There are signs that a container shortage may be on the cards once demand rises with a severe decline in the numbers of boxes sold during 2016 and new Chinese paint regulations coming into effect on April 1 expected to further limit supply.
The world’s biggest container maker, China International Marine Containers, reported orders down by almost 50 percent in 2016, with the state-owned company making 587,300 twenty-foot-equivalent units (TEUs) compared with 1.12 million TEUs it produced in 2015. The No. 2 box manufacturer Singamas will release its 2016 figures on March 31 and is expected to report a corresponding drop in box sales.
Combined with the decline in the number of available containers are new China regulations that will require container manufacturers to use water-based paint on their boxes from April 1. Bob Sappio, SeaCube Container Leasing chief operating officer, believes this could cause factories to close for up to three months.
“The waterborne paint regulations in China are causing factories to shut down and reconfigure their production lines in such a way that the drying time is a little longer when applying waterborne paint. When they do reopen, there is a notion that production capacity will be reduced because of the changes in drying time,” he said.
Sappio said there was a confluence of events that would impact the availability of containers: declining ground inventory, changes in production, and the new paint regulations.
“Those events are going to cause some tightness in equipment. We are seeing it now and I think it will be exacerbated in the second part of the year when peak volumes are up. In the past, without regulations like the paint, factories were able to recover quicker, but this year I don’t think factories will be able to recover as they fast as they did in the past.”
The shadow of Hanjin Shipping’s bankruptcy was still looming over the industry, with Andy Chan, chief operating officer of world No. 2 container maker Singamas, saying last month that up to 40 percent of their containers leased to Hanjin were still being held by terminals and depots across the world.
“Some leasing companies put first priority on retrieving their boxes from Hanjin and have postponed new box purchases,” he said, adding that this would leave leasing box inventory at a very low level.
A positive, at least from a container maker or lessor’s perspective, was that the tight capacity was raising the prices of containers that have risen sharply in the past year. CIMC reported a 73 percent plunge in 2016 net profit and a large contributing factor was the selling price of its boxes. Dry container sales revenue fell 50 percent compared with that of 2015.
Sappio said the tight supply of containers was pushing up the prices. “A year ago you could buy a 20 foot for $1,300, but the price now is $2,300 per TEU and that is even before all the waterborne paint regulations have taken force in China,” he said.
“A year ago, a carrier might extend the lease on a container because they were so cheap, but this year we are seeing increasing demand for our depot units. So older units that have been returned, even those as much as eight years old, if they are positioned in the right place, such as Shanghai and Ningbo, there is a strong demand for those units.”
He said leasing companies were seeing their per diems (daily rates) rising. “The momentum has shifted to the positive for leasing companies and we expect that to continue for the rest of the year with strong demand and not as much new capacity and production as there was a year ago.”
While the reefer market is generally more buoyant than that of dry containers, the refrigerated box segment could not insulate itself from the weak trading environment that prevailed for much of 2016. This was starkly illustrated in CIMC’s annual results where it reported that reefer sales were down by 56 percent compared with 2015 to 79,700 TEU.
Sappio said reefers were also heading for a tight supply situation. “Inside the macro trade growth numbers, reefers have historically grown at 4 to 5 percent a year, so with such a small production level in 2016 and with many units reaching the end of their useful life, we feel there could be robust demand for reefer units in the second half of 2017,” he said.
“Depending on location and seasonality, there could be some spot shortages.”