ANALITICAL REVIEW OF THE EMPTY CONTAINER CYCLE

Jesús Ezequiel Martínez Marín1; María de Lourdes Eguren Martí2

1
. Ph.D Nautical Science & Engineering -Department of Nautical Science &
Engineering. Technical University of Catalonia. Transmar Research Group.
2
. Mathematics & Systems Engineer Faculty. Metropolitan University of Caracas. &
Ph.D. Candidate in Business Administration - University of Barcelona.

ABSTRACT

During the supply chain, the containers pass through different stages, either with or
without merchandise, as we know it to this logistics cycle of the container.

Within this cycle, once the container is emptied and the customer returns it to the
owner, it’s taken to the depot for maintenance, step that is mandatory in order to return
to the cycle of export. In that cycle passes through different stages such as the
inspections, the budget request for authorization to be repaired, authorization, repair and
subsequent use in export. All this takes place in an indeterminate time, with costs
associated with each of these cycles and a fixed cost for each day that passes in the
reservoir.

The quality of the management of the reservoir represents, in most cases, is a strategic
point in the operation, productivity and systematization of this chain creating added
value that in most cases is detrimental to shipowners. Considering that is a non
productive cycle, the cost savings is the most important parameter to consider.

The container storage in the reservoir has a daily cost for each unit, and cost increases
when a significant percentage of that unit spends 30 days at the depot. Due to this
reason the stock policy was set to FIFO (First In-First Out), which in most cases due to
the poor planning of the area, supported by the mismanagement of the tank is not
followed up, generating an excessive expense that becomes a black hole in the finances
of the shipowners.

In this article is intended, through a mathematical study and a management point of

view to make an analytical description of the cycle of the container in the reservoir, with
the aim of improving its operation, while minimizing the costs incurred during this
stage of this non-productive transport unit.

KEYWORDS

Cost’s saving, FIFO policy, Container’s depot, optimization of the empty container’s
cycle.

1. INTRODUCTION AND BACKGROUND.

As it's well known, the Shipping Industry is strongly affected by the several global
economical crisis. Now, in fact, after studying many considerations, the owners have
the duty to find the best way to, at least keep alive on the market. Actually, there is not
so much profit on the business (according to the Alphaliner’s report 800.000 teus are
deleted to the fleet) so, one of the main objective is reduce the loss; this could make the
difference between surviving or not to the actual serious situation.

A lot of owners, mostly Americans are now even in bankruptcy risk due to the fleets
freezing, so, the first task that owners want to improve are the cost saving policies, that
according to the statistics, are a big gate where the money quit in short time. On the year
2008, according to the Yearly record of the principals assurance's companies, the
shipping Industry (all around the world) lost 800 millions $ just in claims, so now it's
the best opportunity to stop all this money flow.

Regarding this, one of the most important activities of the container’s maritime business
is the equipment’s control process. Having this in mind, this article intends to find an
improved way to organize the container’s depot thru a mathematical & analytical
description of the container cycle process and the applied policies.

2. THE CONTAINER’S CYCLE.

The containers have a cycle during their entire lifetime, which is typified by "status"
that changes depending on the situation if the unit it’s empty or if the unit is full.

After the vessel arrives to the Port, the full units are going to the customer’s warehouses
take out the goods from the containers, and turn in back empty on the owner’s depot in
order to prepare the units again for the new incoming bookings or as well for the empty
repositioning to any other port where are required.

This control allows managing the quantity of available equipment in a zone, and must
satisfy the customer’s demand, but the efficient functioning of the container’s depot it’s
a problem that must be organized & well structured in order reduce all the extra cost
generated inside.

This definitely affects the maritime business, as having no containers in a line can not
meet customer needs, needs that are affected by various reasons, but the priority is
always available equipment in good condition to meet the demands of an export line.

The container’s control is one of the most pressure tasks because it is in the middle
between the commercial (under pressure from customers) and the service provider, that
not always fully meet their duties despite the demands, and because of this, causes
tension in work and is inevitable that a constant will always be considered when making
important decisions that affect the stability of the departments.

