Management Insight – Logisitcs

5. Containerisation
Containerisation is the term used to refer to the process of distribution of goods making use
of containers. Containerisation is the system of intermodal freight transport cargo transport
using standard ISO containers (known as shipping containers, Intermodal Transport Units
(ITUs) or isotainers) which can be loaded and sealed intact onto container ships, railroad cars,
planes and trucks. Exporters in developing countries are also gradually adopting the use of
containers for transporting the goods. Either train or road is used to carry the containers upto
the seaports, where they are loaded on the ships for onward transportation to their destination.
However, the passing of Multimodal Transportation of Goods Act, 2000 has allowed
exporters from India to use containers for transporting the cargo exported by them. Now,
exporters do not have to bring the cargo to the seaports any longer. Instead they can take the
services of Container Freight Station (CFS) or the Inland Container Depot (ICD) for booking
the cargo and transport it to the destination. Cargo is cleared by the customs authorities at
ICD and during the process lot of time is saved for the exporters. Cargo can be packed within
the container either at the container depot or at the factory of the exporter.

5.1 Freight Container

The container, as suggested by the name, is an equipment used to store and carry goods. In
shipping, the term is used to refer to any type of box used to carry cargo. Presently too, a
container is known as 'box' or 'can' in many countries, particularly in the U.S.

Freight container has been defined by the International Organisation for Standardisation
(ISO) as an article of transport equipment with the following characteristics:
• The container should be of a permanent character and possess enough strength so that
it can be used repeatedly
• It should be specially designed to ease the transportation of goods using one or more
modes of transport without intermediate reloading
• It should be fitted with devices which permit it to be handled readily, particularly
transferring it from one mode of transport to another
• It should have design such that it is easy to be filled and emptied
• The minimum internal volume of the container should be 1m3 (35.3cu.ft).

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Further, a freight container with rectangular shape should be weatherproof, can be used to
transport and store a number of unit loads, packages or bulk material. It confines and protects
the contents from loss or damage, can be separated from the means of transport, handled as a
unit load and transhipped without rehandling the contents.

5.1.1 Advantages of Container

Using containers has several advantages for the exporters. These are as follows:
• The risk of damage associated with pilferage and mishandling of the goods during
their transport is reduced significantly.
• The cargo reaches to the importer in better condition, creating a better impression
about the exporter in the mind of the importer. This perception of delivery of goods in
good condition allows an exporter to gain an edge over other competitors.
• There are no damages in containers due to mishandling of the cargo at terminal ports
in the case of transshipment.

5.2 Classification of Containers

The containers can be classified on the basis of three parameters:

5.2.1 Raw Material-based

A container can be classified in terms of its building or cladding materials i.e. on the basis of
material used to make the container. Most of the containers have raw material of steel,
aluminium or glass fibre reinforced plywood (GRP). Around 65% of the entire container fleet
currently has steel as the raw material.

5.2.2 Size-based
Containers are defined in multiples of l0 ft. i.e. 10 ft. or 20 ft. or 30 ft. or 40ft. The containers
most commonly in use are 20 ft. and 40 ft. containers, with 20 ft. containers contributing
around 65-70% of world fleet. The 20 ft containers are referred as Twenty foot Equivalent
Unit (TEU) and 40 ft as Forty foot Equivalent Unit (FEU). If size of all the containers is
expressed in terms of TEU, then it becomes easier for the container terminal operators and
ship owner to estimate the space required in a container terminal or inside the vessel.

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The width of most of the containers is 8 ft. However, height of the containers varies from 8 ft.
to 8 1/2 ft. Presently, about 75% of world box fleet have a height of 8 1/2 ft. and about 20%
have a height of 8 ft. However, there is an increasing tendency to use containers with the
height of 9/12 ft. (High cube).

The inside volume of a standard container with the dimension of 20 ft. x 8 ft. x 8 1/2 ft. is
around 33m3. The most widely used type of container is the general purpose (dry cargo)
container and the nominal length and height of these containers is in the sets of 20' x 8.5', 40'
x 8.5' and 40' x 9.5'.

