Cheap reefer containers and low interest rates are two of the biggest challenges facing lessors such as Seaco, according to Nigel Webster, its director of refrigerated containers.
Webster, who was speaking about cold chain finance at the first Cool Logistics Asia conference in Hong Kong, said that equipment prices had come down considerably in the last five years, after a 40-year period of relative stability.
“I've been in this business for 26 years,” he said. “I’ve never seen a reefer container cost as little as it does today.”
The interest rate level is another factor affecting the leasing business.
“Equipment rates are at an all-time low, and interest rates are at an all-time low,” said Webster. “So it's not actually surprising that lease rates are also at an all-time low.”
Nonetheless, leasing is still a significant business, particularly with regard to reefer containers.
According to Seaco, there are a total of about 2.5 million reefers in the world, with an approximate value of US$22 billion. Of those, 42.4% are owned by leasing companies. The largest owner overall is Maersk, with 483,000 reefers. Seaco owns 288,500 reefers and is the second-largest.
“The second-biggest shipping line to own reefer containers is Hamburg Süd, but they’re actually only the fifth-biggest owner,” said Webster. “If you look at the second, third and fourth, they’re all leasing companies.”
Despite the lower cost of acquiring reefer containers, leasing them still carries several advantages which have contributed to the industry’s growth in recent years.
The first is that leasing is off the balance sheet and so is an easier option, particularly when there is a lack of capital or it is invested elsewhere. This was the case during and just after the global financial crisis in 2009, when many shipping lines had liquidity constraints because they were already spending money on ships, port infrastructure and bunkers.
“Those three things were on the top of the list for the calls on cash,” said Webster. “So when shipping lines needed to inject reefer containers, which are high-value capital goods, they had to find other ways of financing this equipment. Most of it was done through leasing companies.”
Another factor concerns the transfer of risk. “There have been a lot of technology changes in the reefer sector,” said Webster. “Some shipping lines are a little reluctant to invest in the right container because they think that the technology may change or it may become obsolete, and therefore they’d rather offload that risk to companies like ours, who will lease the reefers to them instead. They can then return them at the end of five years if the technology isn’t right.”
Other reasons to choose leasing include flexibility, parity in standards, availability and cost.
Webster said that even though operating conditions were “tough” right now because of margin erosion and challenges on return, he wasn’t too concerned going forward because there will still be some market growth and utilization remains relatively stable.
“Once you’ve got your market and you’ve got your customers, you can’t just walk away when the going gets tough,” he said. “So that’s not going to happen.”
By Jeffrey Lee
Asia Cargo News | Hong Kong