The container’s depot are very big areas, mostly (not always) located near the port’s
zone, where are stored the empty containers, and several complementary activities are
performed (as inspections, cleaning, washing, fixing, and some more), to prepare the
units for the next export booking keeping the quality’s standards required by the
customer, and satisfying their demands.

The incorporation of this step on the container cycle, allows the owners to introduce
new modalities of on the container’s flow local and regionally, optimizing the container
movements solving the unbalanced levels between import and export equipment, and
help to guarantee the good condition of the unit when is going to load goods for
maritime transport.

Inside of the container’s depot, as mentioned before, there are very important tasks to be
followed in the minor time possible, because each day represents the increment of the
cost to be paid by the storage account.

There are some specifics criteria that we are not going to have in mind in this article,
regarding the standards rules for the repairing of the containers, but according to the
scale of each owner, there are some differences between them, depending of the
exigencies, there are more strict fixing or not, depending always of the specifications
required by the owner and his business’s interest.

In order to understand the cycle, the below image shows all the steps that the containers
have as soon as cross the gate of the depot:
 The container cycle

Container Terminal
Discharge Discharge Loading Loading
full empty (empty) (Full)

Gate OUT Gate OUT Gate IN Gate IN

Full (CY) Empty (CY) Empty (CY) Full (CY)

Customer
Warehouse Warehouse
Import Export

Return to

Depot
depot (empty) Damaged
Reparation

Inspection &
Budget
Available Gate – Out
- export

Table 1 The Container Cycle

3. PROBLEM DESCRIPTION

Nowadays, as commented, the most important task inside the maritime shipping
companies, is the cost’s saving policy, so there exists a lot of pressure for avoid the non
necessary payment. Depots are one of the most important places where the shipping
owners are loosing a lot of money and lamentably this is happening due to the bad
management on the depot’s structure.

According to the contracts between the companies and the depots, they must apply the
famous F.I.F.O policy (First In-First out) if this would happens like this, wouldn’t have
any problem at all. Unfortunately the policy is not effectively applied and in some cases
the criteria applied follows the L.I.F.O policy (Last In- Last Out), so the equipment
arrive to their zone and stay there during a significant time paying the surface used by
their own error.
When the owner keep pressure over the depot’s person in charge, they usually say that
it’s impossible to follow the strict F.I.F.O policy, due to there are so much work, and
it’s represents a big problem for the crane’s driver. That’s the reason why they usually
give the equipment just arrived to the truck’s driver that want a new equipment for load
the export’s cargo.

By this reason, it’s very difficult to save cost in this area, so it’s very important to find
the way to study and analyze if it’s really possible to improve this bad functioning and
develop a good policy that allows saving cost on this task as well.

So, in this article we are making an analytical review of this cycle in order to try to find
the way to demonstrate that having a better management and some more criteria, the
improvement can be noted on the shipping business.

4. ANALITICAL REVIEW

4.1 SCOPE
Based on the container cycle study explained above, several steps are involved thru all
the journey of the container.
The scope of this study has been limited to the container process that occurs between
the reception of the container and the container exit from depot.
To understand and give an analytical description of each of the steps lead to a more
effective way on handling, cost reductions and actions application at depot level.
The sample used for the analysis relies on a depot from Barcelona city area and all the
movements occurred during 2008.

4.2 GENERAL VIEW

Each of the steps of the container cycle at depot contributes to the total cost incurring
during period at depot. After analyzing each of them we have observed the following:
1. Reception of container at depot: With a fixed cost that depend on container type

2. Inspection of container if applicable and repairing:

3. Storage period of depot until exit from depot:

4. Exit from depot following “FIFO” criteria: With a fixed cost that depend on
container type

which leads to this general cost function per container:

That can be rewritten as

Based to this cost function several analyses have been performed in order to describe
and identify the potential areas subject to cost minimization.

For systems that behave in line with Pareto’s laws the 20% of the items represent the
80% of materiality (cost) of the sample. After analyzing the Total Cost it has been
identified that Pareto’s law do not represent the system:

Table 2 Acumulated Total Cost Distribution %

By other hand, repairing cost is not representative in terms of the total cost. As can be
seen from the extracted data, the repairing cost don’t affect the Pareto analysis as their
impact on total cost is minimum. The total repairing cost that is 59.213,98 €
represents 4,94% of the total cost 1.202.966,45 €.