The capacity of the container is the total cube a container can accommodate. The term cube
often refers to the cubic measurement of cargo. The capacity i.e., the internal volume is
determined by multiplying the internal dimensions, i.e., the product of internal length, width
and height. The capacity may vary among containers of the same length and height.

5.2.3 Use-based
Containers can also be classified by their uses. Containers on the basis of their usage can be
broadly classified into following types depending on the cargo to be stored therein.

5.2.3.1 General Cargo Container

The general cargo container is the type of container most suitable for general cargo (packed
cargo) for which temperature control is not required. This type of container occupies a vast
share of the total number of containers. They are also called dry cargo container in ordinary
parlance. It is generally of the closed van type with a door at one end.

These containers are closed and are suitable for the carriage of all types of general cargo
(both solid as well as liquid). Access for loading and unloading is through full width doors.

5.2.3.2 Thermal Container

The thermal container is designed to handle the cargo which requires refrigerated or insulated
storage. This type of container is covered with material of low heat transfer such as
polystyrene foam. Thermal containers are classified into three types:

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• Refrigerated (or Reefer) Container

It has insulated walls, doors, roof, and floor, which limit the range of temperature loss
or gain. These containers are used for storing cooled foodstuffs, meat, fish, vegetables
etc.
• Insulated Containers
Here dry ice is used as the cooling medium. It does not use any device for cooling
and/or heating. These containers are used for transporting fruit, vegetables etc.
• Ventilated Container
This type of container provides path for air to pass through by means of apertures on
sides or ends. This type of container is used for transporting cargo such as fruit or
vegetable, which requires respiration. It is also required for carrying special cargo like
tea, coffee, etc. which may lose moisture i.e., they may "sweat" if carried in closed
box type containers.

Considerable advancement has been made with regard to reefer containers. Controlled
atmosphere and modified atmosphere systems have been introduced.

Controlled Atmosphere
There is a computerised controller here to control the atmosphere. The set temperature is
maintained with the help of refrigeration unit and the controller maintains the ideal
atmosphere by judging the consumption of oxygen and production of carbon dioxide by the
product. By integrating this information, the controller continuously adjusts the air exchange
valves and activation of the scrubbing systems required to maintain the atmosphere at the pre-
set level which is done with the help of controller.

Modified Atmosphere system

In the modified atmosphere system, after the stuffing of the container, the desired atmosphere
is created in the container. The container is then sealed to prevent changes in the original
atmosphere due to ventilation. The modified atmosphere system is limited to shorter voyages
and fewer commodities than the controlled atmosphere system.

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5.2.3.3 Special Containers

The third category of container includes the remaining types of containers under the broad
category of "special containers". Prominent types of containers in this category are bulk
containers, tank containers, open top containers, side open containers, flats, car containers
and pen containers (to carry livestock).
• Bulk Containers: These containers are designed to carry dry powders and like
substances in bulk.
• Ventilated Containers: These containers possess full length ventilation galleries.
• Half Height Containers: These are designed to carry cargoes with high density such as
steel, pipes and tubes etc.
• Tank Containers: These containers are generally constructed to carry a specific
product or range of products.
• Open Sided Containers: These containers are designed such that specific commodities
such as plywood, perishable commodities and livestock can be accommodated.

5.2.3.4 Dry Cargo Containers

Dry cargo containers are the containers which are currently most commonly used. Various
types of "dry special containers" are discussed below.
• Open Top Container: These types of containers are without roof and are usually
provided for covering the container. The advantage of this container is that heavy
machineries, structural etc. can be easily hoisted by a crane and put inside the
container through its open roof.
• Flat Container: Flat rack or flat container is the container with its base only. Usually a
cargo of unusual size and weight is put onto this container and is lashed to it.
• Bulk Container: This type of container is fitted with manholes so that loading of bulk
cargo through gravity can be facilitated.
• Garment Container: Garment containers contain built-in hangers to help in loading a
large number of garments in hangers into the containers.
• Liquid Containers: Liquid containers are usually made of stainless steel and possess
manholes for loading and unloading liquid cargo.
• Gas Containers: Gas containers are special containers having fixtures and fittings to
fill and remove the liquid gas. They also possess special features like thick walls of
special metal for safety during transit.

