Executive Briefings

Container Lease Fleet Robust in 2011 and Should Remain So This Year

Drewry Maritime Research's latest Container Leasing Industry report indicates that the rental container fleet grew by 10.6 percent during 2011, improving on the 9 percent returned in 2010 and giving a compounded rate of 9.5 percent for the two years combined. Up to 9.5 percent is also being forecasted for 2012, as lease demand is again holding up well.

However, this robust expansion has been coloured by some uneven patches when fleet growth almost stalled altogether. This occurred in the latter half of 2011 and could yet again happen later in 2012. It has been due mainly to changes in market demand and the operating dynamic of the global container transport industry, which have occurred since the downturn of 2009.

The poorer uptake of 2011, which came after an unprecedented upsurge during 2010, took the lease industry by surprise and quickly turned into an equipment oversupply. This did not come down for several months and was still not wholly redressed by mid-2012. It was triggered by a poorer-than-expected peak season performance in mid-year 2011, plus the successful (if unexpected) adoption of greater operating efficiencies by shipping companies. The latter has maintained the world's container/slot at its former low point of less than 1.85:1.00. This compares with nearer 2:1 averaged prior to 2009, which was also before shipping lines introduced slow steaming (to ostensibly offset a lower container operating efficiency against reduced fuel running costs).

A similarly uneven growth pattern has marked 2012 so far, as lease company investment was to soar again during the opening six months, before stalling again by mid-summer. Again, peak season demand did not play out exactly as predicted - leaving many leasing companies with newbuild surpluses, and further plunging newbuild lease rates. As in 2011, much of the growth predicted of the whole of 2012 will have likely taken place in the opening half.

Nevertheless, the lessors' expansion has continued to outrun that achieved for fleet owned by shipping lines, and resulted in the box lease industry winning back some share in ownership terms during 2010-11. Considerable ground had been lost during the earlier boom years of 2004-08, when shipping companies were in the ascendency and tending to dominate new box investment. The reverse has applied during 2010-11, when leased fleet growth was 50 percent higher as compared with line-owned equipment.

Andrew Foxcroft, author of the Container Leasing Industry report stated, "Leasing companies have also accounted for the majority of all new investment, thereby ending a run of more than six years of shipping line domination. They bought record quantities in TEU, CEU and investment costs term during 2010-11, with this continuing in 2012."
The reason for the lease industry's changed position is due to the continued poor fiscal state of the container shipping industry and its limited access to capital.

"By contrast, the existing mix of publicly-quoted and privately-owned leasing firms, which make up the top ranks, have all along retained good access to competitive financing and continue to attract sizeable inward investment. Indeed, the interest forthcoming from both public and private investors has rarely been stronger."

Investors have been attracted by the continued strong performance of the box lease industry, as its utilisation stayed above 95 percent during 2011 and into 2012.

However, newbuild lease rates have not held up quite so well and continued to erode against new box prices - both in the standard and reefer sectors. New dry freight container prices were to fluctuate markedly during 2011, falling by about 25 percent by the year-end from their earlier peak of almost $3,000 (per CEU), although they subsequently revived by 20 percent again during the opening half of 2012 - to reattain $2,750. By comparison, the average dry freight per diem fell by 30 percent throughout 2011 and has barely recovered at all since.

As a consequence, initial cash investment returns have fallen back from their earlier peak in 2010 to much the same low level as was achieved during 2008-09, when the market declined. The present outlook is not particularly encouraging, with neither rate levels nor cash returns forecast to improve much in the coming year. A key reason is the heightened competitive pressure that continues to exist at the top end of the lease industry, where companies are vying for ever-cheaper financing, greater operating economies and increased market share.

The cash returns attracted by reefer leasing are still higher than for dry freight, but the gap here is continuing to narrow. Reefer rental per diems also came under pressure during 2011 - following a record purchase of more than 130,000 TEUs in 2011 and a huge 22-percent growth in the leased reefer fleet. Although this was fueled largely by the strength of reefer demand, it was also a byproduct of the worsening dry freight sector, which channeled greater funding into reefer purchase, and the existence of a greater spread of established competitors.

Whether this marks the beginning of a new assault on the reefer sector by leasing companies - and break-through gain in their ownership share - has still to be confirmed, but there has been no let up in the lessors' purchase of reefer equipment during 2012. By contrast, the lease industry's investment in other specialised sectors has remained more modest, with its tank fleet still growing at a below-average rate (of 5 percent), while most other specials' fleets are either static or in decline.

