Intercontinental trade has grown rapidly through the creation and utilization of ocean freight containers. Although containerization has been a major driver behind globalization, very little technology has been deployed to determine optimum container cargo loading methods. But that is all about to change. Logistics experts at Virginia Tech have come up with a tool to determine which cargo loading method (floor loading boxes or unitizing boxes on pallets in containers) is more efficient for intercontinental trade.
A Little History Lesson
Containerization allows for mass quantities of goods to be transported long distances safely, efficiently, and at low cost. Initially, containers were introduced to reduce the cost and time associated with loading and unloading cargo from ships.
Today, containerships are approximately 17 times more fuel efficient than transferring goods by air and 10 times more fuel efficient than transferring goods by truck. Furthermore, the use of containers provides more efficient access to raw materials and allows for reduced manufacturing and labor costs. Not surprisingly, the benefits of utilizing shipping containers have created an increase in their demand. According to the World Shipping Council, container trade increased an average of 11% per year from 2000 to 2006. A projection made in 2006 predicted container trade would reach 600,000 per day by year 2014.
Pallets, like containers, are used as a medium to efficiently transfer products from one location to another. Pallets allow assembled quantities of unitized products to be handled and transported on a single platform. Pallets were developed to move more products more efficiently and more cost effectively. Forklift handling of pallets reduces the labor cost and time needed to handle and distribute products.
According to the World Shipping Council, imports and exports arrive and depart the United States from 116 port locations. Ten of the 116 ports handle 85% of all trade volume. Future projections suggest that freight volume could double by the year 2020. However, the existing U.S. infrastructure is not capable of handling the expected increases without capacity expansion modifications. As a result, these projected increases in trade will force global manufacturers, shippers, receivers, and buyers to work more efficiently.
Currently, floor loading is the common method used for loading boxed products into shipping containers that arrive into the United States. In a floor loading scenario, boxes are stacked floor to ceiling, wall to wall inside the container to maximize the inside capacity. Figure 1 shows floor loaded boxes being offloaded onto pallets at an import distribution center. The deciding factors for whether to floor load or palletize typically reside with the shipper’s discretion, and in part, on the type of SKU being loaded inside the container. When shipping boxes, the most commonly shipped unit, the important considerations are box strength and using clean and dry containers. Floor loading shipping containers is often the preferred method because pallets add weight, an additional cost, and consume space in transport modes. However, products take longer to load and unload when floor loaded, and this results in an additional labor cost. Yet, the additional cost of using manual labor is generally less than the freight savings.
On the other hand, using pallets to unitize loads inside shipping containers can reduce the amount of time to load and unload, and can allow increased throughput. It is important to note that palletizing may also require the use of more containers—since pallets take up some space that could be otherwise used for products. When an inbound floor loaded container arrives at an import distribution center (IDC) or a third party logistics provider (3PL) and cannot be readily unloaded, time is lost. Also, container shipments often arrive simultaneously. This can create bottlenecks when trying to offload, especially since IDC and 3PL facilities have a fixed number of receiving dock doors. Containers that have products loaded on pallets significantly reduce or eliminate this problem. Figure 2 depicts a shipping container arriving into the US loaded with boxes unitized on pallets.
As current supply chains are nearing capacity, time is becoming a more critical component in the system, not only to meet demand, but also to keep costs low to customers. Increases in product shipments will create bottlenecks at receiving dock doors, particularly when products are floor loaded inside shipping containers. These products will need to be unloaded and stored at much faster rates.
Ocean shipping costs constitute the majority of costs associated with distributing products internationally. Because of this, manufacturers, shippers, and buyers are faced with the dilemma of having to decide whether to ship boxed products either floor loaded or unitized on pallets inside containers.
It is often assumed, regardless of the method of loading and unloading, that the IDC or 3PL facilities will be able to meet the desired product demand. This is not always the case. By floor loading, there is potential to obtain a higher box count per container—which can result in a higher product value per container. Conversely, shipping boxes unitized on pallets allows more efficient loading/unloading and can exceed the value of boxes floor loaded in containers per day.
Several computer programs have been developed to evaluate box count and cube efficiency for containers, railcars, and/or trailers, but none evaluate how products should be loaded in relation to costs and time.
Virginia Tech Research
The criteria to determine if boxed products should be floor loaded or unitized in containers is vague and can vary from location to location and from product to product. A decision-based model is needed to aid manufacturers, shippers, buyers, and receivers to optimize time and costs based on either floor loading or palletizing methods for exporting/importing products in shipping containers. A graduate research student at Virginia Tech’s – Center for Unit Load Design recently addressed these issues by developing a methodology to determine the optimal shipping container loading method for boxed products based on a defined set of decision variables. This study also evaluated and compared the cost and time characteristics of the two container cargo loading methods for boxed products.
