Shipper Owned Containers (SOCs) – Overview

Shipper Owned Containers (SOCs) – Overview

You know those horror stories we all hope won’t happen to us? Here are 2 real examples that just took place last month:

SOC detention demurrage

What might not have happened if SOCs – Shipper Owned Containers had been used

These costly scenarios can be avoided when utilizing Shipper Owned Containers (SOCs).

In recent years, we have witnessed an increase in SOC requests from shippers, NVOCs, and Forwarders alike. We found that many people are unfamiliar with the benefits and challenges of SOCs. The information below is intended to provide general background on the why, when and how of SOCs to ensure maximum cost savings and operational flexibility.

Why would you want to use an SOC ?

There are a variety of reasons for which you may want to use an SOC, but the main reason is usually COST savings. Here’s how:

a)       Equipment Scarcity

Shipping lines are usually pretty good at making equipment available in ports. In a country the size of the USA equipment supply at inland locations can be a challenge. In some cases, distances between loading point and the nearest point of equipment availability can add substantially to your freight bill.

Sourcing containers closer to your cargo loading point, can generate savings on trucking. You may still want to use chassis for some local trucking, but by being in control of your trucking, you would also have the option to use flatbeds on longer distances avoiding costly equipment repositioning charges.

These savings will go towards offsetting part of your container purchase costs. The added advantage is, since you control the equipment, you also control who you ship with.

b)       “Special” destinations

Most cargo goes to “regular” places, and others don’t. It could be an exotic destination like Transnistria (yes it does exist !), or a more traditional landlocked country like Rwanda, or a warzone such as Iraq and Afghanistan.

The imbalanced flow of cargo at these destinations creates large equipment surplus for all shipping lines, resulting in equipment sitting idle for prolonged periods of time. For such destinations, most lines should be more than happy to offer a discount to shippers using an SOC.

Most lines calculate their rates based on containers being returned to the nearest port. Landlocked countries, with significant trucking or rail transport are therefore usually good destinations for SOCs as the savings on the return trucking can be substantial. Have you ever wondered what it cost to return an empty back from Kabul to Karachi ? If you do, that cost alone is usually enough to justify purchasing your SOC.

In spite of all this logic, some lines do not offer discounts for SOCs, and some do with an added “fee” for the extra work an SOC will give them as it deviates from standard procedures. There is always room for discussion, and generally a bit more room for improvement.

c)       Demurrage / Detention Savings

How much time do you need to load your container ? How long will it take to clear customs ? How far do you need to truck at destination ? How long will the consignee need to un-stuff it ? In container shipping, time is money.

The answer to every one of these questions can translate into immediate savings. With demurrage and detention rates that can quickly escalate to USD 20.- / 30.- or more per day, can justify investing in an SOC. The logic applies to standard containers, and but equally applies to special equipment and reefer equipment. The examples mentioned at the beginning of this article demonstrate that numbers can get out of control in “no time”.

An article in USA Today suggested that in 10 years the US military paid over $720 Million in “late fees”. That number illustrates better than any other the cost savings an SOCs can bring… and also tells us that sometimes we should be weary of people managing our tax money.

What to look for in SOCs?

Using SOCs implies a couple of things usually of no concern with liner boxes. Things like, sourcing the second hand (maybe new) container, ensuring suitability, arranging your inspection and arranging your own land transportation (Lines don’t like to truck SOCs much…).

If you are going to do all these things, usually not bothered with, you want to ensure there is a real economic advantage. One thing an SOC does better, is insure against detention caused by a strike, missing paperwork, a delayed PSI clearance.

These are a few of the things you will come across when using SOCs. Lets now go over them in details.

1.       Sourcing SOCs

These can be new or second hand, it only depends on how much money you want to spend. In most cases, a second hand container is more than enough. When looking to purchase, all sorts of acronyms and jargon are used: WWT / CW / IICL… CSC / ACEP…. Which make it sound complicated and confusing, but is actually fairly simple.

Whether in a coastal city or inland there are many people out there that can supply you with shipping containers. A quick search on the internet will generate a few names that you can call. Some of these people own the containers, others will broker the deal, but in the end, most professionals can help find what you need. If you do not have a regular supplier, do not hesitate to check with more than one source and ask for references.

