Front Cover May - WorldCargo News Online

CONTAINER INDUSTRY
Box funding on the increase
The continuing buoyancy of
the global container shipping
industry has kept demand for
new box equipment strong
and world container output
looks certain to recover further
this year in comparison
to 2002 and 2001. Even though
the final production figure is
unlikely to regain its former
peak of almost 2 mill TEU
achieved in 2000, it might not
fall too far short. Current projections
suggest that up to 1.8
mill TEU will be built as all
types this year, which compares
with around 1.6 mill
TEU delivered in 2002 and just
1.3 mill TEU in 2001.
The year 2003 will, therefore,
be a strong one for container investment
and is already generating
a significant requirement for extra
funding. For, in addition to the expected
increase in output, newbuild
prices are currently rising as well -
a reflection of the continued
strength of demand and recent
jumps in the cost of steel and other
raw materials. Average Chinese exworks
prices are now virtually back
to their previous high point in
2000, when they last topped
US$1,500 per 20ft standard unit.
The cost of more specialised reefers
and tanks is increasing too.
On the up
Upwards of US$3.6 bill is forecast
to be spent on new box equipment
in the current year, which is well
up on 2002 and 2001, but falls short
of the record US$3.86 bill invested
in 2000. Around US$2 bill will
likely be committed to dry freight
boxes in 2003, with over US$1.1
bill due to be spent on reefers.
Despite the fact that the majority
of TEU deliveries planned
for 2003 will go to the leasing sector,
as was the case in 2002, shipping
lines (and other transport operators)
will continue to account
for the largest share of all purchasing
in pure investment terms as a
consequence of their proportionally
greater procurement of reefers,
tanks, domestic containers and
other higher value specials.
Indeed, in response to the
more upbeat state of the shipping
market in 2003, shipping lines
have already shown a much
greater willingness to purchase/
finance equipment for their
owned fleets than was the case last
year. During 2002, many lines
opted to make more use of leased
equipment, some because they
feared a renewed downturn in the
market, while others had other
calls on their capital, primarily to
pay for new vessels ordered when
the market outlook was more propitious.
Most lines were also suffering
a decline in revenue/earnings
at the time, which lessened
their scope for further borrowing.
Strong recovery
The majority of lines have since
witnessed a strong recovery in
their performance and are currently
experiencing real shortfalls
in box equipment.
And if these factors were not
sufficient incentive to attract shipping
lines back into the purchasing
arena, the latest drop in global
interest rates, to their lowest level
in a generation, has provided another
impetus. Furthermore, there
is, as yet, no apparent shortage of
funds available globally for container
purchase, even though some
categories of buyer are clearly better
placed than others.
The major leasing companies,
by virtue of their strong asset bases
and stable balance sheets, are still
able to raise most of the funds they
need by using asset-based
Newbuild container investment by owner and container type
for 2000-2003 (US$ million)
2000 2001 2002 2003*
Leasing companies
Dry freight 1,040 535 1,035 1,085
Integral reefer 330 230 340 365
Tank 105 65 110 120
Other** 50 35 30 30
Total 1,525 865 1,515 1,600
Operators †
Dry freight 1,250 890 720 900
Integral reefer 690 700 755 780
Tank 110 127 85 105
Other** 285 238 180 195
Total 2,335 1,955 1,740 1,980
Global total 3,860 2,820 3,255 3,580
Leaseco share (%) 39.5 30.7 46.5 44.7
Operator share (%) 60.5 69.3 53.5 55.3
Notes: *Projected at second quarter. **Includes palletwide, swap
body and US domestic containers. † Includes all purchases made
by, or financed for, shipping lines and other transport companies.
Source: Leasing company and manufacturing data
securitisation or more conventional
bank borrowing, revolving
credit or note issuance.
Secure future
Securitisation, because it utilises
the borrowers’ equity/assets to
part underwrite the loan, has become
a popular option for the
leasing sector as it can cut financing
costs significantly in comparison
to straight bank debt.
At least six of the largest leasing
names (GE SeaCo, Textainer,
Tr iton, Interpool, Gold and
Florens) have used securitisation
to fund their recent fleet growth,
while it is contributing a big share
of the US$1.5 bill plus being raised
annually by lessors to cover their
new box investment.
