Production cost of new container equipment is soaring
The container manufacturing industry is on course to post a staggering loss this year. According to the latest research from Drewry Maritime Advisors, the cost of production is soaring above new box prices.
Drewry’s Container Leasing, Census & Equipment Insight reports that in the fourth quarter last year, a glut of new containers forced down prices to the extent that manufacturers are losing $100-$200 on each one sold.
Problems with container manufacturers might affect container leasing companies
These losses have come even as the price of steel has also declined, and the analyst added that with demand for container transport expected to soften for the remainder of the year, “production cuts might not do much to raise prices”.
Drewry added that this was likely to cause particular problems for container leasing companies, which tend to have their best years when box prices are high and investing in equipment weighs heavily on carriers’ balance sheets – in the aftermath of the recession, container lessors tended to buy the bulk of new equipment, which has left them exposed to the current glut of new units.
Leasing rates start declining
“Maintaining the trend of recent years, the container equipment lease industry has been leading the way in terms of investment in new equipment, and their fleets are starting to look a little bloated,” it said. “With the market increasingly saturated with dry vans, utilisation has started falling and lease rates have begun to decline.
“The prospects for 2019 suggest that things might get worse for leasing companies as Drewry is forecasting a slowdown in port throughput after last year’s 4.7% growth.” This is likely to lead to decline in demand for new equipment from lessors and lead manufacturers to curb production, but the effects are unlikely to be seen until next year.
“Container equipment prices and leasing rates are expected to continue declining this year until stabilising in 2020. While this market weakness is expected to slow production of new equipment, equipment availability will remain sufficient thanks to moderating trade and vessel fleet growth,” it said.