In the first eight months of 2023, 1.04M TEU dry freight, including specials such as open-tops and flatracks, were built and just under 156,000 TEU of reefer containers. These numbers were down 63.1% and 22.6%, respectively, on the corresponding period of 2022. The falls were even steeper when compared with output in the same period of 2021, which was a record year for manufacturing activity with 7.13M TEU produced. In contrast output capacity has changed very little since 2021 (see Tables 1 and 2).

The fall in production has mainly occurred because of weakness in the global economy, which has resulted in containerised trade slowing, while rising levels of inflation across the globe have led to both companies and individuals spending less. In addition, the war in Ukraine and other geo-political events, including growing tension between China and various countries in the western world, have weakened investors’ appetite to commit to new projects, in turn also affecting global trade.

Meanwhile, falling freight and lease rates have affected cash flows and the pool of capital available for investment purposes at both ocean carriers and lessors, historically the biggest buyers of  marine freight containers. Higher interest rates have also made financing more expensive, further subduing purchases.

Lessors cut back

Most lessors had already further trimmed their capital budgets on 2022 levels at the start of the year as the sector had become increasingly concerned about overall trading prospects for 2023 and the scale of the over-supply of equipment in the global pool. Since the late summer of 2021 offhires had started to increase as congestion in supply chains also eased and container productivity rates improved. This continued throughout 2022, with trading now back towards pre-COVID-19 levels, but with significantly more containers in service.

Ocean carriers, truckers, rail companies and logistics service providers have also purchased fewer containers this year than in 2022, but at the same time significantly more than lessors. UK-based shipping consultancy Drewry believes lessors’ share of the global container pool (dry freight, reefer, tanks and swap bodies) will slip to 48.8% in 2023, down from below 49.8% in 2022 and 51.1% in 2021 (see Table 3).

The fall in output has had a significant impact on the operations and trading performances of China’s main container manufacturing companies, with Container International Marine Containers (CIMC), Dong Fang International Containers (DFIC) and Singamas – all of which are stock-listed – announcing sharply reduced revenues and profits in H1 2023. In several cases, some factories  have been closed and/or are working on reduced shift patterns since the October holidays of 2022. Prospects for the remainder of this year remain subdued.

CIMC contracts

At CIMC, 263,100 TEU of dry freight containers was produced in the January/end-June period, down just over 61% on the 657,000 TEU manufactured in the corresponding months of 2022. While the output of reefer containers also declined, the fall of 24.7% was much slighter and reflected less trading volatility in this sector of the container shipping market (see p26-29). Just over 51,500 reefer TEU was manufactured by CIMC in H1 2023.

Fiscally, CIMC’s container manufacturing activities posted a turnover of RMB13.67B (US$1.82B) in the first six months of 2023. This compared with RMB22.77B in 2022, a year-on-year decrease of close to 40%. Despite implementing a variety of cost-cutting and efficiency enhancing programmes, profits in the division plummeted by 75% to RMB767.53M.

In a statement accompanying the interim results, CIMC said: “Affected by factors such as the weakening of global economic and trade growth momentum, coupled with the backlog of containers that customers have overbought due to the recovery of supply chain efficiency, demand for containers this year has fallen to its lowest point since the financial crisis. For now, industry inventories are being steadily drawn down, and the demand for containers is on the track of recovery.”

CIMC is confident this turnaround will take place in 2024 and 2025, pointing to the demand for containerised transport as shifting from negative to positive and to  a significant rebound trend (for newbuild containers) developing in the future.

CIMC, though, does need to improve its overall competitiveness and raise productivity levels in its container division. Arguably, this is becoming more important as new container manufacturing plants are opened in other parts of the world, most notably Vietnam where as much as 1M TEU of additional production capacity could come on stream within the next five years.

“CIMC, on the one hand, will deepen its internal optimisation to continuously strengthen its core competitive advantages by upgrading the quality assurance  system, improving intelligent manufacturing, and advancing research, development and wider application of new materials and processes, thus enabling the group to be well-positioned to embrace the rebound of demand for containers,” said the company.

It added: “On the other hand, CIMC Container will actively develop market opportunities in the logistics equipment segments.  To do so, we will explore opportunities in areas such as trucking containers, self-loading and unloading containers, and special railroad containers, and will develop a number of series of products with independent intellectual property rights to address the market demand and pain points of the industry, thus contributing to the continuous growth of the new ‘Container+’ business.”

