Blog June 4, 2015

Asset play: What’s happening in the second-hand container market?

By Nicola Byers

You can’t talk about the resale market for second-hand containers without talking about the leasing market, where rates remain low in spite of strong demand, which Intermodal Eye looked at back in March.

Competition in the container leasing market is fierce and this is what is keeping both container leasing rates and resale prices low.

Shippers prefer newer containers and leasing demand for these boxes has remained high over the past year or so. But the price of new containers is also falling (around $1900 ex-works), tempting carriers to invest in new assets rather than buy second-hand, which is adding to excess capacity in the global fleet.

The pressure is on for operators to offer a young fleet of shiny containers to their customers. Lessor companies are estimated to have acquired 3.0m TEU of new containers during 2014, over half of all containers manufactured last year. This contributed to a 6% net growth of the overall container fleet in 2014, according to research by World Cargo News.

The global fleet needs to shrink if leasing rates and resale prices are to improve, but scrapping used containers isn’t ideal either. In its year-end results for 2014, Cosco Pacific said it scrapped more containers last year than in 2013, but saw a “significant drop” in both the gross profit and the gross profit margin on the disposal of returned containers last year. This was because the average book value of the returned containers had increased year-on-year – containers were being scrapped earlier in their lifespan in 2014 than in previous years and we can expect this trend to develop, particularly if shippers continue to favour nearly-new boxes.

Disposing of used containers may be commercially unattractive for operators of large fleets but as manufacturing continues unabated, scrapping is one of the few options that will take excess boxes out of the market and (hopefully) help kickstart the leasing and resale markets again.