% Total % Depot % Repair % Items

Section Total Cost Depot Cost Repair Cost # items Cost Cost Cost numbers
Items that compose 80% of
cost 962.359,86 913.011,65 49.348,21 5.526 80% 80% 83% 51%
Rest of items 240.606,59 230.740,82 9.865,77 5.365 20% 20% 17% 49%
Grand Total 1.202.966,45 1.143.752,47 59.213,98 10.891 100% 100% 100% 100%

Table 3 Acumulated Cost Analysis

Adding this to the fact the the repairing costs only depend on the container type plus
non-deterministic variables that depend on the status of the container, it has been
assumed that repairing cost is not a significant variable to minimize in order to minize
the total cost of the system.

It has also been taking into consideration the container type, in order to identify if there
is a material segment where taking optimization techniques would lead to a major cost
reduction. Containers are distributed in quantity terms in a relation of 50-50. Cost by
other hand is distributed in an aproximated relation of 70%-30%. This is not consistent
enough to take the decission of considering just a segment, so as a conclussion of this,
all the sample is relevant when optimizing. It wouldn’t be enough just to optimize one
of the segments.

% Items
Type numbers % Total Cost % Depot Cost % Repair Cost
20 45,55% 31,27% 31,13% 33,06%
40 54,45% 68,73% 68,87% 66,94%
Total 100,00% 100,00% 100,00% 100,00%
Table 4 Analysis by container type
In basis to this, the optimization measures, should be taken at the depot waiting time
and entry/exit policies.
As have been explained, the policies followed at the depot area should follow a FIFO
criteria, which in this case based on the cost functions is the optimal standard criteria.
However, business management and current situation on depot operations, open the
door to the posibility that the FIFO policies may not be followed on a efficient way.
On this possibility a model has been dessigned in order to demostrate the impact of a
better implementation of a FIFO policy as well as a simplified version that could be
easily followed by the depot team that in must cases is not qualified.

4.3 MODEL DEVELOPMENT

In order to define the simulation model, the following variables have been defined:
• Entry date: date when the container has entered the depot
• Exit date: date when the container has left the depot.
• Cost: calculated by Total Depot Cost explained above:
o Days at depot * DailyRate(container type) + FixedEntryCost +
FixedExitCost
By this relation can be deduced that the cost of all the containers that enter the depot on
the same day and leave the depot on the same day will have the same per unit cost. It
also is remarkable that the depots in most of the cases don’t work on a 24 hours frame.
Taking this into consideration the model can be defined under a simplied version taking
the acumulated distributions. The variables analyzed will have the following
characterictics:
• A first set of entries, composed by: Entry date and Number of containers that
enter on that day
• A second set of entries, composed by: Exit date and Number of containers that
leaves on that day
With this variables its possible to simulate the system, considering an initial status, the
entries and exists per day, the application of FIFO criteria and the total cost generated.
 Initial stock Depot entries Depot exits
at depot per day per day

FIFO application

Available Cost
Stock check Calculation

Table 5 Model Enviroment

To apply the FIFO criteria, both distributions has been analyzed in order to simulate
number and generate simulated samplings to compare the results obtained.
In order to identify the probabilistic distributions that define the system several tests
have been performed. These are the conclusions of the Kolgomorov-Smirnov test done
over a set of contrast distributions.
Depot Entries Per Day

Poisson Distribution Exponential Distribution

One-Sample Kolmogorov-Smirnov Test 3 One-Sample Kolmogorov-Smirnov Test 4

MOV_entry MOV_entry
N 249 N a
249
a,,b Mean 29,04 b,,c Mean 29,16
Poisson Parameter Exponential parameter.
Most Extreme Differences Absolute ,230 Most Extreme Differences Absolute ,317
Positive ,230 Positive ,138
Negative -,178 Negative -,317
Kolmogorov-Smirnov Z 3,622 Kolmogorov-Smirnov Z 4,989
Asymp. Sig. (2-tailed) ,000 Asymp. Sig. (2-tailed) ,000
a - test distribution is Poisson a. There is 1 value outside the specified distribution range. This value is skipped.
b - calculated from data b. Test Distribution is Exponential.
c. Calculated from data.