Reducing exposure

CIMC is certainly keen to diversify and reduce its exposure to the cyclical fluctuations of the container shipping market and it has several plans in place to do this, including:

● Expanding its interest in the highway trailers business – the group is a shareholder (about 57% of the equity) in CIMC Vehicles (Group) Co Ltd, which is a leading manufacturer of semitrailers and an innovator in the development of ‘energy speciality vehicles’, the demand for which is increasing rapidly.
● Expanding its presence in the energy equipment business.

● Further developing the company’s range of equipment for the airport facilities, fire safety and rescue and logistics, including warehouse and distribution centres, sectors.

● Becoming a global logistics service provider – CIMC owns 62.7% of CIMC Wetrans Logistics Technology (Group) Co Ltd, which is actively expanding its multimodal transport solutions.
● Reinforcing its role in the cold supply chain market.

DFIC, which is controlled by China Shipping Development (CSD), itself part of the Cosco  Group, also saw its output of containers decline sharply in the first half of the year. The 185,100 TEU delivered was down 68% on the corresponding period of 2022, with turnover and net profit slipping by 72% and 59% (to US$151.9M).

CSD hopes for a better 2024, with management expecting a level of stability to return to the industry on the back of larger numbers of ageing containers being sold into the secondary market.

In several respects, DFIC is pursuing a strategy similar to that of CIMC, with more investment planned in setting up lines for the  production of special containers, such as energy storage units. But the company also sees some growth in the traditional dry freight specials sector and orders for folding end flatracks have proved firm this year.

Recently, DFIC developed a new container with an innovative folding frame and racking system for carrying cars. This has been  in response to China’s burgeoning car export market. Primarily aimed at trades where export volumes are smaller and the economics of moving the vehicles does not justify the use of pure car carrying ships, there are also trades where car carrying capacity has been in  short supply and manufacturers and specialist logistics  companies have opted to use containers.

DFIC’s car rack containers have been designed with a 48ft length and specifically for use on Cosco Shipping’s multipurpose wood pulp carriers that trade between South America and China. Cars are shipped southbound in the containers, with as many as 1,161 units being loaded on each voyage. Previously, the vessels would have been largely empty on this trip. Northbound, mainly wood  pulp is carried on the vessels, with the car containers folded so that sufficient space is available for the core cargo.

Each car rack can load up to three mid-size SUVs and fully loaded can be stacked up to eight high.

Getting smart

DFIC is also bullish on smart containers. It sees containers as becoming increasingly significant in the provision of fully integrated  supply chains and the use of IoT and associated technologies as being critical in ensuring that information, cargo and capital flow seamlessly and securely.

Last year, DFIC’s factory in Qingdao, along with COSCO Shipping (Tianjin) Co Ltd and Tianjin Keepsens Information  Technology Co Ltd, launched Foresight, a container monitoring and positioning tool. In many respects, the device is similar to those manufactured by companies such as Nexxiot and Orbcomm, in that it allows customers to track a container’s location, detect door openings and closings and monitor internal conditions, such as temperature and humidity.

Implementing further digitalisation and enhanced information exchange programmes would form a “key premise and solid foundation for DFIC in the future”, the company said. “From smart container manufacturing to customised intelligent information service, the launch of our Foresight system reflects DFIC’s unremitting endeavours on building a container safety system and in taking its digital transformation to a new level.”

Singamas shutdowns

Prior to announcing its interim results in August, Hong Kong listed Singamas had already issued a series of profit warnings, citing that the group’s operating performance over the past six months had been significantly impacted by a slowdown in the global economy, easing of global supply chain disruption and the overproduction of containers by the industry in 2021 which resulted in a rise in container inventories.

Singamas stressed that the current demand for containers was extremely weak and the average selling price for those containers was under pressure. At the end of June, the group’s average selling price for a standard dry freight 20ft container was US$2,078, down from US$2,836 at the end of 2022 and more than 37% lower than at the end of June 2022.

Singamas’s audited interim results for H1 2023 were certainly disappointing, with turnover down 60% to US$189.1M and consolidated net profit falling from US$38M in H1 2022 to US$9.8M this year, a fall of 74.3%.

