Drewry: Container Equipment Market Outlook
1. How much is the Covid-19 vaccination process contributing to the improvement in the bottleneck to release the containers for use?
Ans: It is too early to say and it will take a long time for the whole world to be vaccinated. It will though be the speed with which vaccinations are rolled out in principal trading areas, such as Europe, the US and Asia, which will have the greatest impact. Significant reductions in the incidences of staff illness and self-isolation will help free up supply chains and the containers moving within them. Drewry expects container availability to improve after Chinese New Year but to remain persistent through to 2Q21.
2. Could other ports alleviate pressure on the Southern Californian ports and what impact would that have on container recycling?
Ans: CMA CGM has started a new first inbound call at Oakland on a transpacific service and this could be followed by other lines. But other parts of supply chains also need to be adjusted (i.e. rail services) for this to work. East Coast ports possibly offer better opportunities and they’ve invested heavily so that neo-panamax ships can be handled efficiently.
3. Why is there such a reduction in replacement forecast for 2021?
Ans: The container equipment market will remain tight and owners will keep inventory in their pools for longer. An increasing number of ocean carriers are moving to 17-20-year disposal programmes.
4. Do you expect carriers to increase direct ownership of their container equipment fleets rather than relying on lessors?
Ans: There will always be room in the market for lessors as they allow carriers to deal with peaks and troughs in the market effectively. Ocean carriers will order and own more containers if their financial position allows them to do this as in the long run direct ownership is cheaper. Over the short term we expect lessors to further increase their share of the overall fleet but for this to recede as improving profitability encourages carriers to purchase more of their own equipment.
5. What is the average lead-time from container production to container in use?
Ans: It would normally be 6-8 weeks, but given demand levels it’s extended considerably and China’s factories are full until late May/early June 2021.
6. Do you know the current average age of retirement of dry van equipment these days? Do you anticipate the sky-high freight rates easing any time soon?
Ans: It is in the 13/14-year age range. Freight rates are expected to stabilise during 2Q21.
7. How much of the container availability pain has been driven by carriers blanking sailings in order to protect their own profitability?
Ans: Carriers have managed their capacity very effectively this year and the three alliances have worked well in this regard. This has not been carried out for pure profit reasons and the surge in traffic in the second half of the year did take all in the industry by surprise. The regulators are increasingly looking at carrier practices, but it’s not just the higher rates, but the fact that containers are in some cases not being made available to shippers on return legs, the rolling of cargo and the unreliability of services.
8. What is the outlook for newbuild container equipment prices?
Ans: Newbuild prices are expected to moderate but will not return to the low levels seen from mid-2018 to early 2020. For most of 2021, prices are likely to remain at similar levels to today but to decline gradually thereafter.
9. Does a new container demand a higher lease rate and if so why? Have container leasing rates increased too?
Ans: In general yes, but it does hinge on the price of the new container. It’s not about the age of the container necessarily but its condition and how well it is maintained. A 20-year old container can offer the same protection as a new container if it has been well looked after. Yes, lease rates have risen sharply, but have not kept pace with newbuild prices and initial cash returns have fallen.
10. Is the equipment fleet growth trend the same for reefer containers and other container types? Are the reasons for any reefer container shortages the same as for general cargo?
Ans: The reefer market is resilient as more perishable products are containerised and the general trade in fresh fruit, vegetables, proteins and pharmaceutical products expands at a faster pace than general/dry freight cargo. Reefer container shortages tend to be seasonal in nature and positioning of the equipment is critical in dealing with this.
11. For reefers, how much portion is yearly replacement and do you see this increasing in upcoming years?
Ans: Of total production, Drewry estimates that replacement needs will account for between 40% and 70% over the next few years. In 2021 we expect output to be impacted by retooling paint shops in several factories. Reefer output will hit record levels in the years up to 2024.
12. What is the % of the new reefer containers ordered?
Ans: In 2020, newbuild reefer container deliveries accounted for around 10% of the pool in service. This is not expected to change significantly over the next five years.
13. Can you tell a bit more about the tank container outlook as well? Do you see similar trends here?
Ans: The tank container market did not decline as much as expected in 2020 due to increases in movement of sanitisers, cleansing products and resilience of food product/beverage sectors. This partly compensated for reduction in shipments of chemicals for plastics, automotive and electronic industries. Overall, Drewry thinks the tank container market will grow and expects the fleet growth (including swap tanks) to outpace that of dry and reefer equipment over the next few years. More information on these forecasts can be found in Drewry’s Container Census & Leasing Annual Review & Forecast report.