Table 6 Distribution Tests for Entry Movements - A

 Normal Distribution
One-Sample Kolmogorov-Smirnov Test ENTRIES
MOV_entry
N 249 D statistic 0,086
a,,b Mean 29,04
Normal Parameters Rejection Area {x | x>0,086}
Std. Deviation 12,506 Media 29,040
Most Extreme Differences Absolute ,086 Standard Deviation 12,481
Positive ,086 Kurtosis 0,613
Negative -,048 Skewness 0,653
Kolmogorov-Smirnov Z 1,361 Number of items 249
Asymp. Sig. (2-tailed) ,05 Source: Developed by authors
a - test distribution is normal
b - calculated from data

Table 7 Distribution Tests for Entry Movements - B

As can be seen, the sample follows a Normal Distribution, with parameters estimated
from sample. Mean = 29,04 and Standard Deviation of 12.506

Fn v s Fo

1,2

0,8

0,6

0,4

0,2

0
0

12

15

17

19

20

21

22

23

24

25

27

28

30

31

33

34

36

40

42

45

48

57
Fn Fo

Table 8 Distribution of Entry Movements Theorical vs Real

Depot Exits Per Day
Poisson Distribution Exponential Distribution
One-Sample Kolmogorov-Smirnov Test 3 One-Sample Kolmogorov-Smirnov Test 4

Mov_Exit Mov_Exit
N a
N 249 249
a,,b b,,c Mean 28,4291
Poisson Parameter Mean 28,2008 Exponential parameter.
Most Extreme Differences Absolute ,261
Positive ,120
Most Extreme Differences Absolute ,217 Negative -,261
Positive ,217 Kolmogorov-Smirnov Z 4,097
Negative -,197 Asymp. Sig. (2-tailed) ,000
Kolmogorov-Smirnov Z 3,428 a. There are 2 values outside the specified distribution range. These
Asymp. Sig. (2-tailed) ,000 values are skipped.

a. Test distribution is Poisson. b. Test Distribution is Exponential.

b. Calculated from data. c. Calculated from data.

Table 9 Distribution Tests for Exit Movements - A

 Normal Distribution EXITS
One-Sample Kolmogorov-Smirnov Test
Mov_Exit
D statistic 0,068
N 249
a,,b
Rejection Area {x | x>0,086}
Normal Parameters Mean 28,2008
Media 28,201
Std. Deviation 13,81356
Standard Deviation 13,786
Most Extreme Differences Absolute ,068
Positive ,068
Kurtosis 0,527
Negative -,034 Skewness 0,581
Kolmogorov-Smirnov Z 1,074 Number of items 249
Asymp. Sig. (2-tailed) ,199 Source: Developed by authors
a. Test distribution is Normal.
b. Calculated from data.

Table 10 Distribution Tests for Exit Movements - B

As can be seen, the sample follows a Normal Distribution, with parameters estimated
from sample. Mean = 28.20 and Standard Deviation of 13.81

Fn vs Fo

1,2

0,8

0,6

0,4

0,2

0
0

11

13

16

18

20

22

23

24

25

26

28

29

31

32

34

37

38

41

45

49

61
Fn Fo

Table 11 Distribution of Exit Movements Theorical vs Real

Based on this the simulation model can be developed using a normal distributions to
simulate the entries and exits from depot.
4.4 FIFO CRITERIA
The criteria FIFO means that the first items that come in must be the first that must exit
on demand. Based on this and on the business situation, a FIFO criteria application to
containers is proposed.Classical FIFO would work as follows:
Entry Order

Entry Order
Exit Order

Exit Order

5 5 10 10
4 4 9 9
3 3 8 8
2 2 7 7
1 1 6 6

Table 12 FIFO: Standard process

However, having in mind business characteristics, is not realistic to consider that each
time that a container is requested all the stock-pile is going to be removed.
So, understanding that on the same day an average of 28 container are received and 29
are shipped, we can consider that a group of containers that arrive each day can be
stocked into the same stock-pile so every container on the stock-pile will have the same
age (entry date). Based on this we could define the FIFO policy, based on a Maximum
number of stock-piles (calculated from thecapacity of the depot in this case 160) and a
maximum height of 5 (defined by technical & safety limitations)
Initial Stock
Entry Order