"Container Leasing Industry Annual Review and Forecast 2012/13" is published by Drewry Maritime Research and is priced at £1295.

Source: Drewry Maritime Research

 

However, this robust expansion has been coloured by some uneven patches when fleet growth almost stalled altogether. This occurred in the latter half of 2011 and could yet again happen later in 2012. It has been due mainly to changes in market demand and the operating dynamic of the global container transport industry, which have occurred since the downturn of 2009.

The poorer uptake of 2011, which came after an unprecedented upsurge during 2010, took the lease industry by surprise and quickly turned into an equipment oversupply. This did not come down for several months and was still not wholly redressed by mid-2012. It was triggered by a poorer-than-expected peak season performance in mid-year 2011, plus the successful (if unexpected) adoption of greater operating efficiencies by shipping companies. The latter has maintained the world's container/slot at its former low point of less than 1.85:1.00. This compares with nearer 2:1 averaged prior to 2009, which was also before shipping lines introduced slow steaming (to ostensibly offset a lower container operating efficiency against reduced fuel running costs).

A similarly uneven growth pattern has marked 2012 so far, as lease company investment was to soar again during the opening six months, before stalling again by mid-summer. Again, peak season demand did not play out exactly as predicted - leaving many leasing companies with newbuild surpluses, and further plunging newbuild lease rates. As in 2011, much of the growth predicted of the whole of 2012 will have likely taken place in the opening half.

Nevertheless, the lessors' expansion has continued to outrun that achieved for fleet owned by shipping lines, and resulted in the box lease industry winning back some share in ownership terms during 2010-11. Considerable ground had been lost during the earlier boom years of 2004-08, when shipping companies were in the ascendency and tending to dominate new box investment. The reverse has applied during 2010-11, when leased fleet growth was 50 percent higher as compared with line-owned equipment.

Andrew Foxcroft, author of the Container Leasing Industry report stated, "Leasing companies have also accounted for the majority of all new investment, thereby ending a run of more than six years of shipping line domination. They bought record quantities in TEU, CEU and investment costs term during 2010-11, with this continuing in 2012."
The reason for the lease industry's changed position is due to the continued poor fiscal state of the container shipping industry and its limited access to capital.

"By contrast, the existing mix of publicly-quoted and privately-owned leasing firms, which make up the top ranks, have all along retained good access to competitive financing and continue to attract sizeable inward investment. Indeed, the interest forthcoming from both public and private investors has rarely been stronger."

Investors have been attracted by the continued strong performance of the box lease industry, as its utilisation stayed above 95 percent during 2011 and into 2012.

However, newbuild lease rates have not held up quite so well and continued to erode against new box prices - both in the standard and reefer sectors. New dry freight container prices were to fluctuate markedly during 2011, falling by about 25 percent by the year-end from their earlier peak of almost $3,000 (per CEU), although they subsequently revived by 20 percent again during the opening half of 2012 - to reattain $2,750. By comparison, the average dry freight per diem fell by 30 percent throughout 2011 and has barely recovered at all since.

As a consequence, initial cash investment returns have fallen back from their earlier peak in 2010 to much the same low level as was achieved during 2008-09, when the market declined. The present outlook is not particularly encouraging, with neither rate levels nor cash returns forecast to improve much in the coming year. A key reason is the heightened competitive pressure that continues to exist at the top end of the lease industry, where companies are vying for ever-cheaper financing, greater operating economies and increased market share.

The cash returns attracted by reefer leasing are still higher than for dry freight, but the gap here is continuing to narrow. Reefer rental per diems also came under pressure during 2011 - following a record purchase of more than 130,000 TEUs in 2011 and a huge 22-percent growth in the leased reefer fleet. Although this was fueled largely by the strength of reefer demand, it was also a byproduct of the worsening dry freight sector, which channeled greater funding into reefer purchase, and the existence of a greater spread of established competitors.

Whether this marks the beginning of a new assault on the reefer sector by leasing companies - and break-through gain in their ownership share - has still to be confirmed, but there has been no let up in the lessors' purchase of reefer equipment during 2012. By contrast, the lease industry's investment in other specialised sectors has remained more modest, with its tank fleet still growing at a below-average rate (of 5 percent), while most other specials' fleets are either static or in decline.

"Container Leasing Industry Annual Review and Forecast 2012/13" is published by Drewry Maritime Research and is priced at £1295.

Source: Drewry Maritime Research