Illustrative is Interpool, which
has recently raised another US$50
mill through its long-running
securitisation programme. This
generated finance worth US$500
mill for the lessor in 2002.
Credit lines of comparable
type and size have been tapped by
Textainer and Triton, each of
which is likely invest up to
US$150 mill in new box equipment
this year. GE SeaCo will
similarly finance at least another
US$150 mill of new (mainly specialised)
containers in 2003, which
is close to the sum it invested during
2002. A broadly comparable
outlay is also forecast for Florens,
which also committed to over
US$150 mill of new container
investment in 2002.
At the same time, Capital Lease
has secured up to US$150 mill from
its investor partners in Germany, for
expenditure in 2003, while Cronos,
acting through its new joint financing
venture with Fortis Bank, has
raised over US$70 mill. Sizeable
internal funding (worth well over
US$100 mill) has, meanwhile, been
raised by Transamerica Leasing,
while additional new funds have
been secured by Gold Container,
via its parent Touax Group, and by
Unit Equipment Services (UES)
backed by investors in Germany/
Switzerland. The notable exception
is Gateway, which is still concluding
its longstanding financial restructure
and has yet to confirm any
investment for this year.
Pulling back
Nevertheless, despite the buoyant
market and the apparent abundance
of available finance, some
major banks are known to have
pulled back from supporting the
container sector. This has certainly
restricted the access of some shipping
lines to new funding, as the
latter are generally less able to exploit
other financing vehicles, such
as securitisation, due to their more
complex structure and operations.
This, on the other hand, has
created further opportunities for
the more specialised end of the
The demand for all types of
finance lease was naturally down
slightly in 2002, as compared to
earlier years when shipping lines
were investing more aggressively,
but still accounted for a relatively
big outlay. Much of US$1.75 bill
of new boxes purchased in 2002
by transport operators for their
own fleets was acquired through
finance leasing and per diem rates
are generally reported to have held
up more strongly than in the operating
term lease sector. Moreocontainer
financing sector and
particularly the providers of highly
tailored packages, which are less
daunted by cyclical swings in demand
and continue to offer a wide
(and growing) range of finance
lease options. The latter range from
the most straightforward type of
lease-purchase, featuring a standard
write-down of the debt over
8-10 years, to more sophisticated
structured financing deals containing
various early-break options.
As with the operating lease
business, the number of participants
offering finance lease remains relatively
select and unchanging.
Amongst the best-known firms to
focus on this sector are Unitas,
Container Leasing A/S, ING Lease,
HVB Leasing (formerly Bank Austria
Creditanstalt) and Nordea
Finans Danmark (formerly
Unileasing), though the latter is understood
to have written a decreasing
amount of container business
during the past two years. Finance
leases are also available from the
majority of operating container lessors,
with Interpool and Transamerica
Leasing (TAL) amongst the
most active in this area.
More to come
Despite the departure of GE Capital
Container Finance from the
box finance sector, the above firms
have since been joined by newcomers,
UES and Grand View Development
(HK) Ltd, both of
which are committing heavily to
finance lease in addition to building
up sizeable operating fleets.
WorldCargo
news
ver, demand will be even greater
this year, when operators are expected
to fund almost US$2 bill
of new box purchases.
Container Leasing of Denmark,
with its long track record,
remains very committed to the
finance-lease sector. It is continuing
to focus on the niche end of
the market, putting together
highly tailored deals covering container
(and vessel) purchases, typically
in the US$25-50 mill range.
Spokesman, Ernst Neilsen, confirmed
that the demand for finance
leasing from shipping lines
is increasing again and will be
greater this year than in 2002.
Unitas is similarly active, despite
conceding that the market
has been tough of late. The company,
which controls a current
equipment portfolio of around
200,000 TEU, financed to the tune
of US$350 mill, has recently recruited
Jonathan Harrison formerly
with GE Capital Container
Finance) as its new CEO and is
looking to build stronger partnerships
with its existing client base.
However, Harrison is mindful
of the way the container business
has been scaling up in recent years,
and stated bluntly that “even an injection
of US$1 bill does not go
far today.” In short, any firm specialising
in container financing has
increasingly to aim high. ❏
May 2003 51