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5.2.3.5 Other Containers

• Insulated Containers: Such containers protect the cargo against head loss or gain and
are used along with a blown-air-refrigeration system for protection of perishable or
other cargo which need to be carried under temperature control.
• Fruit Containers: These are insulated containers with slightly longer internal
dimensions.
• Refrigerated Containers: These containers have their own refrigeration units and these
units are operated by using the electrical supply. These containers are 12.2 m long, 2.4
m wide and 30 m high.
• Hanger Containers: These containers are used for dry cargo and are equipped with
removable beams in the upper part. Garments on hangers are shipped through using
these containers.
• Bin Containers: These containers do not have doors with them and are ideal for
carrying high density cargoes such as steel, pipes etc.

5.3 Stuffing of Cargo in a Container

Stuffing of cargo in a container is related to packing of the cargo. A proper stowage plan
prior to packing a container is prepared by the exporter or the shipper. This will be beneficial
to the shipper in:
• Using the container capacity in an optimum manner.
• Simplifying and accelerating the process of packing and unpacking.
• Planning for necessary cargo securing aids well in advance.

Following information should be available to the exporter for planning the storage:
• The type of container suitable for the cargo
• The exact weight and dimension of the cargo to be loaded and its packaging
• Exact inside dimension and permissible load limits of the containers

The above mentioned factors should be considered while planning for packing as this will
decide the type of packing to be used by the exporter.

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Rules to be followed while packing the cargo:

• The different types of packages (for example, card board boxes and wooden boxes)
should be loaded separately.
• The container should be lined with paper or foil while packing especially sensitive
goods.
• The container should be made odourless or properly washed out if the goods to be
stuffed in the container are sensitive to odour.
• The packing done in the boxes should be carefully checked before stuffing them into
container.
• The exporter should care not to pack the following products together:
o Wet goods with dry goods.
o Goods with protruding parts, sharp edges or corners with goods in
comparatively soft packaging such as sacks or card board boxes.
o Dusty goods with dust sensitive goods.
o Placing the heavy packets on light packets.
o Goods emitting odour with goods sensitive to odour.

5.3.1 Precautions for Packing the Containers

The exporter should check the container thoroughly and take the following precautions
during sending the goods through container.
• There should be no holes or cracks in the walls and roofs of the container.
• The doors can be operated easily.
• Lock of the doors and handles are functioning properly or not.
• There are no placards/labels pasted of the previous cargo.
• Container is waterproof.
• Container is dry from inside.
• Container is clean, free of dust and cargo residue.
• Container should be odourless in the case of stuffing of goods sensitive to odour.

5.3.2 Checking of Container after Packing

The exporter should check the container once the cargo has been stuffed into it to ensure the
following:
• A copy of the packing list should be at a position easily visible inside the container.

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• Compliance with the quarantine regulations should be ensured in case the goods are
being shipped in wooden packaging to Australia or New Zealand or a country with
similar quarantine regulations. A copy of the quarantine certificate issued by the
appropriate agriculture authority should be pasted inside the container.
• Door handles are seal protected so that the risk resulting from pilferage can be
reduced.
• In case of open top containers, correctly fixing of the tarpaulins and ropes should be
ensured.

5.3.3 Arrangement of Container

The exporter willing to hire the container has to approach the cargo agent. The cargo can be
sent on Full Container Load (FCL)/ Less than Container Load (LCL) basis. The exporter
arranges packing of the cargo in the container in his factory if so desired by him. The cargo
agent will arrange the packing of cargo and after that, containers are shifted to the container
depot. As an alternative procedure, exporter can bring the cargo to the container depot and
the cargo is stuffed in the container after getting required clearance from the customs
authority. The government has established number of ICDs to facilitate the export of cargo
through containers by sea routes. The containers after getting clearance from customs
department are transported to the sea port so that they can be loaded onto the ships for
proceeding towards their destination. The movement of the containers is done either by road
or by rail.

5.3.4 Containerisation — The Concept of Unit Load

Cargoes are consolidated and made as huge unit as possible to handle capacities (like 5
tonnes, 20 tonnes, 40 tonnes etc.) to save time consumed and cost incurred during handling,
loading, discharging and transporting so that at every occasion involving handling of the unit,
time as well as cost is saved. This system helps in increasing the productivity of handling
cargo several times by displacing labour. Besides this, when unit load is higher, manual
operation is not possible and hence mechanical methods are introduced involving capital
investments.

