In 2016, the leasing sector again accounted for the majority of maritime reefer production, boosting its share in comparison with 2015, as the shipping industry cut back further on reefer investment. There was a renewed need on the part of most shipping lines to conserve capital, whilst the initiation of several company mergers, at the top end of the hierarchy, has resulted in another bout of fleet consolidation. The lines’ predicament was additionally worsened by the bankruptcy of Hanjin Shipping, which further dented confidence. Shipping lines received just 35% of all reefer production in 2016, leaving 65% for the lines. The split compared with nearer 50:50 taken in 2015 and 60:40 in 2014.

The lessors’ stronger showing in 2016 was accompanied by better rate stability, even if the per diem average did not make any significant gain until the very end of the year. The  earlier, more static situation was attributable to the continued weak price of new reefer equipment, which kept lease rates down at their former low level. Neither prices nor rates were to pick up much before the year-end, when a combination of higher material costs and a slight drop in equipment availability fuelled the first bout of price inflation in several years.

Prices recovering

By early 2017, new reefer pricing was, on average, up by 5-10% on its earlier minimum, and rental per diems were rapidly moving upwards in line. As a result, the 40ft daily average  has already gone above US$4.50 (per initial five-year term) after languishing at US$4 or below for much of the past two years. Even more crucially, the underlying initial cash  investment return, generated from placing new reefer equipment on lease, has finally improved after many years of erosion and decline.

Despite the latest recovery, the global reefer fleet is estimated to have increased by less than 2% in 2016. This represents an all-time minimum (and was even lower than in 2009) and demand remains decidedly weak. Even the more upbeat leasing side achieved a fleet increase of only 7% during 2016, which was down on recent years, and lessors had placed only limited reefer orders as of early 2017. The lessors’ reefer intake in 2016 was also down markedly on recent years. It fell by 30% on the 2015 total, and amounted to a total of 100,000 TEU. However, the global figure declined by a greater 45%, thereby indicating a very substantial drop in shipping line investment (to just 55,000 TEU).

A total of 155,000 TEU (80,000 units) were built globally in 2016, compared with 270,000 TEU (140,000 units) during the previous year. The lease total had amounted to 138,000 TEU  for 2015, with the lines taking 132,000 TEU (more than 2.5 times higher than their delivery in 2016). The year 2014 had proven stronger as well, when lessors received 130,000 TEU, to the lines’ 90,000 TEU. Throughout 2014-15, the rental fleet had been expanded by more than 10% annually, whilst even the global fleet had managed 6-7% per annum.

Nevertheless, reefer manufacture in 2016 was unchanged in compositional terms, as the 40ft high cube maintained its dominance. Less than 10,000 TEU were built as 20ft length, and  the majority went to shipping companies. A further few thousand units (counted separately from the maritime reefer production total) featured a more specialised domestic build, with  just a few hundred of these going to lessors, rather than transport owner-operators.

The leased fleet is, accordingly, becoming ever more focussed on pure 40ft operation, leaving less than 5% as 20ft – equivalent to a static 55,000 units at end-2016. Its entire balance  was 40ft high cube, and amounted to over 600,000 units. The still-dominant share owned by shipping companies featured around 100,000 x 20ft and 650,000 x 40ft (the vast majority  of which were high cube). As rental growth continues to outpace its line-owned counterpart, year-on-year, so are the two respective fleet counts moving ever closer into line.  By end-2016, the lease industry controlled 47.7% of global reefer inventories, which was yet another high point. In simple ‘new-for-old’ investment terms, the rental fleet currently has  an approximate calculated valuation of around US$10B, with line-owned equipment valued around 15% higher.

