FOCUSED. DIVERSIFIED. COMPETENT. TRUSTWORTHY. Container Boxes Introduction Bert van Leeuwen Head of Aviation & Intermodal Research DVB Bank

Transcription

1 FOCUSED. DIVERSIFIED. COMPETENT. TRUSTWORTHY. Container Boxes Introduction Bert van Leeuwen Head of Aviation & Intermodal Research DVB Bank Tokyo, November 2018

2 Disclaimer This presentation was prepared by DVB Bank SE ( DVB ) exclusively for the benefit and internal use of the addressee mentioned on the cover page. Neither this presentation nor any of its contents may be used by any other party or for any other purpose without the prior written consent of DVB. The oral commentary from DVB accompanying this presentation is an integral part of the presentation and the presentation is not complete without such commentary. This material is for distribution only under such circumstances as may be permitted by applicable law. It has no regard to the specific investment objectives, financial situation or particular needs of any recipient. It is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The contents of this presentation should not be treated as advice relating to legal, tax or investment matters. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in the presentation. Any opinions expressed in this presentation are subject to change without notice and DVB is not under any obligation to update or keep current the information contained herein or communicate any updates to the addressee mentioned on the cover page. In particular, the information in this presentation reflects prevailing conditions and our views as of this date, all of which are subject to change. In preparing this presentation, we have relied upon and assumed, without independent verification, the accuracy and completeness of information available to us from public sources. Furthermore, neither DVB nor any of its affiliates, directors, employees or agents accept any liability for any loss or damage arising out of the use of all or any part of this presentation. In the UK, DVB is regulated in the conduct of its investment business by the Financial Conduct Authority. In the United States of America, DVB acts through DVB Capital Markets LLC, which is a broker dealer registered with the U.S. Securities and Exchange Commission and admitted by the Financial Industry Regulatory Authority to conduct securities business in the U.S. Forward looking statements: Statements made in this presentation, other than statements of historical fact, are forward-looking statements that involve risks and uncertainties. These statements relate to future aircraft deliveries, growths of the air transportation market and the aircraft leasing market. In some cases, forward-looking statements can be identified by terminology such as may, will, should, expect, anticipate, intend, plan, believe, estimate, potential, continue, outlook, could, target, project, seek, may, assume, the negative of these terms or other comparable terminology. Actual results, and actual events that occur, may differ materially from those projected in any forward-looking statement as a result of certain risks and uncertainties. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this presentation and are based on information currently and reasonably known to us. Except as required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

3 Objectives and Topics Main data sources : Harrison Consulting; Drewry Maritime Research, Containerisation International, Cargo Facts, World Cargo News, RWI/ISL, WTO. After a few weaker years (de-globalization) international merchandise recovered. Current international trade tensions could put pressure on the recovery. Container trade remains a (maturing) growth business. Container boxes are an attractive asset category for financiers and investors. The box market has shown more stability compared to the container vessel market. Historically, supply/demand imbalances in the box market generally were short lived as aging container generations (> years) required replacement capacity. Financing container lessors has proven to be relatively low risk business. Experience with major liner defaults is relatively favorable. Direct exposure on smaller local liners seems to carry the highest risk. Dry cargo 20 and 40 HC are the most liquid boxes but value per unit is low (repo cost per unit high % of value). 40 HC reefers also fairly liquid, higher $ value, more technology risks. Box prices and residual values fluctuate with steel price. Depending on the state of the market when entering into a deal, the residual value risk seems manageable.

4 Relative Importance of Maritime Container Cargo Container lines deploy a fleet of approximately 5,200 fully-cellular container ships with an aggregate capacity in excess of 20 million TEU on-board slots, transporting 1.5 billion tons of containerised cargo with an estimated value of US$4 trillion per year. Container trade generates approximately 700 million TEU of container moves through the world s container ports and revenues of US$150 billion for the container shipping lines annually Container Share of Merchandise Trade Fleet Dwt Container General Cargo Dry Bulk Oil Tanker Cargo Value Container General Cargo Dry Bulk Oil Tanker 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source : Harrison consulting

5 Regulation and Identification Containers have to meet requirements of the IMO s (=UN) International Convention for Safe containers CSC establishes criteria for testing, inspection, approval, maintenance and control of containers CSC approval to be confirmed by CSC Safety Approval data plate Containers are certified individually inspected by a classification society (B.Veritas, Germ.Lloyd, ABS) Other requirements include TIR Customs Convention, Custom Convention on containers etc. Identification governed by ISO 6346 Bureau International des Containers et du Transport Intermodal assigns unique owners code (e.g. DVBU) DVBU (owner code) (serial number) (check digit) Manufacturing Serial number also in corner casting

6 Tracking & Tracing Tracking and tracing of containers is essential (using BIC code) : for liners / shippers: where is the unit / cargo for liners : is it loaded (billing of demurrage) or empty (available) for lessors / financiers : less relevant in case of creditworthy lessee Container moves are read and transmitted electronically by (terminal / depot) cameras using OCR. In less developed areas, data are manually keyed into a computer, connected to a central tracking system or send by /fax from a local database. Increasingly high value containers / cargo data are transmitted by GPS systems of RFID (Radio Frequency Identification) According to the World Shipping Council < 0,003% of the container fleet is lost at sea every year ( containers). Major accidents can change this (tsunami etc.)

