Posted on 07/29/2021 6:18:21 PM PDT by blam
Triton: Cost of newbuild container hits ‘unprecedented’ $3,800 per TEU
When will the container capacity crunch finally ease? For an early indicator, keep an eye on production of the humble 40-foot dry cargo box. If the volume and cost of new containers pull back, supply chain pressures are abating.
Unfortunately for beleaguered cargo shippers, these bellwethers now imply the opposite: that the scramble for container capacity is growing even more intense.
New container prices still rising
On Tuesday, the world’s largest container-equipment leasing company, Triton International (NYSE: TRTN), announced record results and provided the latest intel on box production.
Price per TEU for new dry cargo container. Chart: Triton International 2Q 2021 presentation
The price of a new container, which had stabilized at around $3,500 per twenty-foot equivalent unit (TEU) earlier this year, has risen again and is now at $3,800 per TEU. Prices are “at unprecedented levels,” said John O’Callaghan, Triton’s global head of marketing and operations, during the call with analysts.
The price of a new container at this time two years ago, pre-COVID, was around $1,600 per TEU, less than half the current level.
What’s particularly telling is that the price is rising at the very time Chinese factories are churning out more new boxes than they ever have before.
Record production in China
According to Triton’s estimate, which excludes sales to nonleasing and nonshipping buyers, factories built around 2.6 million TEUs of dry (nonrefrigerated/nontank) containers in H1 2021 — more than the 12-month totals in most years.
It estimated that 2021 production could reach just over 4.5 million TEUs, more than double the annual totals in the prior two years and almost 30% above the record set in 2018. The global container equipment fleet could increase 8% year on year.
Charts: Triton International 2Q 2021 presentation. Sources: Drewry Annual Report and internal sources
Numbers from Drewry on global production of all container types show the same trend. As of May, Drewry reported that 2.66 million TEUs overall had been produced year to date, with factories on track to build at least 5 million TEUs this year. That would bring this year’s tally at least 18% higher than the all-time high in 2018.
As previously reported by American Shipper, virtually all containers are built in China, where construction is dominated by three Chinese entities: CIMC Group, CXIC and Dong Fang. These three builders accounted for eight of out 10 containers built between January and May, according to Drewry.
During a quarterly call in February, Tim Page, interim president and CEO of container-lessor CAI International (NYSE: CAI), asserted, “The factories are behaving differently than they have in the past. They don’t have any interest in increasing production at the expense of price. I think it’s a new dynamic in our industry. And I think it’s going to stick. They’re more focused on maintaining high container prices.”
Five months after that comment, the data confirms that Chinese factories have indeed increased production sharply, yet demand has been so strong that they haven’t had to sacrifice anything on price.
Inventories still very low
Continued low levels of new container inventory confirm the strength of demand.
“What’s being built is being absorbed,” said O’Callaghan. “What’s sitting on the ground is already booked and at most represents two to three weeks of supply. Despite production being at record levels, there is no spike in inventory.”
Yet another sign of the shipping demand strength is the price of older containers sold for nonshipping uses.
Just as virtually all older container ships that can still float are being employed, not scrapped, older containers are being kept in service longer. That leaves fewer to be sold in the secondhand market, which has pushed up disposal (resale) prices for aging 40-foot high-cube containers to 2.5 times levels seen a year ago.
For container-shipping market participants such as investors and cargo shippers, disposal prices are another bellwether to watch. When the global capacity crunch finally eases, many more older boxes will become available for resale and these prices will fall back.
Congestion to persist into 2022?
Strong consumer demand is only one driver of the container shortfall. Port congestion also plays a pivotal role, by tying up equipment.
Triton CEO Brian Sondey said during the call, “If you look at the number of vessels anchored outside of major ports like Los Angeles, it briefly got better during the second quarter but now it has gotten a little bit worse again.
“When speaking with our shipping line customers, I think the general feeling is that these various operational disruptions are not likely to clear soon.
“I’m not sure anyone has a perfect estimate for when we’ll see container flows get back to normal levels of velocity,” Sondey continued. “But what I hear is that it’s not likely this year — that a lot of these disruptions will carry forward into 2022. It’s the high continuing volumes that make it difficult to get the debottlenecking done.”
Container leasing profits soar
Congested supply chains are highly painful to cargo shippers but extremely advantageous to equipment lessors like Triton.
