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Published: October 2017      

Reefer box builders regain momentum

The current outlook for reefer manufacturing is increasingly upbeat, after more than a year of uncertainty and weak demand.

Reefer output fell sharply in 2016, to just 160,000 TEU (or 84,000 units), which contrasted with 2015, when the figure had been 70% higher (at 275,000 TEU, or 140,000 units). However, the past two years’ production is perhaps more meaningful when viewed as a whole, as its combined total equates to a yearly average of around 215,000 TEU. This was close to the annual totals achieved during the preceding three years (2012-14), and thereby implies a relatively stable production rate for the recent era.

Nevertheless, reefer construction was down in 2016, and it has taken much of 2017 to recover again to anywhere near its former level. Industry sources indicate a global reefer delivery of 135,000 TEU (70,000 units) for the nine-month period, running from January-September 2017, although as much as 70% of this entire total was received in Q3.

Early start

It implies an early start this year for the reefer peak season, even if some of the higher production of recent months may have been readdressing an earlier deficit. It almost guarantees an even stronger final quarter output, perhaps lifting the annual figure to well above 200,000 TEU. If attained, this total would again give an annual figure broadly in line with the past average.

Production in 2017 has, to date, comprised around 3,500 x 20ft, 63,000 x 40ft high cube, and at least 2,000 ‘specials’. It compared with 4,000 x 20ft (and other specials) and 40,000 x 40ft high cube built during the same nine-month period in 2016, when the overall production figure was 60% lower.

Throughout 2016, the monthly production rate was generally erratic and rarely went above 15,000 TEU, whereas it has averaged at least 15,000 TEU/ month during the whole of 2017 (so far). The poorest months for reefer production occurred in the opening quarter, with demand showing a steady improvement ever since. The prediction for 2017 as a whole is for the monthly average to be well above 15,000 TEU.

Costs and prices

Reefer pricing – in keeping with the more upbeat outlook for production – has also tended to strengthen, albeit by a relatively small increment. The price of stainless steel has gradually risen in recent months, to around US$2,500 per tonne for the highest grades, although it is still below the longer-term average. However, its cost is up significantly compared to late 2016. The underlying cost of reefer manufacturing has been further affected by the industry-wide switch to waterborne paint, although the changed process has had far less impact than in the dry freight sector. Otherwise, many of the other overheads associated with reefer construction, and particularly the price of machinery, have held largely stable throughout the current year.

At the same time, there remains a significant overcapacity in the reefer manufacturing sector, which has maintained an acute level of competitiveness. The headline price being paid for a delivered 40ft high cube reefer (of average specification, and including machinery) has thus stayed close to US$15,500, with the box manufacturing cost in the US$8,500-9,000 range, depending on build quality. Reefer machinery prices are almost permanently depressed, due to the intense competitive pressures that have long been a feature of the sector.

The world’s reefer box building industry currently operates an annual capacity of close to 400,000 TEU, based on maximum twin-shift operation. (This is also equivalent to a continuous output of almost 200,000 x 40ft units/year). Approximately 200,000 TEU/year is being provided by CIMC’s two factories, both of which date from 2013 or later. Singamas Holdings still offers a single plant, rated to an unchanged 60,000 TEU per year – and which also started production in 2013.

The main Maersk Container Industry (MCI) site in Qingdao operates at 80,000 TEU/ year, plus there is a potential for 40,000 TEU from MCI San Antonio (Chile). Yet another (very) new participant is Guangdong FUWA Equipment Manufacturing Co, which commenced reefer manufacturing last year, and offers around 10,000 TEU/year. Meanwhile, Singamas is continuing to construct its new reefer factory in Qingdao, although the site may yet concentrate on more specialised manufacturing – and thereby operate in direct competition to CIMC’s already established reefer specials line at Qingdao.

Single shift

The production rate in 2017 has thus, so far, equated to an average single-shift operation across all plants, which is below the optimum required for the reefer building sector as a whole. CIMC factories, based in Qingdao and Taicang, had built around 65,000 TEU in the nine months to end-September 2017, with over half of this total constructed in the third quarter. Around 55% came from the larger Qingdao site, leaving 45% for Taicang.

By comparison, the two factories had collectively supplied nearer 40,000 TEU throughout the same nine-month period in 2016, while they barely managed to top 80,000 TEU for the year as a whole. The Singamas plant in Qidong produced just 3,000 TEU from January-September 2017, compared with 14,000 TEU for the same period in the preceding year. Its total output amounted to 18,500 TEU for 2016, with the corresponding figure certain to be much lower in 2017.

Output from MCI, meanwhile, has gone the other way, rising to 62,000 TEU between January and September 2017. This compared with around 35,000 TEU delivered during the same nine months in 2016 (and less than 60,000 TEU for the year as a whole). MCI’s two factories have actually come close this year to matching production from CIMC, which is a record for the Danish group. Although the dominant share of MCI production is still being met by Qingdao, its two-year-old Chilean venture is fast making a name for itself, and is likely to account for more than a fifth of the group’s output total in 2017.

MCI has been strongly supported by its affiliate, Maersk Line, as part of a wider strategy announced by the AP Møller- Maersk Group. Maersk Line is on course to take an unprecedentedly large number of reefer boxes during 2017. The line had already received close on 40,000 x 40ft high cubes through January- September 2017, much of which has come from MCI – and this goes some way to explain the latter’s robust performance this year. The other supplier to have gained from this single company bonanza is CIMC.

Big blue’s wake

Although reefer demand has been boosted in 2017 by stronger trade growth, Maersk Line’s heightened activity has proven something of a distorting factor. As a consequence of its dominant investment, most other lines have stayed away from reefer purchasing in 2017, with only a few venturing into the fray in more recent months. Similarly, the leasing sector has cut back drastically on its reefer procurement, reversing a run of more than five years when lessors dominated reefer purchasing.

Over 2016, the container lessors accounted for two thirds of reefer output. That share had dwindled to less than 20% for the first nine months of 2017. Around a quarter share was acquired by shipping lines other than Maersk, with Maersk itself responsible for a massive 55%. By further comparison, Maersk’s reefer intake in 2016 was barely 15% of the global total, leaving around 20% for other shipping companies.

The only shipping lines (other than Maersk) to have bought reefers in any significant number during 2017 are CMA CGM, Evergreen Line, Antong Shipping, Sinochem (on behalf of SITC Lines) Hapag-Lloyd, and a small order from AEL. Moreover, as highlighted, many have only committed during the third quarter. Included amongst the few lessors to have purchased reefers in 2017 are SeaCube Leasing, Seaco Global and TIL, which had collectively acquired little more than 25,000 TEU during the first nine months. More than half of the total has gone to SeaCube....

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This complete item is approximately 1000 words in length, and appeared in the October 2017 issue of WorldCargo News, on page 30.

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