The Magic of modular design Part II

I continue to be fascinated by modular design because of the mega potential it represents globally and the benefits that we can all derive from it.

Modular design finds increasing application in a wide number of industries including housing, civil engineering that deploys modular design for bridges, viaducts, tunnels and fly overs. Shipbuilding has pioneered modular design several decades ago. And yes shipping containers represent a big success story that involves modular design. Modular design is here and it is growing in importance.

If the title of my earlier article sounds like a sequel that is because it is. The world of global transport equipment is roughly divided in two segments. Modular design and Non modular -custom built designed equipment. Globally, the two segments are also broadly divided in their respective areas of operation. With modular design ruling the Oceans, and custom built equipment still dominant in the land space. When I say modular design I am referring to an array of shipping containers that roughly count around 45million TEU’s World-wide.

Perhaps unsurprisingly the main drivers behind modular design transport equipment are their attractive economics and superb operational efficiencies. These operational efficiencies are explained by (ISO) standardization at its core and the presence of a 6 decades old ecosystem of container ports and terminals, road and rail systems where a vast array of support services can be outsourced, ranging from trucking to storage, cleaning inspection, maintenance and more…….. Modular designed transport equipment continues to grow and continues to spread steadily into the terrestrial space. Especially on continents with a large land mass such as Europe, USA, Australia and increasingly China, intermodal (road-rail) container transport continues on steep growth trajectory.

At its core the success of modular design there is the prefabrication dimension to modular design and the assembly lines that that churn out tried, tested and duly certified attractive, durable and affordable products. Non modular custom built transport equipment on the other hand are mostly built ‘locally’ in workshops on a shop floor. That is not to say these workshops are not state of the art, they can be. The difference is that the latter knows no assembly line and the cost of manufacture is local which more often than not means more expensive when compared to manufacture purposely located in countries where manufacture enjoys lower cost such as China.

When it comes to modular assembly line manufacture the location i.e. the country where shipping containers are manufactured too plays an important part in the overall success story. It is important because all of us stand to benefit from the low cost of manufacture in terms of land, infrastructure labour cost and finally the cost of freight. It is because of this that the cost of modular designed transport equipment and custom built designed equipment built ‘locally’ contrast sharply.

Notwithstanding what the odd political leader may like us to believe ‘under the bring back our jobs banner’ low cost of transport equipment in a foreign country cannot possibly be a bad thing for any of us, and we should perhaps look at the country where we build shipping containers at lowest possible cost country as a shared global resource that benefits us all.

Earlier I made mention of the shipping container industry ecosystem. It is this what represents both the magic as well as the power to eventually beat non modular transport equipment in the terrestrial space and eventually gain the upper hand everywhere.

The shipping container ecosystem present in practically every country world-wide that took off more than 6 decades ago includes elements of the newly invented ‘sharing economy’ an economic system in which assets or services are shared between different parties.

Point in case is that all owners, large and small alike, keep their container assets in privately owned container depots where containers are cleaned, inspected, stored repaired, serviced and tested in the case of iso tank containers.

Now compare that with custom built transport equipment. Here each owner requires their own set up, terminal or yard to accommodate the same range of services, even though I admit that this may be alleviated to some extent by customary public and road site parking places.

Finally for custom built transport equipment owners/operators there will be a need for land, workshops, cleaning bays and each will need their own workers. Therefore the custom built transport equipment variety will be at a big cost disadvantage vis-à-vis shipping containers with their shared economic benefits.

The other factor worth examining is utilization. My accountant ever lectured me on the importance of the asset-sales ratio. And the man was right,  it is something to keep your eyes on.

What might impair or disadvantage utilization of custom built vehicles? That would probably be that custom built design is mostly integrated. For example a box truck has the truck, undercarriage and van integrated into one.

Now take a look at modular good transport comprising a 1.tractor/prime mover, 2. trailer and finally 3. 20ft iso dry van container. Here where utilization is concerned 1, 2 and 3 are far more flexible and versatile as each of these can be utilized independently from the other. Herein lies a great benefit for the equipment’s individual utilization and better asset sales ratio. The tractor can off load the dry van and collect another dry van and go pick up another load.

The same comparison can be made between a tank- truck and a tractor, trailer and an Iso tank container with the benefits tilting into an advantage for the iso tank container.

Finally there will always be scope both categories to co-exist, yet it would seem that the economic fundamentals of modular designed transport equipment are and will remain the most compelling.