As indicated, fewer shipping lines were actively buying reefers in 2016, compared to 2015 and earlier years, although their tally was once again headed by Maersk Line. This global  market leader took deliveries from affiliate factories in Denmark and Chile, as well as third-party suppliers, and is reckoned to have received in excess of 14,000 x 40ft high cube  containers during the past year. Its total was way above that achieved by any rival, with the likes of CMA CMG and Hapag-Lloyd trailing some way behind, with deliveries of a few  thousand units apiece. The balance of shipping line production was carried out for smaller firms, including Matson, Eimskip, Sinokor and ACL. In consequence, Maersk alone is likely to  have accounted for as much as 50% of all reefers built for shipping lines in 2016.

By contrast, Maersk acquired an even greater 25,000 x 40ft reefer boxes in 2015, despite accounting for less than 40% of the entire total then destined for shipping companies as a  whole. Its share was lower because a similar quantity (around 50,000 TEU) had also been delivered collectively to four other leading names that year, including CMA CGM, Hapag-Lloyd,  Hamburg Süd and UASC. A further 30,000 TEU went to an additional five majors, plus numerous smaller companies.

Consolidation

Significantly, both Hamburg Süd and UASC were absent from the list in 2016, due to their planned acquisition, respectively, by Hapag-Lloyd and Maersk Line. CMA CGM has,  meanwhile, completed its takeover of APL.

These mergers are removing three sizeable – and longstanding – shipping line names, with Hanjin’s demise adding a fourth. Their disappearance is being accompanied by some internal  reorganisation, with reefer fleets proving a particularly attractive target for consolidation. Many lines are looking to utilise their existing reefer fleets more efficiently, whilst  also cutting back further on replacement purchasing due to the continued low, and thus unattractive, level of used equipment prices.

In consequence, the underlying demand for new reefer equipment was to fall throughout the past year and may yet continue to stay weak, thereby also impacting reefer uptake in 2017. ‘Peak season’ reefer production in December/January was down on its average of recent years, and the outlook remains equally uncertain for the coming months. This is  hardly good news for the reefer box building industry, which has been progressively expanding its capacity in recent years, but was to average less than one-shift operation throughout the whole of 2016. The world’s annual reefer capability is presently calculated at more than 400,000 TEU (equivalent to over 200,000 units), but could again be chasing orders mounting to less than 200,000 TEU during 2017.

Leasing gains

As hinted though, the outlook has been a little more positive for the leasing sector, as it was to gain steadily from the lines’ decreased purchasing activity, and has met an enhanced  share of their overall requirement. It has also benefitted from a slight fall in the global level of reefer inventories, which followed on from the very limited production/fleet growth of 2016 and the aftermath of the Hanjin ‘recovery’ exercise, which has since seen much of the line’s former equipment resold or otherwise absorbed. Leasing firms are also less deterred than shipping companies from buying reefers in a climate of higher prices, such as that occurring since late in 2016. Indeed, Maersk Line is the only shipping company of any size to  have placed any significant reefer business so far in 2017.

Moreover, the leasing industry has experienced its own round of mergers and consolidation during 2015-16, resulting in the loss of three major names. In 2016, the respective mergers of TAL International/Triton Container (to form Triton International Ltd – TIL) and Dong Fang Leasing (DFL)/Florens (creating an enlarged Florens brand) were both concluded successfully, and they followed the earlier takeover of Cronos Group by Seaco Global in 2015. These transactions have left just seven companies participating in volume  reefer leasing, which is a smaller number than at any time in the past decade, and a clear indication of the leasing industry’s latest efficiency drive.

Both Seaco and TIL have already reported that sizeable synergies are being achieved, as a consequence of their expansion, thereby driving down the all-important average daily  operating cost of each container TEU within their fleet. This, in turn, is helping to maintain a competitive advantage over smaller rivals, with the reefer sector gaining, to much the  same extent as its larger dry freight counterpart.

They have also created two mega-sized reefer fleets, respectively controlled by the enlarged Seaco and Triton entities, each of which far outpaces anything seen previously. The  TAL/Triton combination has resulted in a reefer holding of 415,000 TEU (215,000 units), whereas Seaco’s earlier acquisition has since gained it a fleet of 340,000 TEU (175,000+ units). Their combined count makes up 60% of the lessors’ overall total (nearly 30% of the global figure), and was further augmented during 2016 by a substantial level of newbuild  purchasing.