Container Marking
Containers are marked indicating the following details so that they can be identified:
• Owner Code, Serial Number and Check Digit

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• Country Code and Type Code

• Maximum Gross and Tare Weight

5.3.5 Leasing of Container

Carriers procure the containers on lease either from companies manufacturing containers or
leasing companies who own containers. There are four types of leasing arrangements. They
are as follows:

• Trip Lease: This type of lease is also known as short-term lease. The lease is
applicable for one voyage or one trip. (Voyage implies to and fro trips and trip
connotes one leg only).
• Long-term Lease: Under this type of lease, containers are usually provided on lease
for a period of 3 to 5 years.
• Financial Lease: This type of lease is more similar to a hire-purchase or installment
purchase scheme rather than a lease, as in this case, at the end of the term for which
containers are taken, the ownership of the container is transferred to the person
holding the lease.
• Master Lease: In this case, owner of the ship enters into a deal with a company
providing containers on the lease basis for a period of usually 1-2 years under which
ship owner assures that a minimum number of containers will always be under his
lease from the leasing company. In exchange of this guarantee provided by the ship
owner, the container leasing company also assures the ship owner that a minimum
number of empty containers will be made available to the ship owner at the various
ports as agreed upon between the two contracting parties.

Lease rent for the container is charged on the basis of per day and this rate varies depending
upon the supply and demand situation. The International Container Lessors Association has
set up forms of contract so that working of the leasing market can be assisted. Insurance
premium can also be included as a part of the rent component for loss/damage to a limited
extent. Usually, leasing a container is preferred by the users rather than owning it,
particularly in the case of ship owners using bulk of the containers available as owning
involves capital investment, maintenance, workshop management etc., but owning containers

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provides self-reliance to ship owners and also provides them opportunity to advertise their
lines wherever their containers move.

5.3.6 Maritime Container Rates (Freights)

General practice of deciding container rates is to set individual rates depending on the type
and capacity of the container, actual origin and destination of the merchandise. Customs
clearance charges, demurrage, etc. are not included under this charge. This practice is applied
only to Full Container Load traffic. The traffic rates for LCL are calculated based on the
weight or cubic measurement basis, whichever yields greater revenue for the container
company. They naturally reflect the origin and destination of such merchandise together with
collection and terminal handling charges. Additional cost is charged for carrying
consignments such as livestock indivisible loads requiring heavy lifts. Maritime container
rates are very competitive and this mode of transport now contributes to the substantial
portion of volume of general merchandise cargo carried through the deep sea.

5.4 Benefits to Trade

Shipping can be truly regarded as the factor driving global economy and international trade.
More than 90% of world merchandise trade is carried by sea and over 50% of that volume is
carried out through containers. India is becoming one of the most preferred destinations for
manufacturing outsourcing in the world and hence offers great scope of containerisation.
Increasing industrialisation in India will lead to growth of containerisation in the country
which offers immense private and public investment opportunities in port infrastructure
development.

Thus in a nutshell, the advantages of containerisation can be listed as follows:

• No intermediate handling is required at terminal (port) trans-shipment points hence
allowing considerable labour savings.
• The absence of intermediate handling and shorter transits permit less risk of cargo
damage and pilferage.
• Low risk of cargo damage and pilferage allows more favourable cargo premiums to
be obtained as compared to conventional cargo shipments.
• Less packing needs for containerised shipments.
• Cargo arrives in better condition.

