Weak carrier financials brought the container leasing sector another year of stellar growth in 2013, a trend that is expected to continue, according to Drewry’s recently published “Container Leasing” report.
The leased container fleet expanded 7.3 percent in 2013, outpacing the 2 percent growth of the fleet owned by transport operators, most of whom are shipping lines.
This brought lessors’ share of global inventories to an eight-year high of 46 percent, which marked a 6 percentage point gain on 2009, said Drewry.
“The leasing sector’s fleet growth has outpaced that of owner operators for each of the four years since the worldwide recession of 2009,” said Andrew Foxcroft, author of the report. “This is because the changed financial climate has left the container shipping industry heavily in debt and unable to easily access capital for investment. Carriers have been forced to turn to the leasing sector to renew their container equipment fleets.”
This contrasts with the preceding five years (2004-08) when operators’ fleet growth fast outpaced that of the lessors.
While most of last year’s acceleration in the leased fleet was achieved through investment in new container equipment, it was not the only source of growth.
“Purchase of used equipment from cash-strapped shipping lines, by way of sale and lease-back, also helped propel the leasing sector,” added Foxcroft. “This action, together with operators’ more limited investment in new equipment, explains why shipping lines’ more recent rate of fleet growth has been so small.”
Of the various container equipment categories, lessors appear to be gaining most ground with reefers.
However, Drewry also noted how rental cash returns from the lease of new equipment fell to a new low in 2013. “Returns are now lower than they were in 2009,” noted Foxcroft. “The recent rate erosion has been due to the expansionist antics of top leasing firms, most of which are still chasing market share growth in order to maintain investor interest and draw in further capital funding for investment.”
Although Drewry forecasts that growth in the container leasing fleet will continue to outpace that of the owner operator sector, it sees the gap between the two narrowing as transport operators’ finances improve and their commitment to greater direct investment rises.
Supply-demand gap to narrow
Meanwhile, Drewry said that the balance between supply and demand in the headhaul direction of East-West trades should be better managed by carriers next year due to the introduction of bigger alliances and consortia.
Although mega-alliances mainly help carriers reduce operating costs, they also provide an opportunity to better match supply and demand. Drewry said that just four carrier groupings, for example, could control 98.5 percent of all effective vessel capacity from Asia to Europe by the beginning of next year, making it easier to fine-tune vessel capacity.
Better capacity management within larger consortia and alliances will be further encouraged by the need to restore the pace at which operating costs are cut. The introduction of slow streaming is 2009 and 2010 is always going to be a hard act to follow, and has since been only partially replaced by improved economies of scale through the deployment of more ultra-large container vessels and bigger alliances.
But resorting to alliances isn’t without issues, said Drewry.
It is expected that the bigger an alliance or consortium, the smoother the schedule disruption caused by a cancelled sailing, and the more alternative sailings there are to cater for roll-overs, etc. Port calls of other services can also be rationalized to help out.
“But even this is a messy business,” said Drewry. “Most exporters want a steady supply of vessel capacity, and cannot easily adjust production just to meet ocean carriers’ requirements, so may not always wait a week for the next sailing. The problem is that if the next carrier in line has also cancelled a sailing, panic could set in.”
Capacity management between alliances and consortia to avoid this is illegal, but it does not prevent members from looking over each other’s shoulder to see when sailings cancellations are announced, or capacity added through vessel upgrading, in order to avoid duplication.
“It can happen now, and probably is, as ocean carriers have already become better at fine tuning capacity this year, and the process could become even easier in future due to a reduction in the number of players involved,” Drewry continued.
In addition, bigger consortia may not necessarily mean less volatile rates. “In theory, if alliances get better at matching supply and demand, this means that freight rates should become more stable too, “said Drewry. “But carriers’ tendencies to reduce rates to fill ships, and the fragmentation of the market between many competitors, run counter to price stability.”
Photo: cseeman
