Shipping container prices tumble on inventory glut
Prices for new and second hand shipping containers as well as lease rates fell in 3Q19 as factory stocks continued to build up and prospects for container shipping cooled.
Container shipping remains challenged by rising geopolitical uncertainty and a slowdown in the global economy. In response Drewry recently cut its forecast for global container port throughput in 2019 from 3% to 2.6%. Add to this the growing number of boxes stockpiled in depots around China, estimated to be over one million TEU, and it’s no surprise that the container manufacturing and leasing sectors posted disappointing results in 3Q19.
Dry box prices fell 5.5% over the quarter while reefer values remained stable. Drewry’s Dry Shipping Container Newbuild Price Index, which tracks values of new 40ft high cube containers, dropped four points in the quarter to a value of 82, representing an annual decline of 20% .
But the reefer price index, based on the prevailing value of new 40ft high cube reefer containers was unchanged at 89, having declined just 3% over the year. However, container resale prices remained broadly stable.
The falling market affected leasing rates which were lower for all container types, both compared with the previous quarter and year-on-year. The fall in per diem rates was most severe in the dry box sector with average LTLs 26% lower year-on-year. Drewry does not think per diem rates for all containers will return to their 2018 or even 2017 levels in 2019.
It meant that lease rates lost some ground against newbuild prices and this could result in lessors ordering fewer boxes in the future. This situation may have already started as lessors reduced their purchases by as much as 60% compared to 2Q19, while transport operators were more active, accounted for 59% of newbuild purchases in the quarter. Over the past year leasing sector acquisitions have fallen 22%. In contrast, transport operators were more active and accounted for 59% of newbuild purchases in the quarter.
For the second quarter in succession transport operators purchased more reefers than lessors with Ocean Network Express and Hapag-Lloyd among those carriers taking delivery of a substantial amount of new equipment. Both lines are expanding their reefer services and needed the additional boxes to satisfy expected demand in 4Q19 and early 2020.
However, over the medium term Drewry still expects lessors to increase their share of the global container pool as shipping lines’ priorities lie elsewhere, notably in upgrading their IT systems and door-to-door service offering.
The decrease in box prices heaped further pressure on container manufacturers, which despite cutting costs, are barely breaking even in the current trading environment. This year has already seen Singamas withdraw from the dry box building business and further rationalisation of capacity cannot be ruled out.
A glut of newbuild dry box containers and falling values forced manufacturers to slash output which fell over 50% in the quarter, although reefer production remained stable. Drewry is now projecting that total shipping container production will end the year having fallen 36% compared to 2018.