Fast-growing container leasing company is increasing market share, untroubled so far by the prospect of a tariff war dampening global trade.
CAI International, Inc. reported a strong set of numbers for Q2 2018. Its lease revenue (which includes its container and rail car businesses) was up 23% on “strong container demand and improved rail fundamentals”, and its net income attributable to CAI common stockholders for Q2 2018 was $19.1M million, compared to $12.6M million in Q2 2017.
Specifically in the container sector in Q2 2018, CAI leased out $208M of new container equipment and booked lease commitments for an additional $290M for delivery in the third quarter of 2018. Average utilisation of the container fleet was 99.3% for the quarter.
CAI poured US$630M into new container equipment in the first half of 2018, the “vast majority of which is on lease or committed to be leased,” it stated. Commenting on the company’s Q2 performance, President and CEO Victor Garcia and CFO Timothy Page stressed that CAI is not cutting lease rates to boost market share, which is a familiar tactic in the box leasing market. Garcia said lease rates on new hires were at an ROE in the 15% range, which he described as around the long term average and a “pretty healthy return particularly when you’re talking about long-dated leases”. Page added that CAI was increasing market share as its customers (shipping lines) “welcome a greater participation in their business”.
Commenting on the prospect of tariffs dampening international trade and the demand for container leasing, Garcia, said the company had seen no immediate impact in trading, or in bookings for the remainder of the year, and could in fact benefit if production of some goods does move away from China.
“Some level of export-oriented manufacturing would likely move to other countries, not affected by the tariffs, such as countries in Southeast Asia,” said Garcia. These changes in supply chain are a positive for CAI, as our customers will need more equipment to adjust for the supply chain inefficiencies created by sourcing changes.
“We believe that CAI remains well positioned to operate during this time of uncertainty with 91% of our on-lease and committed owned container fleet being on long-term leases with an average remaining lease term of 56 months. In addition, we have worked with our customers over the past several years to improve redelivery terms, ensuring that equipment is returned to high-demand locations, which will provide us with better opportunities to release the units,” Garcia said.
The CAI President and CEO also noted that carriers focus on running their networks as efficiently as possible, and when they move vessels from one market into another typically need to take on extra equipment, which could create new opportunities for CAI.