Ocean carriers are increasingly resorting to leasing/chartering to acquire vessels and container equipment, creating opportunities for new financiers to enter the market.
The way that vessels and containers are being ordered indicates that ocean carriers are set to become significantly asset lighter during the next couple of years. According to Drewry’s Container Insight Weekly, just over 64 per cent of all vessel capacity ordered since the middle of 2011 has been placed by tramp vessel operators, and the proportion since the middle of 2012 is an even higher 65 per cent.
This builds on a trend started as way back as 2004, when the proportion of the top 20 carriers’ fleet that was chartered in reached just 48 per cent, and climbed to 53 per cent in 2011, although the more recent position of the top 10 in isolation shows a different picture, with ownership actually increasing between 3Q 11 and 1H 13
If the world’s largest tramp vessel operator, Reederei C P Offen, were to be included in the industry ranking of top 20 carriers, it would already appear in third position, based on data from Drewry’s Annual Container Market review and Forecast.
Most of the other top 20 carriers have been resorting to long-term leasing, as well as short-term charters. For example, CIMC’s recent order for seven 8,800-TEU vessels is understood to be backed by a charter agreement with MSC lasting as long as 17 years, although 5-10 years is more the leasing period norm.
Assuming that not all carriers renew their lease agreements on expiry, this means that there will be a growing pool of large container vessels for hire, opening up opportunities for new market entrants should the right circumstances arise.
How long the ocean carrier trend of increased leasing/chartering will continue is unclear, as it is partly driven by financial necessity. Cash flow remains tight, and leasing just spreads the burden of asset acquisition over a longer period of time. Ownership requires immediate hefty shipyard deposits, and repayment of ship loans typically within eight years. Leasing also makes a company’s balance sheet ratios look better, although this could change due to a proposed alteration of accounting standards in 2017.
For example, according to a broker contact, the MSC deal just referred to must be a strictly financial arrangement as, with newbuild prices for such 8,800-TEU vessels currently being in the region of $85 million, a T/C rate around $30,000/day would normally be required to break even, which is significantly higher than the $25,000/day reported.
The same trend applies to container equipment ownership, where leasing has also been growing in importance. According to Drewry’s latest Container Lease Industry Review 2013, lessors purchased 58 per cent of all newbuild containers last year, as well as acquiring substantial older equipment from ocean carriers through sale and lease back. As shown in the figure below, this enabled them to grow their market share from 42.8 per cent in 2011 to 45 per cent in 2012.
As ocean carriers’ financial results are not expected to improve significantly before 2016, leasing will continue to grow, thereby creating opportunities for new financiers to enter the market. Although still some way away, the pool of large containerships available for charter will grow, with a wide variety of possible consequences
Reprinted with permission from Drewry Maritime Consultants.