SHIPPING
Container leasing surge shows global economy accelerating
The global trade rebound is pushing shipping lines to rely more on
leasing companies such as CAI International Inc. and TAL International
Group Inc. for the containers used to transport everything from bananas
to blouses.
“We’re seeing perfect conditions,” Brian Sondey, president and chief
executive officer of Purchase, New York- based TAL, said in an
interview.
“Relatively strong growth in trade creates a good level of need for
containers, supply is very tight and shipping lines aren’t purchasing as
many containers as in the past.”
|
A container
yard |
Shipping lines that competed for containers in 2010 may face an even
bigger shortage this year. Demand for steel cargo boxes may increase as
much as 11 percent and manufacturers are limiting production.
Sea carriers, including A.P. Moeller-Maersk A/S, operator of the
world’s largest container line, are also sailing at slower speeds to
save on fuel costs and are directing more capital to new vessels.
Even with enough containers currently in use to circle the earth 4.3
times, the shortfall has pushed new container prices to a record,
allowing lessors to raise rates.
The Bloomberg U.S. Container Leasing Index, which includes Textainer
Group Holdings Ltd., TAL, CAI and SeaCube Container Leasing Ltd., has
surged about 121 percent since the end of 2009, four times the gain of
the Russell 2000 Index.
‘Shangri-La’ environment
Beginning last year, “there was a rebound in demand, a shortage of
containers, people scrambling everywhere to get the containers, and it
was a Shangri-La type of environment for the leasing companies,” said
Jefferies & Co. Inc. equity analyst Daniel Furtado in San Francisco.
He has a “buy” rating on CAI, based in the same city, forecasting
that shares will rise to $30 in the next 12 months, a gain of 38 percent
after rising 117 percent in 2010.
Shipping lines will purchase about 35 percent of new containers this
year, according to TAL’s Sondey. They have historically purchased about
60 percent of the new supply.
“This is turning out to be a longer-play opportunity because the
shipping companies really haven’t gotten back into any sizeable buying
of containers and so they’re relying on the leasing companies to provide
the containers necessary,” said George Henning, president and chairman
of Pacific Global Investment Management Co. in Glendale, California.
Henning manages the $160 million Pacific Advisors Small Cap Value
Fund, which held about 170,000 shares of TAL at the end of 2010.
Parent-company Pacific Global owns more than 350,000 of TAL shares,
which Henning said was about 5 percent of its portfolio.
Relative to growth
Demand for containers, as measured in 20-foot equivalent units, or
TEUs, typically increases at two to three times the growth rate of
global gross domestic product, according to Helane Becker, an analyst at
Dahlman Rose & Co. LLC in New York.
Becker has a “buy” rating on all four leasing companies. She forecast
container demand growth of as much as 11 percent this year, compared
with 8.8 percent compound annual growth over the last decade.
Global GDP will rise 4.4 percent in 2011, compared with an average
growth rate of 3.6 percent over the past decade, the International
Monetary Fund said in its World Economic Outlook report released April
11.
Merchandise export volume this year is forecast to increase 6.5
percent after a record 14.5 percent surge in 2010, the biggest
back-to-back gains since 1970, according to World Trade Organization
figures.
In Asia, where lessors say they expect emerging markets to propel
trade volumes, economies will expand 6.7 percent this year, the IMF
projects.
Emerging Asia, which includes China, India, Korea, Taiwan, Hong Kong,
and Singapore, among others, is expected to grow by 7.9 percent.
Global fleet
The number of ocean shipping containers in use in the global fleet is
about 18.61 million units, or 28.54 million TEU, according to the World
Shipping Council’s May Container Supply Review. If placed end to end at
the earth’s equator, a circumference of about 131.46 million feet, the
570.8 million feet of steel boxes would stretch around the globe more
than four times.
During the recession, shipping lines came to a ‘near-death
experience’ as trade volumes sunk and left them with unneeded
containers, Dahlman’s Becker said. The companies realized they would
have more flexibility when trade slowed and could spend more on new
ships if they relied more on lessors, she said.
The current price on a new container is about $3,000, according to
the World Shipping Council. Container lessors sign carriers to five-year
to six-year contracts worth about 14 percent of the purchase price,
according to Becker.
Based on that purchase price, a leasing company would earn $420 a
year. Because dry boxes are depreciated to between $950 and $1100, the
first lease covers the cost of the container, Becker wrote in a March 11
research note. A container typically lasts about 14 years and is
afterward sold as scrap.
First year
“If you think about 3.4 million TEUs being produced at $3,000, that’s
$10.2 billion of capital that the shipping companies need to have in one
form or fashion,” said Steve Bishop, SeaCube’s chief financial and
operating officer.
The Maersk Conakry, a new container vessel that’s 817 feet (249
meters) from bow to stern, can carry about 4,500 TEUs, enough containers
to fill a train 17.4 miles (28 kilometers) long, according to the
carrier’s website. At full capacity, leasing every container on board
would generate about $5,180 per day for the lessor at current rates.
While shipping lines still own about 60 percent of the entire
container fleet, their share will diminish as the older boxes they own
are scrapped and they turn to newer containers held by lessors, TAL’s
Sondey said.
Vessel networks
“Our shipping line customers are saving whatever capital they have to
build out their vessel networks, which means they don’t want to allocate
money to containers,” said Sondey, whose renters include Maersk and
Evergreen Marine Corp.
Textainer, TAL, CAI and SeaCube account for about 44 percent of the
leasing market, as measured by the industry standard 20-foot equivalent
units, according to Salvatore Vitale, an analyst at Sterne, Agee & Leach
Inc. in New York, who has “buy” ratings on all four companies.
Also driving up demand is so-called slow-steaming, whereby vessels
sail at reduced speeds to save fuel. Slow-steaming eats into container
supply by about 5 percent to 7 percent as longer trips from Asia to
North America tie up boxes for greater periods of time, John Maccarone,
president and chief executive officer of Textainer, the world’s biggest
lessor of containers based on fleet size, said during an April 27
interview on Bloomberg Television.
Marine fuel, known as bunkers, cost $629.50 a metric ton on May 24 in
Singapore, a key refueling point, according to data compiled by
Bloomberg. That’s 47 percent more than a year ago. (Bloomberg)
|