During the first half of the year, Singamas closed some of its factories, mainly as a cost saving exercise, but also using the downtime to carry out maintenance work and some production line upgrade programmes. The group’s output of dry freight and dry freight special containers dropped by 65.5% to 49,000 TEU (142,000 TEU in H1 2022) during the period. 

The company is also putting more resource into producing specialised containers, with chairman Teo Siong Seng highlighting significant growth opportunities in designing and producing  containers to store electricity and support the burgeoning renewable energy industry. The past year has seen Singamas work with several of its existing customers and potential new customers, both in China and elsewhere in the world, to develop new products for this sector.

To further support this side of its business the group is expanding its overseas marketing teams, a move that Teo believes will allow the group “to seize opportunities outside of its traditional markets”. He feels the group’s long-term experience and expertise in the engineering of maritime containers can be put to good use in other industries while stabilising the company’s future prospects.

Maintaining an edge

“While the manufacturing of dry freight containers will continue to be confronted with both global and industry-related challenges,  we firmly believe that our ongoing focus on specialised containers will better insulate us from such challenges,” he said. “We have also been considering opportunities for acquiring companies that align with our present business  model. The primary objectives are to facilitate greater synergies and increase profitability. Ultimately, we are committed to consolidating our businesses so that we will be able to overcome external challenges.”

Teo’s strategy is hugely important given that over 92% of the group’s revenue in H1 2023 was generated by its maritime dry box manufacturing activities. And  there is tangible evidence that the move is working with revenue from the production of specialised containers accounting for just under 49% of turnover in the manufacturing division in H1 2023. In the same period of 2022, the manufacture of specialised containers accounted for only 13% of this segment’s operating revenue.

Last year, a new line for the production of energy storage containers and other green products was opened at the company’s Shanghai Baoshan Pacific Container factory and it is now delivering units to customers in North
America, Europe, China and elsewhere in Asia.

Also important is the company’s investment in new plant and particularly new technology to automate production processes as a means of cutting costs, increasing efficiency levels, raising productivity and cutting emissions at its factories.

In the past 12 months, solar panels have been installed at the Xiamen Pacific Container Manufacturing plant in Xiamen and these now supply between 6%  and 10% of the factory’s electricity needs. In addition, the plant uses an energy storage container system so that electricity can be stored during periods of low consumption and then released when needed.

Global competition

Outside of China, the past year has seen further and significant progress in container manufacturing activity and the development of new factories in India and Vietnam. In August, Vietnam’s Hòa Phát Container Production Joint Stock Company (HPCP JSC) held a ceremony to officially hand over its first newbuild containers. In all, 100 units were delivered to New Way Lines Co, a local shipping company primarily engaged in the nation’s cabotage trade.

Production is scheduled to ramp up in Q4 2023 as the company secures new orders. New Way Lines has already signed a new contract for 500 x 20ft units and international orders are expected soon.

The factory, which is located in the Phu My II Industrial Park in Phu My Town, Vung Tau Province, in southern Vietnam, has a  current capacity to build 200,000 TEU but this will be expanded to 500,000 TEU a year, although no time scale has been provided on when this will take place. Initially, the plant is focused on manufacturing 20ft and 40ft standard dry freight containers, but this could also change in the future.

Sister act

The steel used by HPCP JSC is manufactured by sister company Hòa Phát Dung Quat Steel Integrated Complex which has invested in new technologies and equipment to develop HRC steel, a product that the group says is weather resistant and akin to the Corten steel used by Chinese box builders.

“With our advantage and experience in the field of steel production and our investment in the latest equipment and technology, we are committed to providing international standard container products to meet the needs of the shipping industry,” said Vu Duc Sinh, director of HPCP JSC, at the ceremony.

Clearly, the emergence of competitive box building enterprises in Vietnam and India will have an impact on China-based manufacturers and could lead to some further softening in newbuild prices as production gears up.

Interestingly, both Vietnam and India are seeing some benefits from companies, especially those engaged in the clothing, footwear  and electronics industries, shifting portions of their manufacturing capacity out of China. They are also posting strong growth in their exports which is important as a ready and available supply of cargo keeps box repositioning costs down for buyers of equipment. 

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This complete item is approximately 2580 words in length, and appeared in the September 2023 issue of WorldCargo News, on page 22. To access this issue download the PDF here