Leasing companies are picking up some of the slack from financially strapped ocean carriers that have cut back their container purchases.
Lessors are expected to buy two-thirds of new containers this year, well above traditional levels of about 45 percent. They also are acquiring boxes from existing fleets through lease-purchase deals.
“We are seeing a shift to the leasing industry being the primary purchasers of marine containers,” said Philip K. Brewer, president and CEO of Textainer, whose 2.6 million 20-foot-equivalent units make it the largest container lessor.
Lessors are enjoying strong demand and rising rates for their boxes as cargo volume continues its slow recovery from the recession and carriers conserve scarce capital. Most carriers’ balance sheets remain weakened from the recession and its aftermath.
Publicly traded container lessors such as TAL International, Textainer, CAI International and SeaCube reported solid second quarter profits. Lessors are benefiting from rising cargo demand, tight equipment supplies, and carriers’ increasing preference — or necessity — to lease instead of buy.
“Given the financial challenges of the shipping lines, most prefer not to tie up their capital in containers,” TAL CEO Brian Sondey told analysts.
Lessors have always played an important role in container supply. Carriers rely on them for surge capacity or operational or financial flexibility. Now carriers are integrating lessors into their annual planning instead of relying on them only for unexpected needs, Sondey said.
Lessors lease containers to carriers under multiyear agreements, typically five to eight years. They also manage third-party fleets for a fee, and provide per-diem leases in which a user pays a premium rate in exchange for freedom to return a box when it’s not needed. Used containers eventually are sold for storage, scrapping or other secondary uses.
Tight supplies have pushed lessors’ utilization rates to about 98 percent and helped them raise lease rates. Orders for new containers, which had averaged more than 3 million TEUs a year, plunged to a reported 450,000 TEUs in 2009 and recovered only modestly in 2010. Orders rose to 2.7 million TEUs in 2011, but are expected to total only 2.3 million this year.
Higher prices for new boxes, meanwhile, are discouraging carriers from buying their own containers. Factory prices for containers are about $2,400 per 40-foot box, down from $2,600 a couple of months ago. Per-container prices peaked at close to $3,000 in early 2011, when Chinese factories were just beginning to catch up with demand.
Prices for used containers are reported to be about $1,500 per 40-footer. That’s down about 20 percent from a year ago but still well above historic levels.
With strong profits and healthy balance sheets, lessors have been aggressively expanding their container fleets. Textainer, TAL, CAI and SeaCube invested a total of more than $2 billion in new equipment during the first half of this year. Most of the newly acquired boxes have been put under long-term leases.
Lessors’ business remains dominated by standard dry-cargo containers, but leasing companies also are expanding their position in refrigerated containers. Responding to global demand for meat and fruit, carriers are designing new ships with increased capacity for reefers — and are turning to lessors for equipment. About 25 percent of Textainer’s capital spending this year has been on refrigerated boxes.
Although carriers have increased their use of leased containers because of their financial problems, lessors keep a careful eye on their customers’ credit risks. Recent increases in freight rates and softening bunker prices have improved carriers’ financial outlooks.
Speaking to analysts after Textainer reported second quarter results, Brewer said recent trends in freight rates and bunker fuel prices have made carriers more optimistic.
“In general, I would describe their attitude today as a mixture of relief that their second quarter performance was dramatically better than their first quarter, and concern that the freight rate increases that have been achieved will continue to be maintained,” he said.