Container Leasing

Prof. Ashok Advani

1 Prof. Ashok Advani - Jaipuria Institute of Management, Noida

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Container Leasing - Necessity

3 Prof. Ashok Advani - Jaipuria Institute of Management, Noida

Large No. of Boxes required Difficult for any Carrier to maintain 100 % owned inventory Containers have a high Capital Cost

• USD 2400 - 2500/20’ • USD 4600 - 4700/40’

Average lease rentals USD 1.25/Teu/Day (Current levels) Leasing a specialized biz - mainly concentrated in a few

companies operating from USA, mainly SFO

Container Leasing - Necessity

4 Prof. Ashok Advani - Jaipuria Institute of Management, Noida

Leasing - Captial intensive business Lessors buy containers with financing from Finance Companies,

Banks and other Investment Companies Shipping Lines deploy funds in ship acquisition and working

capital Ratio of Lines owned and Lessor owned fleet is in the range of 55-

60% : 45-40% When the shipping industry is on the upward spiral, freight rates

are higher and Lines have surplus funds, they tend to invest part of that into buying containers but when the 'chips' are down, the tendency is to lease boxes

Container Leasing - Inventory

5 Prof. Ashok Advani - Jaipuria Institute of Management, Noida

Lessors try and keep inventories at major locations of demand

and reposition containers from surplus locations to demand locations

Lessors accepts off-hires at various locations from various Lines

as per predetermined monthly off-hire limits Inventory may be surplus for one line at a particular location and

may be short for another line in the same location Imports / Exports, slots ratio, and various other factors, in spite

of the efficient planning of the Lines can get them into situation of surplus/demand at various locations

Container Leasing - Inventory

6 Prof. Ashok Advani - Jaipuria Institute of Management, Noida

Surplus equipment – option of off-hiring instead of carrying

empty’s at a cost Demand situations – on-hiring of containers by Lines

Container Leasing – Major Leasing Companies

7 Prof. Ashok Advani - Jaipuria Institute of Management, Noida

Major Leasing Companies

• Triton • Geseaco • Cronos • Textainer(Gateway) • Gold Container • Bridgehead • Transamerica • Capital Lease • Florens

Leasing Co’s very large business houses being capital intensive China - largest manufacturer of Marine Containers (95%), Key manufacturing group CIMC (China International Marine Containers) controls over 50% of world production

Container Leasing – Major Leasing Companies

8 Prof. Ashok Advani - Jaipuria Institute of Management, Noida

Global Container Output

2002 – 1.74 Million TEU 2004 – 2.96 Million TEU 2005 – 2.6 Million TEU 2006 – 3.1 Million TEU 2007 – 3.9 Million TEU

Average life of a Container for Marine usage - 8 to 10 yrs Due to intense competition, customers prefer and are offered

newer equipment ( < 5 to 6 yrs) Older Containers (over 10 yrs)

Smaller NVOCC Operators Smaller Freight Forwarders Provide low cost housing to poor people (mainly South Africa, CIS)

Container Leasing – Major Leasing Companies

9 Prof. Ashok Advani - Jaipuria Institute of Management, Noida

Container Leasing – Major Leasing Companies

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Container Leasing – Fleet Size

11 Prof. Ashok Advani - Jaipuria Institute of Management, Noida

Containerization International Magazine Mid-2007:

Owned by Leasing companies : 1,02,61,833 Teus (41.41%) Owned by Ocean Carriers : 1,31,48,254 Teus (53.06%) Other owners : 13,69,637 Teus (05.53%)

Total container fleet : 2,47,79,724 Teus (100.00%)

The ratio of ownership Lessors : Ocean Carriers (Lines) ::40% : 55% Ownership varies with Line Evergreen - 90% owned fleet SCI - 76% leased fleet

Container Leasing – Fleet Size

12 Prof. Ashok Advani - Jaipuria Institute of Management, Noida

Container Leasing – Growth Indicators

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Container Leasing – Types of Leases

14 Prof. Ashok Advani - Jaipuria Institute of Management, Noida

Leases can be classified into 2 major & sub categories

Finance Lease

Operating Lease

Long Term Lease

Other Leases

Master Lease

Long Term Day Lease (LTD’s) Short Term Lease

One-way trip Lease

One-way Free Use

Container Leasing – Types of Leases

15 Prof. Ashok Advani - Jaipuria Institute of Management, Noida

Finance Lease

• Lessee buys containers of standard specifications of the lessor with minor modifications as required by the lessee like paint, decal etc. and

• Lease period fixed - 3 to 8 years

• Lease term end - containers become the property of the lessee on payment of the agreed buy-out price

Operating Lease

• Major activity Lessors engaged in

• Operating Lease classified into 2 categories

Long term Lease

Other leases

Container Leasing – Types of Leases

16 Prof. Ashok Advani - Jaipuria Institute of Management, Noida

Long Term Lease (LTL)

Lease - Fixed term 1 year or more Containers leased in large numbers, say in multiples of hundred,

for a specific period ranging from 1 year to 5-8 years Build-up period - 3 to 6 months

Enables lessee pick up agreed number of units The term starts thereafter

Build-down period Enables lessee off hire the containers after the term at

mutually agreed locations Payments made monthly in advance during the term Per diem is the lowest for LTL depending on the term Minor changes allowed by lessor’s - colour, decal etc

Types of Leases – Master Lease (MLA)

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Master Lease Agreement (MLA)

Master of all Lease Agreements Important features

• Signed for term of 1 year or more • Minimum commitment clause possible • Build-down periods after the term of lease • Flexibility and per diem rates are higher than LTLs • Volume discounts offered depending on monthly usage • Pick up and drop-off schedule attached to the MLA wherein a

cap and fee is put on the monthly return limits at locations worldwide

• Some contracts have a minimum on hire period as well • Billing at end of month with possible credit of 30-60 days

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Management, Noida 18