This document discusses container inventory management (CIM) practices in the global shipping industry. It proposes that current independent CIM policies by carriers lead to inefficient use of containers and high costs. The document introduces a conceptual model and identifies key factors that influence CIM, including customer attrition, forecasting, collaboration between carriers, and costs of port handling and empty repositioning. It proposes increased collaboration through practices like container interchange to help minimize imbalances and related costs. Survey results found carriers view imbalance as a problem and are open to collaboration, though more research is needed to implement solutions. Overall, the document argues current reactive practices should be supplemented with proactive strategies like collaboration to optimize container utilization and reduce industry costs.

1. BRIDGE
September 2018 3rd
Edition
Container Inventory Management: should the Present Practices
be Regulated
Dr. Lalith Edirisinghe
Containers can transport cargo efficiently over long distances and facilitate multimodal
transport without intermediate reloading at any mid points. According to alphaliner.com,
(2018) there are 5,295 fully cellular ships that could carry 22.1 Million TEU and the World
Shipping Council, (2017) reports 34.5 Million TEU of containers according to their data
available as of 2013. Budgetshippingcontainers.co.uk, (2016) estimates a total 43 million
Shipping Containers or around 72 Million TEU as at 2016. However, there is no standard
container inventory management system in the global shipping industry at present. This leads

2. to extended idle time of empty containers at storage resulting substantial cost and frequent
breakdown in global container supply chain. Container carriers exercise (in isolation)
various mechanisms to manage their container inventories efficiently and effectively but,
usually these approaches are exclusive to each carrier. The most popular practice is the
repositioning of empty containers from the idle location to other locations where they are in
demand. Most research have focused on carrying out this task in most effective and efficient
manner. Therefore, majority of literature pertaining to container inventory management
(CIM) relate to empty container repositioning. However, this is purely a reactive measure
and not proactive. The maximum “utilisation” of inventories can be achieved if containers
are on consistent move with freighted cargo. However, containers remain for about half the
time of their lifetime being idle as they are either being maintained, repaired or in storage.
Therefore, core issue prevails in the industry is to find the best method to optimize the CIM
strategies and practices. The objective of this paper is to propose key concepts that influence
effective and efficient CIM strategies/practices that help minimise the cost of container
inventory management. This paper introduces five phenomenon namely, Pricing;
Forecasting; Operations; Collaboration; and Customer care. According to the overall
analysis two components namely, “Customer attrition” and “Cost of port handing” are the
key contributors to the CIM strategies. It also proposes a new strategy namely, collaboration
that basically leads to container interchange between carriers. The opinion towards
collaboration among carriers is proposed as an effective solution to empty container problem
in this paper which is not practiced by carriers at present. Container interchange is one of
operative outcomes of collaboration between carriers. The proposed systems do not devalue
the efforts of individual carriers’ efforts in managing their containers inventories, but it
rather complements the present practices and synergise carriers’ efforts.
Container inventory management (CIM) is a very senstitive matter for container carriers.
Efficient and effective management of empty containers (Song & Carter, 2009) and empty
container (MTY) repositioning is a critical issue (Dong, et al., 2013) in the liner shipping
industry. Infective CIM creates economic loss and marketing disadvantages to the shipping
industry. On the other hand, the container inventories that is required by carriers (box-to-slot
ratio) cater to exporters’ demand can be reduced if they manage their container inventories
effectively and efficiently. Container inventory imbalance is an inevitable phenomena due
to volatile trading patterns in the world. Since shipping is a derived demand of the
international trading continer carriers cannot escape from the said market realities. Finally,
it represents a substantial cost amunting to twenty two percent in the overall cost structure
of containers. Empty containers not only create an economic effect, but it also has an
environmental impact (Song & Carter, 2009)because the ever-increasing empty container
movements will also increase fuel consumption, congestion and emissions thus the pressure
being placed on the shipping industry over carbon emissions (BMI, 2012). The growing
imbalance of containers globally creates a substantial additional expense as well as
environmental issues. Leading carriers have already implemented Container Imbalance
Surcharge adding a direct cost to the consumer. Maersk Line (Maersk Line, 2006) advised
their customers that the Equipment Imbalance Surcharge was implemented due to an
increasingly severe equipment imbalance at Toronto container yards, leading to significantly

3. higher empty repositioning costs. Therefore, finding a solution to mitigate such impact
would benefit primary shippers, consignees and shipping lines and then countries, regions
and entire world at macro level.
Container fleet size and the complexity of the container shipping network (Dong, et al., 2013)
have increased dramatically bringing more challenges to the operation of the container
shipping system. Carriers’ container inventories are usually un-balanced due to many
practical reasons such as international trade patterns and the consequence of imbalances in
the worldwide trade distribution (Karmelić, et al., 2012), uncertainties of customer demands,
widespread allocation of container ports and customers, and the dynamic nature and
increased complexity of the container shipping (Dong, et al., 2013) and the type of
commodities to be moved etc. Shipping is not a direct demand, but a derived demand of the
international trade. Under these circumstances, carriers are faced with a dilemma to strike a
balance between the demand and supply (Edirisinghe, et al., 2016-b). Therefore, striking an
optimum balance between the customer demand for carriage and supply of containers is the
key for optimizing the utility of container inventories. If carriers can provide the right
quantity of containers at the right location/port at the right time that is demanded by exporters
the optimum utilization is achieved (Edirisinghe, et al., 2016-a).
Following realities have been considered in developing the conceptual model in Fiure 1.
1. Optimisation of utilisation of containers means reducing the waiting time of continers
in excess areas (either pending exports or otherwise) or curtail reposition of empty
containers.
2. The repositioning could be minimized if the inward laden containers can be reused
for exports at same location/port with minimum waiting time. In other wards
utilization will be optimized naturally through ‘reuse’ at shortest time and at the same
location/port.