2.       Quality

Containers will either be NEW (or close to), generally implying less than a year old having done a couple trips, or second hand. If you are going for a second hand container, you will need a CARGO WORTHY container. A Cargo Worthy Container needs to have 2 main requirement: 1) it should be wind and water tight (steel repaired is best), and 2) it should have a “valid” or current CSC (Container Safety Convention).

The CSC sets the container quality standards for safe transportation use. A container with a current CSC should live up to its original design capability in terms of stacking, racking, and Payload. The CSC inspection should assure– if done properly –the structural integrity of the container. Some people might try to upsell and offer IICL (International Institute of Container Lessors) Equipment. IICL and CW fulfill similar criterions, but with different levels of scrutiny. An IICL criterion is stricter and the containers are generally better than CW (Cargo Worthy), but for most shipments it won’t make a difference.

Many shippers pay attention to cosmetics. We could spend hours discussing how important that is, but the truth is a good looking container does not guarantee it will hold the load. Surface corrosion can be ugly, but it will not undermine the structural integrity. One would be extremely surprised at how much real rust a fresh coat of paint can hide. In the end, cosmetic is based on personal preferences, but just like “we should not judge a book by its cover”, we need to look beneath the paint of a container.

3.       Prefix

All containers require a unique prefix and serial number for tracking, used on all shipment and custom clearance documentation. The prefixes are usually attached to a line, or asset owning entity, but do not constitute a title to the container (owner’s name is usually listed on the CSC plate). The two things one must ensure are 1) that the prefix on your container is valid and registered with BIC (Bureau International des Conteneurs), and 2) that it is not a prefix of the line you are shipping with.

The Custom Convention on Containers requires containers to carry a registered prefix to be able to carry goods under customs seal.  There are a few countries (notably Former CIS countries) where customs will only clear containers with a prefix registered with the BIC. While XXXU and NONU are often used, they are not registered prefixes. Although these prefixes often work, there is a risk of having to re-prefix a container while in transit under a BL and the control of customs on the other side of the world, and that can be a costly and complicated exercise.

If you are shipping a container as an SOC with a line whose prefix is on the container, it could happen that the computer systems are not updated in time to recognize the unit as an SOC. This could result in tariff problems or improper container handling at destination and returned to the line by the consignee.

Should I have my SOC surveyed

Having an SOC inspected is a good idea. Although all container depot operators do their best, they are subject to human error. We have all had containers reported as CW and that ended up not. Whether due to undetected roof or floor damage because the container was not internally checked, or due to system error; the fact remains if you want peace of mind, you need an inspection. Many lines now request SOC containers to be accompanied by a surveyor issued CW Certificate.

Many sellers will offer to supply the container and the certificate. Although it can make life easier, it is entirely up to you to decide whether you want the person selling you a container also responsible for guaranteeing its quality. If you decide to go that route, it is a good idea to ask for a “third” party survey, and to make sure that the surveyor is IICL certified. If you decide to organize your own survey,  many surveyors can be found on the IICL website.

Transporting my SOC

Once you have sourced your SOC, you will need to arrange pick-up and loading, and the delivery to wherever you are shipping from, whether the rail ramp or the terminal. In many cases, the container seller will be able to help organize these transports. You will also find for short distances, the shipping line has a house trucker who they can refer you to.

On some occasions, this aspect of an SOC can be a good source of savings. If loading inland and having fair distances to cover, transportation brokers can often arrange ‘One Ways’ with flat beds. Chassis operated transport is usually based on round trips, due to the chassis needing to return to its origin and the trucker driving twice the distance you actually need covered.  Flatbed mileage costs are usually a little higher, but with no return trips, this could result in lower overall road transport costs. There are however two things to make sure of are: 1) that your loading date and times are flexible enough to allow time to find a flatbed, and 2) that your trucker has a TWIC card if delivering straight to terminals.

Conclusion

Sure, there is an investment when looking at SOCs, and they do not work for every cargo, every time, on every route.

The overall reason for using SOCs is the cost savings. These savings can come in many different forms. First, when facing equipment scarcity in inland locations, SOCs can lower trucking costs and allow you to control trucking and shipping with the carrier of your choice. Second, there are savings to be had when shipping to special destinations with equipment surplus resulting in discounted freight rates, and inland locations by saving on the return trucking. Third, SOCs are insurance against demurrage and detention costs as the user will not be subject to these fees, which can quickly add up at any time.

There are some added difficulties when using SOCs, but nothing your supplier cannot help you with.

Article by Stephan HOWARD stephan.howard@csiu.co