Seaco took delivery of an additional 35,000 TEU during the past year (mostly 40ft high cube), which was only slightly down on the record 37,000 TEU it received during 2015. TIL  acquired 18,000 TEU as newbuild in 2016, almost half of which from purchases committed to earlier by TAL and Triton. Again, virtually all comprised 40ft high cube. The two companies  had separately bought an aggregate total of 30,000+ TEU during 2015 – in the run up to their decision to merge. Around 60% of the enlarged TIL reefer fleet was contributed by Triton, with 40% coming from TAL. The newly combined fleet even managed a net increase of 6% during 2016, as some additional used equipment was acquired as  well.

Ranked some distance behind the two market leaders are SeaCube Leasing and Textainer Group. Respectively, these two controlled 175,000 TEU and 157,500 TEU at year-end, and were thus ranked third and fourth in the present hierarchy. They control around a quarter of the lessors’ total reefer fleet between them. SeaCube experienced some net loss from its fleet during 2016, when the company’s disposal of old equipment outran its rate of new purchasing. It had formerly been the top reefer leasing company for several years in  succession, prior to the rise of Triton and, more latterly, Seaco.

Steady build-up

Textainer, after a decade-long involvement in the reefer lease business, has been steadily building up its fleet. It took delivery of a further 20,000+ TEU during 2016, which boosted its reefer holding by more than 10%. However, the company’s xpansion was greater in 2015, when its purchase of 34,000 TEU ranked alongside that of TAL/Triton combined, and of Seaco. Textainer’s fleet growth topped a third during that year, and represented one of the strongest rates of increase (excepting Seaco, whose fleet doubled due to the Cronos  merger).

Another fast-growing name is Beacon Intermodal Leasing, whose involvement in reefer leasing also extends back around a decade. It managed a net fleet expansion of 45% in 2016,  by adding a record 20,000 TEU to the, albeit still relatively small, count of 45,000 TEU held at end-2015. Beacon ended 2016 with an enhanced 65,000 TEU, ranking it firmly in fifth  place within the reefer lease hierarchy. The company size is now well ahead of its two main rivals, CAI International and Florens, which occupy sixth and seventh places, respectively.

CAI International is yet another lessor with about 10 years’ experience of reefer leasing, but it has pursued a relatively modest rate of fleet expansion in more recent years. Florens is  one of the longer-established names, whereas DFL had an involvement going back less than 10 years. Florens’ incorporation of DFL enlarged its existing reefer fleet by more than 60%,  and this was further augmented by some limited newbuild investment during 2016. However, Florens has been focussed less heavily on reefer expansion in recent years, even though the smaller DFL fleet underwent a sizeable expansion in 2015.

As highlighted, the vast majority of reefer deliveries made to lessors in 2016 were ‘standard’ 40ft high cube, and fewer than 3,000 units comprised 20ft. Nevertheless, 20ft lease  remains a viable business and most firms retain some inventories, even if they are increasingly viewed as being specialised. In more general terms, utilisation has tended to hold up  relatively well across the leased fleet as a whole (20ft and 40ft alike), particularly from later in 2016, as the reefer ‘peak season’ commenced and (decreasingly) few containers were available at depots or at factories for immediate collection. This, as suggested, has helped to firm up lease rates during the new-year period, after more than two years of  weakness, although increases in the production costs of equipment are clearly playing a part as well.

The outlook in 2017 thus remains better than might otherwise be expected for the reefer leasing sector, even if production volumes may take some time to pick up again – and are  unlikely to recover to anything like their former level of a year or two back. 

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This complete item is approximately 2000 words in length, and appeared in the February 2017 issue of WorldCargo News, on page 31. To access this issue download the PDF here.