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• Rates are likely to remain more competitive in containerised tonnage when compared
with conventional tonnage.
• Transits are much quicker due to the combination of various factors as faster vessels,
rationalisation of ports of call and substantially quicker cargo handling.
• Containerisation encourages development of trade and provides quicker payment of
export invoices.
• Containerisation permits rationalisation of the fleet.
• Container vessels attain much improved utilisation and are generally more productive.
• Faster transits encourage importers to hold reduced stocks/spares.
• The phenomenon of containerisation initiates the expansion of trade through much
improved service standards.
• More reliable transits.
• Improved cargo security is another benefit associated with the containerisation as the
cargo is not visible to the casual viewer and thus is less likely to be stolen and the
doors of the containers are generally sealed so that interfering with the cargo is easily
noticeable.
• The introduction of containers has greatly improved the handling efficiency of port,
resulting in reduced costs and increased trade flows.
• Using the same basic sizes of containers across the globe has reduced the problems
associated with different sizes of rail gauge in different countries. The use of
container trains makes the process of transshipment between different gauge trains
easier.
• Transshipment is the process involving transhipping or transferring goods from one
ship or conveyance to another. Transshipment is usually considered fully legal as the
everyday part of global trade.
• Container ships sail at hail speed and arrive at the destination according to the
schedule. The transit times are usually shorter than that of conventional ships. Hence,
the funds invested in purchase or merchandise can be recovered by the importers
besides saving incidental interest cost. Similarly, exporters can take benefits resulting
from the simplified and rapid customs procedures and assured ships sailings enabling
them to obtain shipping documents and claim documentary bills earlier and receiving
export earning quicker than before.

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• In conventional shipping, strong wooden crates are used for preventing damage due to
multiple handling while in containerisation there is minimum requirement of this,
resulting in reduced packaging costs. The reduced bulk of the packing material also
results in availability of more space available in the container to be used for stuffing
of cargo.
• Usually, damages and risks such as theft and non-delivery, damp dirt, etc. are reduced
to a great extent in containerised cargo. Besides this, lower insurance premium is
charged by insurance companies for containerised cargo as compared to conventional
cargo.

5.5 Constraints in Containerisation

There are lot of issues and challenges which need to be addressed if containerisation is to be
implemented successfully. Indian exporters have to ship their goods in containers as the
importers from Western countries specify this condition in Letters of Credit. Following are
the constraints involved in adopting the containerisation
• Containerisation involves huge capital investment and as such is beyond the financial
capacity of many ship owners.
• Not all merchandise goods can be conveniently carried through cargo and shipper has
to provide capital outlay to adopt his production process/premises/packaging etc. to
suit the restrictive dimensions/weights imposed by the container.
• The container is a carrying unit with high capacity and consequently, exporters with
limited trade cannot fill the container to its full capacity and thereby take full
advantage of an economical through rate, for example from the factory of exporters to
importers.
• In some specific trades, such as involving livestock, a very small percentage of traffic
is incapable of being containerised due to its nature. This involves the ship owner in
providing specialised non-container facilities on the vessel which inflates the capital
cost of the project and sometimes leads to the poor utilisation of such facilities on the
return passage.
• The container owing company has a complex task of monitoring and ensuring full
utilisation of such equipment.
• In some countries restrictions exist regarding internal movement, particularly for 40
footers.

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• Containerisation increases the transportation cost and reduces the capacity of the
transport as the container itself must be shipped around not just the goods. For certain
bulk products, this makes containerisation unattractive. For most goods the increased
fuel costs and decreased transport efficiencies are currently more than offset by the
handling savings. On railway the capacity of the container is far from its maximum
weight capacity, and the weight of a railcar must be transported with not so much
goods.
• Containers are intended to be used constantly i.e. they should be loaded with fresh
cargo for a new destination soon after being emptied of the previous cargo. This is not
always feasible and in some cases, the cost of transporting an empty container to a
place where it can be used is found to be higher than the cost of the used container.
This can result in large areas in ports and warehouses being occupied by empty
containers left in abandoned condition.
• Containers occasionally fall from the ships, usually during storms. It has been
estimated that more than 10,000 containers are annually lost in the sea. Containers
lost at sea do not necessarily sink, but rarely float above the water, making them a
shipping hazard difficult to be detected.
• Indian ports do not possess international standards required to handle the container
traffic. Major portion of non-working time at berth per vessel is one of the primary
reasons for low performance by Indian ports.
• Among other things, the cost of handling container in India is about 70% more than
other developed countries, despite availability of cheaper labour.
• Another important hurdle for growth of containerisation in India is the time involved
in evacuation of the containers. Generally, container evacuation is done through
railways unlike in the west where it is done through road transport. The efficiency of
container terminal will definitely improve if the ports have adequate railway
corridors.

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