With container supply and demand out of whack, trans-Pacific shippers may face spot shortages of boxes during this year’s peak season for U.S. imports. That could mean supply chain glitches and higher costs, especially if volume surges.
“On balance, box availability this year will be better than last year, but in the peak — which will be more ‘peaky’ because of things not moving early in the year — we will probably see a squeeze,” said Ron Widdows, chief executive at Neptune Orient Lines, parent of APL.
Shortages plagued shippers early last year when rebounding cargo demand collided with declining container supply. Global volume of containerized shipments rose about 10 percent last year, while the global container fleet shrank some 5 to 7 percent between October 2008 and February 2010.
Container production plunged to 400,000 20-foot equivalent units in 2009 as orders plummeted and Chinese manufacturers shuttered factories. Output recovered to about 2.4 million TEUs last year and is expected this year to be about 3.5 million TEUs, roughly in line with pre-recession levels.
But if global shipments increase by nearly 10 percent again, as many analysts predict, demand for boxes will outpace supply. That’s likely to mean tight supplies for shippers and higher costs for carriers — but continued profits for container-leasing companies.
Tight supply has pushed container lessors’ fleet utilization rates close to 100 percent and given them pricing power that’s enabling them to negotiate higher rates on carriers’ expiring leases. Rising box prices, meanwhile, have boosted the value of lessors’ container assets.
“We expect utilization to remain in the high 90 percent range and the resale market for used containers to remain strong during 2011,” said John Maccarone, CEO at Textainer Group. Textainer’s 2009 net profit soared 51 percent to $123.5 million on a 24.2 percent rise in revenue, to $235.8 million.
Lessors’ profitability has attracted investors’ attention. Warburg Pincus and Vestar Capital Partners agreed in February to acquire control of Triton Container International from Chicago’s Pritzker Family for what was reported to be about $1 billion. General Electric and SeaCo have put their container-leasing unit, GE SeaCo, up for sale in an effort to capitalize on the hot market for container leasing.
Container shipping’s roller-coaster ride during the last three years has created at least a temporary change in the ratio of carriers’ owned and leased containers.
Purchases of new containers traditionally have been divided roughly 60-40 between ocean carriers and leasing companies. During the last couple of years, those percentages have been reversed, with carriers relying more heavily on leased containers.
Despite a return to profitability last year, carriers still are repairing balance sheets battered by an estimated $15 billion in losses in 2009. They also face financing constraints as shipping banks remain cautious about lending. Even carriers with access to capital are opting to lease instead of buy containers, at least until economic conditions stabilize.
Carriers’ ardor for purchasing containers also has been dampened by higher costs. Strong demand and the rising price of steel have pushed the price for a new 40-foot marine container to about $2,900 from $2,000 at the start of 2010.
The impact of higher prices hasn’t been fully reflected in rates carriers pay to lease containers. In recent years, carriers have gravitated to long-term leases that typically run five to eight years. Many boxes still are priced at lower per-diem rates under those old contracts.
Carriers are stretching out the old lease rate by taking their time in returning boxes to lessors. After a long-term contract expires, carriers typically have six to 12 months to return containers at the old per-diem state. With lease rates rising, carriers are in no hurry to return boxes early.
Lessors say ship lines also are stretching the lives of their boxes by repairing them instead of replacing them at today’s prices. “The few containers that are being returned now are very old containers that go almost immediately into the secondhand market,” Maccarone said.
TAL Intermodal, the world’s fourth-largest container lessor, said its average age for disposal of containers for secondary uses or scrapping has risen to about 16 years from the 14 years that had been common. “Even with that, the capacity is going to be very tight,” CEO Brian Sondey said. “Containers still remain short, and the question is, just how bad does the shortage get?”
The answer will depend on growth in shipping volume. “If growth is at the high end of the 5 to 10 percent estimate, likely we will see a fairly tough shortage in the second quarter and early third quarter,” Sondey said. But if trade growth is sluggish, carriers will be more inclined to lease instead of buy containers.
Either way, 2011 looks like another profitable year for container lessors. “I think it’s going to be a pretty attractive market for us,” Sondey said.
He said he expects carriers’ ratio of owned vs. leased containers eventually will return to traditional levels. But for now, he said, lessors’ profitability and steady revenue puts them in strong position to finance additional purchases.
Last year, TAL spent $880 million to acquire more than 300,000 TEUs of dry containers and 25,000 TEUs of refrigerated boxes. The company is committed to spending another $300 million this year on 100,000 TEUs, nearly all already committed to long-term leases.
Textainer acquired 214,000 TEUs last year at a cost of $503.7 million, and purchased 40,000 TEUs of containers that the leasing company had previously managed. Maccarone said profits are higher from containers the company owns than from those it manages.
Contact Joseph Bonney at email@example.com.