Triton reported adjusted net income of $144.2 million for the second quarter of 2021 compared to $60.1 million in the second quarter of 2020. Adjusted earnings per share of $2.14 topped the consensus estimate for $1.96.
Triton is using the current demand boom to lock in revenues via “very long-duration, high-return leases,” said Sondey. The average lease duration for containers ordered in 2021 is 13 years, far above the historical norm of five to seven years.
“Container leases are so long for two reasons,” he explained. “One is the strength of the market and that we like long-duration leases. It helps us lock in high returns. It’s also driven by the fact that container prices are extraordinarily high. Agreeing to very long-duration leases is a way for the shipping lines to mitigate even higher lease rates [for shorter durations] that we would need to charge right now, given how high container prices are.”
With the Pana-Max vessels coming to the East coast, things are busier than ever.
Build it in the USA, we need less containers.
Except to Export things in.
Either make them with a second market use in mand, or of a material easily recycled.
less=volume
fewer=number
Back in the ‘90s, there was a pile of empty containers near the Port of Elizabeth (NJ) that was probably half a mile long, if not more. Must have been tens of thousands of them. I think they were empties, because they were rusty and piled really high.
all that stimulus money helps fuel the following!
26 July: Hellenic Shipping: How China became the big winner of the COVID era
Eighteen months and 3.9 million deaths later, the pandemic has had the opposite effect. Ships are full and, ironically, the country where the outbreak began has seen the biggest and broadest economic upside.
Chinese exports are now much higher than they were before the outbreak, courtesy of pandemic-induced changes in consumer behavior and COVID-driven fiscal stimulus from the world’s governments.
The only major economy to grow in 2020 was China’s. GDP growth continued in Q1 2021. Business is at an all-time high for Chinese liner operators, shipyards and container-equipment factories.
U.S. demand for Chinese exports is increasingly urgent as sales continue to offset inventory rebuilds...
China’s export value in January-May averaged $247.5 billion per month, up 29% from January-May 2019, pre-COVID, according to the country’s customs data.
As more goods are going out, supporting container-shipping demand, more raw materials and commodities are coming in, employing tankers, bulkers and gas carriers...
When demand for ocean transport surges, so too does demand for shipbuilding, container manufacturing and global liner operations. The U.S. has virtually no presence in these sectors. China is the world leader in the first two and a major force in the third...
China’s dominance is far more extreme in container-equipment manufacturing. Over 96% of all the world’s dry containers and 100% of reefer containers are manufactured in China. Factories produced 2.66 million twenty-foot equivalent units (TEUs) of containers in the first five months of this year, according to data from U.K.-based consultancy Drewry.
“I would be surprised if the 5-million-TEU mark is not exceeded in 2021,” commented John Fossey, Drewry’s head of container equipment and leasing research. The previous record was 4.42 million TEUs in 2018. If 5 million TEUs were produced this year, it would represent a 61% increase compared to last year and a 77% increase versus 2019...
The ships at anchor waiting to unload at California ports highlight the strength of demand for Chinese goods.
The value of America’s goods imports from China averaged $37.7 billion per month in January-April, up 8% from the same period in 2019, pre-COVID...
https://www.hellenicshippingnews.com/how-china-became-the-big-winner-of-the-covid-era/?__cf_chl_jschl_tk__=pmd_b5200c121f30ac34b3e6921df9e233a09eebe4c8-1627610015-0-gqNtZGzNAg2jcnBszQi6
Yep
“Container leases are so long for two reasons,” he explained. “One is the strength of the market and that we like long-duration leases.
They are made 100% of steel. It doesn’t get much more recyclable than that.
Put them on top of unused railroad tracks . Shelter the homeless and make them walk to the next one for food, beer, lodging. The next one could even offer them free drugs. Just make them walk 10-20 miles a day. Good for them. Churches can provide them with counseling along the way. I’d make them listen to Barry Manilow music.
Wondered about those piles myself…maybe processing steel scrap took care of them…same with piles of junked cars…thanks to Nucor?
Could be Nucor, yeah.
I remember looking at that mountain of empty containers and thinking "that's what a trade deficit looks like."
If we're not shipping stuff out, no one's going to pay a ship to run the empties back to China I guess.
That is true. Maybe I should have said “more easily recyclable.”
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