabling businesses to optimize efficiency. Combining the consistency of rail, the flexibility of road, the cost-effectiveness of shipping, and the speed of air transport, the simple metal box has now become the backbone of multimodal logistics.
To accommodate the growing demand for containers, the logistics industry has since expanded port facilities and logistics parks, enhancing the infrastructure needed to handle the increasing volume of containerized goods. In addition to developing larger and more efficient terminals and improving storage capabilities, advanced handling equipment has also seen higher investment rates.
Containerization in multimodal logistics
Containerization involves distributing goods in unitized form, allowing the establishment of an intermodal transport system, which can be a combination of railways, roadways, waterways, or airways.
Before containers, the cargo was typically manually loaded individually onto ships. This labor-intensive process required extensive time and effort, far from the large rectangular containers neatly stacked on top of each other we see today.
Shipping containerization became popular as a cargo handling method in the 1950s. It allowed shippers to standardize the storage process and facilitate a more seamless transition from origin to destination using various modes of transport. This meant that more goods could be loaded and unloaded, stacked, and transported swiftly from ships to trucks and trains, all under a single contract, with a single carrier and a through bill of lading.
For instance, a container filled with electronics manufactured in Asia can be easily shipped across the Pacific Ocean to the Port of Los Angeles. Upon arrival, it can be transferred directly onto a waiting truck or train without lengthy transit times. The truck can then transport the container to a distribution center elsewhere, where it is unloaded and its contents distributed to retail stores.
As goods remain in the same container throughout their journey, the labor needed for handling or repacking and the risk of damage and theft is also reduced.
The shipping container crisis
While undeniably a great innovation, the global shipping industry faced a significant challenge in recent years: a shortage of shipping containers. Beyond a temporary blip, our deep dependence on these standardized units was reflected during the shipping container crisis in 2020.
At the onset of the Covid-19 pandemic, stringent lockdown measures meant that factories worldwide had to halt or reduce their output, leading to a sharp decline in the production and movement of goods. Operating with a limited labor force, shipment handling processes were also slowed down.
As the global flow of containers was disrupted, many containers were left stranded in ports or regions where they were not needed. This created a crisis for multimodal logistics as container shipping is responsible for moving 90 percent of the world's goods around the international economy.
Furthermore, as China took a protectionist approach with its zero COVID policy, enacting city-wide lockdowns, manufacturing slowed down, and container production remained well below historical production throughout 2020. The continuous epidemic and epidemic prevention measures reduced the port labor force, and the container turnover cycle slowed down from 60 to 100 days.
A severe imbalance between availability and demand was reflected in the freight rates in 2021, when the Shanghai Containerized Freight Index (SCFI), a gauge of container shipping rates compiled by the Shanghai Shipping Exchange, saw freight rates spike to unprecedented levels. According to the U.S. Federal Maritime Commission (FMC), 95 percent of the world’s shipping containers were produced in China in 2020, and China has maintained this level of market dominance even today.
The container leasing business was and continues to be dominated by only several key players, contributing to the shipping container crisis and difficulties meeting global demand. With high capital requirements and the need for extensive logistics networks, it was also difficult for new entrants to establish themselves in this oligopolistic market structure.
The future of containerization
In the years following the pandemic, normalized buying and production practices, along with additional containers and vessels entering the market, alleviated much of the strain on global shipping. But new geopolitical challenges, such as the war in Europe and the Red Sea crisis diverting ships around the Cape of Good Hope, have created a volatile new normal for ocean freight.
Beyond a temporary hurdle, the container crisis reflected broader challenges in the logistics industry, including the need for more resilient and adaptable supply chain strategies in uncertain times, and calls for greater improvements and innovation.
Until recently, operators could only confirm the status of containers when they were visible, when they were docked at ports, or after delivery at the consignee. Operators had no access to information regarding cargo theft, container breakage, and damage along the way.
Smart containers, however, provide real-time tracking and monitoring of goods, enhancing visibility and security throughout the supply chain.
By the end of 2022, the number of containers equipped with a tracking and telemetry device had increased by a whopping 57 percent, to 5.6 percent of containers globally. And the uptake of these containers is increasing, with the Asia Pacific Smart Container Market expected to witness market growth of 19 percent CAGR during the forecast period of 2022-2028.
As global trade volumes increase and supply chains become more complex, the role of containerization in multimodal logistics will only become more critical. By understanding and addressing the challenges of containerization, the logistics industry can continue to build robust supply chains that meet the demands of the modern world.