4. Figure 01. Strategies used by Carriers in Sri Lanka to Optimize the Utilization of Container
Inventory
In addition to existing strategies this research newly introduces the concept of ‘collaboration’
in container inventory management. Accordingly, questionnaire was developed covering
five variables that may influence effective and efficient CIM practices.
Although the industry is aware the significant impact of this problem, the response seems to
be reactive in nature rather than proactive. In other words, the research area, so far, has been
centred towards optimizing the empty container reposition rather than solving the root cause,
i.e., minimizing container imbalance.
Although containerization contributed a significant impact on globalization through
facilitation of intermodalism it had added many costs to carriers. Firstly, containers are not
‘one-time investment’. The life expectancy of a container depends on many factors, but it is
approximately 8 years and it frequently needed repairs and maintenance. Alderton (2004)
suggests that one of those years will be spent out of services for repairs. There are other
components in the container cost structure in which container imbalance contributes
significantly.
Figure 02: Container costs (Alderton, 2004)
As per the results of the study, all the respondents considered container imbalance as a
fundamental problem thus need regulate the CIM. Also 65% of them accepted that carriers
have independent CIM policies but only 51% of respondents were satisfied with their current
CIM policy.
Improved CIM would immensely benefit carriers. According to the overall analysis two
components namely, the carriers’ opinion towards “Customer attrition (CA)” and “Cost of

5. port handing” are the key contributors to the CIM strategies. Carriers tend to apply
strategies such as substitution, swapping, agile inventory, and prioritized imports if the
customer attrition is lower. In other words, the more the loss of customers, the lesser they
adapt to these strategies. On the other extreme, there is a positive relationship between
opinion on the CA and the strategies in which carriers reposition empties to deficit ports.
This is to prioritise exporters’ regular needs or cater to the seasonal demands.
CFS handling cost is positively related with accuracy of forecast. However, it shows negative
relationship with all the collaboration strategies namely, alliances, interchange, and free slots.
Collaboration is positively related with the respondents’ opinion towards the CFS rent also.
The opinion on the ROI leads to three strategies namely forecast dependence; round voyage;
and lean inventory have a positive relationship. The opinion towards the Slot cost incurred
on empty reposition has a positive relationship with forecast dependence and the ERS
strategies. In other words when the slot costs incurred on empty reposition are high, the
tendency towards strict forecasting methods and imposing surcharge on empty reposition are
also high. Port handling cost has a negative relationship with high dependence on the
respondents’ opinion towards the forecast; penalizing agent; accuracy of forecast;
synchronized budget strategies. There is a negative relationship between the threat to the
sustainability of services and entering service agreements with customers. A positive
relationship exists between the high dependence on forecast and revenue loss due to non-
availability of empty containers. It shows a positive relationship with formation of alliances;
container exchange; and the free slot strategies.
It is vital to study the factors that determine the degree of willingness with respect to
container exchange and understand as to what extent each of these factors influence the
container fleet imbalance. Container inventory imbalance is expected to be widened with
increased trade movements in containers. Therefore, a close look at container shipping
supply would be the key in assessing future impact of container inventory imbalance. The
opinion towards collaboration among carriers is proposed as an effective solution to empty
container problem in this paper which is not practiced by carriers at present. It is encouraging
to note from the research that this new strategy has been welcomed by carriers and more
research and development may need for its successful implementation. It is hard to find
updated accurate data about empty container reposition cost. However, according to Kamelic,
et al.(2012) estimated empty container repositioning costs alone accounted for USD 20
billion on the global level.
Today carriers exchange slots among alliance partners or otherwise. However, those who
were in container business in early nineteens would remember the inherent friction against
interchanging slots (shipping space in a cellular ship) between carriers. It was highly
criticised as a marketing blunder at that time. Today carriers exchange slots, but they are still
reluctant to interchange containers. With many individual lines converting into few larger
unions and such carrier alliance considers almost 80% of the container trade in the world
and nearly 90% of container volume on primary trade lanes it may be even easier to

6. interchange containers. Isn’t it the right time to self-regulate this phenomenon as to save a
lot of money and substantial carbon foot print?
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About the author

7. Dr. Lalith Edirisinghe commenced his carrier in 1981 as a Trainee Cadet Officer in Merchant Navy. He
holds a PhD, in Transportation planning and Logistics Management from the Dalian Maritime University
affiliated to World Maritime University, Sweden. Dr. Edirisinghe is a researcher in Supply chain
management and his innovations include, Container Inventory Management (CIM) Concept Model;
Multidimensional CIM; Evaluation Country Index; Carriers’ CIM Competence Index; 3F CIM Matrix;
6R container Supply Management Model; Customs Harmonized System Code Process Flowchart and Virtual
Container Pool©. Dr. Edirisinghe is a past student and a teaching prefect of Ananda college. At present, he
is the Associate Dean of Faculty of Management in CINEC Campus.