Entry Order

Entry Order
Exit Order

Exit Order
Entry on day 1

Entry on day 2
5 1 Exit on day 2
4 2 9 6
3 3 8 7 Entry on day 3
2 4 7 8 Exit on day 3
1 5 6 9 11

Table 13 FIFO Implementation process - A

With these actions, can be guaranteed that every group of containers will have the same
age. By other hand each time that a container is requested, it’s possible to determine by
simple order (left to right) the container that should be retired from depot.
One of the situations that have been taking into consideration is that as entries are
grouped in days, the stock piles are emptied in order so empty stock piles are generated
in order as well. Can be the situation where is needed the empty spaces at the left side to
put the containers. In this case a re-organization to the left respecting the order should
be done:
Entry Order

Entry Order

Entry Order
Exit Order

Exit Order

Exit Order

Entry on day 1
Entry on day 2
6 containers received day 3 -> Re-Organization
Entry Order

Entry Order

Entry Order
Exit Order

Exit Order

Exit Order

Table 14 FIFO Implementation Process - B

As can be seen these cases are the only exceptions when differented aged containers
should be mixed. This is due the limited stock-piles resources availables at depot.
However, the distance between one container and the next are as maximum with one
entry date of difference, so we could have as as maximum 5 different entries dates at a
same stock-pile.

4.5 SIMULATION PROCESS

The programation of the algorithm has been done thru an Visual Basic Macro that runs
on Excel. The generation of aleatory numbers that follows the normal distributions have
been done thru SPSS.
The first test have been realized over the real data of 2008, in order to compare the
difference of appliying the algorithm with the Total Costs generated.
These are the results:

Real Cost Incurred on 2008 1.143.752,47

Cost of not shipped containers on 31/12/08 23.602,39
Cost of shipped containers 452.652,42
Total Cost Simulated thru FIFO 476.254,81

Net Savings (Real Cost - Simulated Cost) 667.497,66

% Savings 58,36%
Table 15 Model run results - A
A 58,36% of saving costs have been observed when applying the FIFO crteria under the
algorith explained.
When doing the same with a set of simulated data the conclusions are in line with
observed with the real data:

Real Cost Incurred on 2008 1.143.752,47

Cost of not shipped containers on 31/12/08 9.152,21
Cost of shipped containers 375.323,06
Total Cost Simulated over a set of simulated entries/exists 384.475,27

Net Savings (Real Cost - Simulated Cost) 759.277,20

% Savings 66,38%
Table 16 Model run results - B
5. CONCLUSIONS
• The improvement on the implantation of FIFO policy can significantly reduce
the depot cost.
• Simple actions that can be performed by non-qualified teams at depot can be
implemented with direct improvement on efficiency levels at depot.
 • Container type and repairing costs are not significant at the definition of
optimization actions.
• The good management of the depot’s organization has the same importance that
to have good equipment for manage the containers inside the depot.
• A new system of working must be implemented on the container’s depot.
• All this aspects must be introduced in the training to the team’s depots.
• All this steps must be followed strictly and keeping special attention because
each day with mistakes could represent a lot of days to recover the ideal
situation that must be kept.
• It’s possible to save cost on the container’s depot, and it’s also possible to find a
better management and area’s organization inside, granting the best service with
the best quality.

REFERENCES

[1]MARÍ, R.,DE SOUSA,A., MARTÍN,J., RODRIGO,J. “El Transporte de

contenedores-Terminales, operatividad y casuística”, Edicions UPC, Barcelona, Spain
2003
[2] ZAPICO,A., GONZALEZ,P., “Estudio operacional de los depósitos de
contenedores marítimos en España”, Universida de Oviedo, Spain, 2008
(Ponencias), ISBN 978-84-7356-556-1, pag. 2.
[3] http://www.axs-alphaliner.com/ , Operated Fleets 2008