Container Leasing

Prof. Ashok Advani

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

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 Container Leasing - Necessity

 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

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

 Container Leasing - Necessity

 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

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

 Container Leasing - Inventory

 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

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

 Container Leasing - Inventory

 Surplus equipment – option of off-hiring instead of carrying

empty’s at a cost

 Demand situations – on-hiring of containers by Lines

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

 Container Leasing – Major Leasing Companies

 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
Prof. Ashok Advani - Jaipuria Institute of Management, Noida 7
 Container Leasing – Major Leasing Companies

 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)

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

Container Leasing – Major Leasing Companies

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

Container Leasing – Major Leasing Companies

Prof. Ashok Advani - Jaipuria Institute of Management, Noida 10

 Container Leasing – Fleet Size

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

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

Container Leasing – Growth Indicators

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 Container Leasing – Types of Leases

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

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

 Container Leasing – Types of Leases

 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

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

 Container Leasing – Types of Leases

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

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

 Types of Leases – Master Lease (MLA)

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

Prof. Ashok Advani - Jaipuria Institute of Management, Noida 17

Prof. Ashok Advani - Jaipuria Institute
of Management, Noida 18