Reporting Textainer’s results for Q4 and FY 2022 Olivier Ghesquiere, President and Chief Executive Officer said 2022 was a “tremendous” year for the company.  For the full year 2022 lease rental income increased 8% to $810 million and adjusted EBITDA rose to $745.5M, as compared to $697.9 million in 2021.

The container leasing market boomed in what Ghesquiere described as a “pivotal period of growth with the container shipping industry” over the last two years. The growth period started to wind down, however, in Q4 2022. Textainer’s fleet utilisation was still at the very high level of 99% at year-end but has come off the extraordinary level of 99.7% seen in Q4 2021.

Over the last two years Textainer has focused on growing its fleet while “improving the quality of our top line,” Ghesquiere said. “In 2022, we added $786 million of new containers assigned to very long-term leases at favourable rates. As a result, the average remaining tenure across our entire lease portfolio reached 6.3 years at the end of the year, with 98% of those leases on fixed rate terms and finance lease contracts.”

There are some dark clouds on the horizon. In container shipping demand and freight rates are falling. In the container manufacturing industry inventory levels have increased to the point where there are around 1.1M TEU of new production waiting to be uplifted.

The current situation would have spelled trouble in previous years when carriers were under financial pressure, but Ghesquiere stressed the liner industry is much more resilient heading into the current period of weaker demand. “Credit risk continues to be minimal as our customers continue to enjoy profitable results and strong balance sheet with low to no debt.”

The current situation is certainly going to be difficult for the container manufacturers, however. New orders “have virtually stopped” and Ghesquiere noted producers have placed several factories in extended shutdowns and raised their asking price to around $2,200 per CEU. However, he sees the situation as temporary, with the growth outlook for 2023 “improving with greater than expected resilience in Europe and North America, easing of inflationary pressure and the anticipated recovery in China now that antivirus restrictions have been lifted.”

Rather than container leasing entering a ‘bust’ after the ‘boom’ part of the cycle, Ghesquiere predicts the industry will achieve a “soft landing” in 2023. Some analysts have pointed to lines having excess container capacity as a problem for the leasing industry, but Ghesquiere said the “actual level may not be as big as what people think”. 

Summarising the situation for Textainer, Ghesquiere said the company is “seeing shipping lines offloading primarily their very old containers, those containers they held on to because they needed them throughout the surge and the cycle. But we are not seeing shipping lines desperate to really downsize their container fleet”. The carriers, Ghesquiere continued, “are keeping a little bit of spare capacity, because they all probably expect that towards the end of the year, we’re going to see a normalisation in demand.” 

At the moment shipping lines are willing to pay the cost of storing some excess container capacity. At the same time as the supply of new containers entering the global fleet has virtually ceased. “I think that’s a very fundamental aspect of our industry that supply and demand tends to adjust very quickly, because the lead times to produce new containers are so short. So, we have no containers being added to the fleet, which I think is very healthy overall. We have shipping lines returning very old containers, which we are then as lessor selling or they’re selling containers themselves. But those returns are not coming back to huge numbers as we can tell from the gain on sales and the pricing that we still enjoy in the secondary market.”

Textainer saw “slightly higher” volumes of redeliveries in October and November, but the level eased off in December and January. While Textainer’s utilisation level and lease rates remain high, its total fleet size is decreasing slightly. This will lower its revenue and profits slightly in 2023, which may affect the company’s stock price. However, Textainer stresses that its business fundamentals are sound: “While we wait for the market demand to turn, possibly with a return of the summer seasonality, we will continue to prioritise our capital allocation towards both strengthening our balance sheet and returning capital to our shareholders through ongoing share repurchase and dividend programs,” Ghesquiere concluded.