Tank containers – another year of headaches?

The tank container industry is likely to experience another unpredictable year with significant operational challenges.

Tank container industry faces operational challenges

In a webinar hosted by insurance mutual TT Club in November 2020, William Leigh-Pemberton, strategic development director at Bertschi, and chairman of the ITCO operators division, said the outlook for 2022 could be a year of further headaches for everyone in the tank business.

The challenges are less likely to be financial as demand for tank container shipments has remained strong throughout the pandemic. But the operational challenges and uncertainty of the past couple of years look set to continue.

“The outlook for 2022 is not a pretty picture,” Leigh-Pemberton said. “Space problems on-board ships are likely to persist, and there is definitely a priority being given to carrier-owned containers (COCs). Feedback from carriers is they are not particularly interested in proposing long-term offers and capacity to shipper-owned containers, including ISO tanks. So it looks like we will be fighting for limited capacity on-board.”

An industry facing shortages

He added that the tank industry generally also faces a shortage of depot capacity, particularly in Asia-Pacific where a lot of cleaning depots have closed, largely due to enhanced environmental regulations and controls. Stricter environmental controls are, of course, positive, he stated, but the rate at which modern, properly- run depots are replacing ones that have been shuttered is not keeping pace with demand.

Trucking companies also face a shortage of drivers, and even when it comes to renewing their vehicle fleets, waiting lists for new trucks can stretch to a year. These challenges have largely arisen from the fact that the tank business has grown significantly over the past decade. The number of tanks in daily use has doubled in the past seven years and at year end-2020 stood at 680,000.

This was driven by a number of factors, he went on. In general there has been a large-scale migration of bulk liquids transported by parcel tankers to liquids in ISO containers of various types. This has allowed shippers to benefit from the inherent flexibility of containers that allows the supply chain to be fragmented into multiple collection points at short notice.

However, within that segment the past several years have seen the replacement of, say, 20 IBCs or 100 drums packed into a dry van container by less packaging-intensive techniques, namely tank containers and flexitanks.

Figures from Drewry suggest that between 2011 and 2020, the share of bulk liquids carried in flexitanks trebled, albeit from a very low base, while those carried in tank containers went up by about half.

Nevertheless, Leigh-Pemberton predicted that further volume growth in flexitanks could be in doubt due to rising concerns over the consumption and disposal of plastics.
“Cargo owners are increasingly uncomfortable about shipping product in a flexitank, which represents about 40kg of plastic, equivalent to roughly 7,000 shopping bags,” he said. “In theory, recycling is possible but the efficacy of this is coming into question. A key message from the COP26 conference was that rather looking to recycle plastics, society should move faster towards their non- consumption in the first place.”

And then came the virus

But against the background of rising demand for tank container shipments, the start of the global pandemic in 2020 made life more complicated. There was a surge in demand as businesses looked to make their supply chains less vulnerable by diversifying from single- source to multi-source, he went on.

Ironically, however, revenues for many tank operators also went down because tanks were being unloaded and discharged of their cargo immediately, rather than being left in storage.“In pre-pandemic times the normal course of events would be for a tank to arrive at a destination port, say, and then go into storage for a few weeks until the cargo was needed,” he explained.

But, by mid-2021 the tide had changed significantly. Laden- storage times lengthened as procurement managers caught up with inventory requirements. Many shippers then seemed to abandon just-in-time (JIT) processes to procuring as much raw material as they could lay their hands on and keep it in store. This in turn generated some of the best-ever demurrage figures for tank owners and operators.

To complicate matters further, though, there was a hiatus in the migration from bulk tankers caused solely by the shortage of slots on deepsea container vessels.

Nevertheless, Leigh-Pemberton believed all the adversities the industry has faced in past 12 months have had some interesting and maybe positive outcomes.

“More generally, what has definitely happened is that suppliers, whether of manufactured goods or logistics services, have seen their status elevated from a dispensable supporter in an over-capacity environment to that of valued partners acknowledged for being indispensable,” he said.

“Competently executing logistics chains in a safe manner that protects the reputation of all involved has been working in the background for many years. But now this is being recognised as something of value – and something that costs.”

Supply chain analysis

As a result, manufacturing customers are now taking a deep dive into their supply chains. Cost down is in retreat as safety and resilience have overtaken price, Leigh-Pemberton said, while there is also a move from single to multiple suppliers, and from regional to global supply sources. This is being complemented by a buffer stock approach to procurement rather than JIT.

“Long term agreements are replacing both spot tenders and ‘tender cruelty’, whereby annual tender renewals were notified based on the assumption of cost reductions,” he commented. “This trend gives LSPs a chance to become part of the shipper’s team rather a dispensable supply partner. It may be that we will see the chief supply chain officer joining the IT director in more company boardrooms.”

For their part tank operators have to engage more with their key partners. “Many of us already own trucks and cleaning depots, but none of us own ships, so working better with container lines must come more into our view,” he continued.

“We must grow closer to our customers and be in genuine partnership with them, assuring them that we can keep their supply chains moving in a safe and sustainable way that is valuable for them and us. The days of taking logistics for granted as a low cost, readily-available resource are over,” he concluded.

Impact damage

Another presentation during the same webinar indicated some interesting trends in the most recent TT Club policy year of 2020.
Mike Yarwood, the Club’s managing director of loss prevention, explained that cargo contamination claims, which were previously the most frequent, had been overtaken by claims for impact damage through the supply chain. This was followed by pitting damage, with contamination claims dropping to the third most frequent occurrence.

Yarwood said that while there are usually a host of causal factors in impact damage, more than 50 percent of such claims to TT Club originated from handling incidents at container terminals, primarily maritime ones.

This could be a consequence of the pandemic-related challenges in logistics chains, he posited, as time pressures might have contributed to spikes in impact damage.

“Talking to people in the industry some terminals tend to leave tanks and dangerous goods (DG) containers as the last to load,” he commented, “(but this is) the period which is most time-critical to ensure the ship sails on schedule. So in conjunction with the supply chain perfect storm, it could be this is a contributory factor.”

Road traffic incidents were the next most frequent cause, and, in contrast to other factors, almost 50 percent of such incidents occurred in the Americas, a region which currently accounts for quite a small proportion of tank container movements.

Pitting damage on the rise

TT Club has previously drawn attention to the issue of pitting damage, as the number of such claims is on the rise. Many of the claims identified involved damage that was reparable, but there were still several where the damage was so severe that the unit had to be written off, Yarwood said.

He added there were few identifiable trends as to which cargoes were involved, but those that appeared most frequently were fatty acids and emulsifiers. The main takeaway, he explained, is that it is not just hazardous cargoes than can cause pitting damage, and while there is no obvious cause behind the increase in claims, it would be prudent for operators to be mindful of this risk exposure going into 2022.

“Operators should appreciate the ongoing supply chain challenges,” he said, “prioritising tanks for cleaning once empty/ dirty, considering inspections to see whether pickling or passivation is required, and to continue due diligence checks on the shipper and the cargo to be shipped.”