Through this research, the types of products that are floor loaded or palletized in containers was determined. More importantly, the influencing variables that need to be considered to make an efficient (cost and time) decision were identified. The primary influencing variables are:
• Box dimensions and volume
• Boxed product weight
• Pallet phytosanitation cost
• Pallet purchase cost
• Number of boxes per container
• Number of boxes per pallet
• Number of pallets per container
• Shipping and handling costs
• Box/container demand
• Single SKU or mixed SKU container
• Unload times
• Available receiving dock doors
By incorporating these variables into a model, a method to make an efficient decision to either floor load boxes or unitize boxes on pallets in containers was obtained. Through this research, it was determined that boxes are often floor loaded to obtain more boxes per container, resulting in a higher container value. To better optimize this decision, it was important to consider the value of containers meeting daily demand (not simply the container basis), as well as the associated costs, time, and the processing capability of the receiver tasked with unloading the containers.
In the model, a cost comparison is made by determining the value of containers per day, less shipping and handling costs, for each of the two loading methods (net value). Comparing the net values (subtracting net value for boxes unitized on pallets from the net value of floor loaded boxes) determines whether or not a cost benefit exists (net value delta) for one of the two loading methods. The model considers full and partially filled containers. In addition to verifying the most cost efficient method of exporting/importing boxed products, the model incorporates the ability of the receiver to unload products from containers based upon time and receiving dock doors available.
Through the course of this research, it was revealed that container traffic is variable due to demand fluctuations and the uncertainty of container arrival. Dock door availability must be considered—for both the distribution center and the buyer—to ensure whether products shipped in containers can be unloaded and further distributed in a timely manner.
To determine which loading method is most efficient in terms of the ability to process the varying numbers of containers, the model considers the number of dock doors available at a given IDC or 3PL, the time required to unload containers, the time required to move a container away from a dock door (if applicable), the number of containers to be processed, and the available hours allowed at the receiving dock door. Consideration is given to the ability to meet demand and to maximize throughput.
The model provides a method to make a decision for single SKU containers, followed by a separate method to make a decision for mixed SKU containers.
In order to make an efficient decision of how to load boxed products in a container, both costs and time need to be considered. The overall efficiency of the container is influenced by how the contents are loaded. The decision to distribute product floor loaded or unitized needs to be made on a SKU basis. The developed model is a tool to assist in making an efficient decision. It provides the associated costs of shipping and handling throughout the supply chain and determines which loading method is overall most efficient.
A cost savings benefit for boxes unitized on pallets occurs because the low labor cost of a forklift operator has offset the high labor cost associated with floor loading. Additionally, the low labor cost of a forklift operator offsets the cost of an excess container required to meet demand.
Floor loading is more cost efficient when the total cost is less than the total cost of unitizing boxes on pallets. The pallet cost and number of pallets needed per container have an influence on the cost benefit. For the model, the capacity of a shipping container was maximized. Limitations due to warehouse racks or custom pallet specifications would influence the magnitude of the cost savings, especially if de-palletizing and re-palletizing is required.
IDC and 3PL efficiency should be considered in the overall determination to distribute boxes floor loaded or unitized on pallets to ensure demand can be met. Through this research it was found that current supply chains are nearing capacity as container shipment volumes have historically increased at overwhelming rates. Floor loading may become less desirable as IDCs and 3PLs may no longer have the option of parking a container at a dock door for an extended period of time to unload. In this case, an increase in demand results in additional labor and increased costs to customers. Labor costs and dock door restrictions can be offset by receiving boxes unitized on pallets.
This new model will assist manufacturers, shippers, buyers, and receivers of boxed products to make a more informed and efficient decision in terms of how boxed products should be loaded into shipping containers. The capabilities of the model are the following:
• Determining which loading method minimizes shipping and handling costs while still meeting demand
• Determining which loading method minimizes shipping and handling costs while maximizing throughput
• Determining the number of receiving dock doors needed to meet demand and maximize throughput
Manufacturers, shippers, and buyers may use the model to determine the most cost efficient method of importing or exporting goods. Receivers of product may use the model to determine if a facility can efficiently unload a specified number of containers to meet demand or maximize throughput.
With regard to the pallet industry in general, the model clearly defines associated costs incorporated throughout the export/import supply chain by using pallets. Potentially, it could be beneficial to use more pallets to ship products internationally. This model was developed to accommodate both exports and imports, and could easily be adapted for domestic practices, since both floor loading and palletization methods are utilized domestically in trailers.
For more information please contact Dr. Alex Hagedorn (Ph: 540-231-7135, email: ahagedor@vt.edu) or Ralph Rupert (Ph: 540-231-7106, email: rrupert@vt.edu) at the Virginia Tech – Center for Unit Load Design.