7 Containers Types TEU Twenty foot Equivalent Unit : measure to enable adding up of fleet capacity, e.g. one 45 container is 2.25 TEU. Only takes into account length. CEU (Cost Equivalent Unit) / Asset TEU / Financial TEU : measures the value of a container as multiple of the value of a standard 20 dry box ($ 2.250), e.g. one 20 Tank ($ ) is 6 CEU. CEU factor will change over time Three Main Container Categories : ISO Maritime Containers : 8ft wide / 8ft 6in or 9ft 6in high / 20, 40, 45ft long. All surface transport modes. Regional / North American Domestic Containers : 8ft 6in wide / 9ft 6in high / 48, 53 ft long. Mainly truck/train. Regional / European Swapbodies and Non- Cellular Pallet Wide Containers : 2.5 m wide / 8ft 9in, 9ft high / 6 14 m. long. Mainly truck/train/shortsea/barge.

8 Maintenance & Repair Maintenance & Repair takes place at selected depots Target is to minimize M & R cost Container in use should meet CSC criteria. ACEP = Approved Coninuous Examination Programme (after 5 year every 30 months) should ensure compliance with Convention for Safe Containers. Moment containers go on lease or off lease. Inspect to establish normal wear & tear (for account of lessor) or damage (for account of lessee, insurance) Important to minimize negotiations about damage, Standard M&R criteria: IICL 6 = Internat. Institute of Container Lessors = lessor friendly = stringent à to optimize condition of container, discourage return and/or maximize repair compansation (or RND income!) UCIRC = Unified Container Inspection and Repair Criteria. Proposed by the Container Owners Association and liner-friendly. Now used for in service repairs CIC = Common Interchange Criteria = compromise accepted by a few large lessors (competitive advantage initially) and COA Is there now a set of truly universally accepted criteria?

9 Comparison of GDP, Trade and Container Fleet Growth in the container box fleet closely follows the growth of container trade. Oversupply of container boxes unlikely to last for a prolonged period. Increase in container vessel capacity has exceeded growth in demand for many years already, even taking impact of slow steaming into account. Growth of the container box fleet closely correlates to container trade growth. Box replacement cycle is predictable based on technical/economic life and lack of major changes in container technology (except refrigerated containers).

10 Relation Container Fleet and Container Slots OCEAN-BORNE CONTAINER FLEET, VESSEL-SLOT FLEET AND CONTAINER/SLOT OPERATING RATIO Source : Drewry Maritime Research

11 Container Throughput Stagnant in Recent Months RWI/ISL - Container Throughput Index (2010=100) Computations of RWI and ISL based on Data from 88 ports; August 2018: flash estimate ? Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 original seasonally and working day adjusted

12 Global Box Fleet Categories Relevant for Liquidity WORLD CONTAINER FLEET (in TEU) BY OPERATING CATEGORY AND SIZE by end ,000,000 21,447,358 20,000,000 15,000,000 11,551,857 10,000,000 5,000,000-51,305 4,426, ,925 35,985 36, , , ,039 Maritime (8 ft wide) Am. Domestic (8 ft 6 in wide) Regional (2.5 m wide) Source : Drewry Maritime Research

13 Global Maritime Box Fleet WORLD MARITIME CONTAINER FLEET (in TEU) BY DETAILED TYPE end Standard Dry Dry Special Reefer Tank Source : Drewry Maritime Research

14 Specials : Prices Other Container Types $20,000 Current Newbuilt Prices $18,000 $16,000 Price Mid 2017 CEU Multiple $14, $12,000 $10, $8, $6,000 $4,000 $2, $0 20ft Standard Dry-Cargo 40ft Standard Dry-Cargo 40ft High- Cube Dry- Cargo 20ft Open- Top 40ft Open- Top 20ft Collapsible Flat Rack 40ft Collapsible Flat Rack 20ft Standard Reefer 40ft High- Cube Reefer 20ft Tank Container 0.0 Source : Harrison and Drewry Maritime Research

15 Container Production (All Types) 6000 CONTAINER PRODUCTION BY MANUFACTURER ( 000 TEU) CAPACITY UTILISATION CA. 67% Capacity CIMC Singamas CXIC MCI Hyundai Dong Fang Other China Other Source : Drewry Maritime Research

16 Maritime Container Production 300,000 MONTHLY DRY CARGO AND REEFER CONTAINER PRODUCTION 250, , , ,000 50, ' 40' 40H 45H 53H RF20' RF40H RF45H RF53H Source : Drewry Maritime Research

17 Container Price Dynamics $25,000 Container Newbuilt Prices $20,000 REEFERS $15,000 $14,500 $12,000 $10,000 $5,000 DRIES $5,182 $3,669 $3,027 $2,158 $0 Jan-00 Jun-00 Nov-00 Apr-01 Sep-01 Feb-02 Jul-02 Dec-02 May-03 Oct-03 Mar-04 Aug-04 Jan-05 Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 May-08 Oct-08 Mar-09 Aug-09 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17 May-18 20ft Standard Dry-Cargo 20ft Open-Top 20ft Standard Reefer 40ft High-Cube Dry-Cargo 20ft Collapsible Flat Rack 40ft High-Cube Reefer Source : Harrison

18 Container Price Dynamics $3,500 CORRELATION CONTAINERS AND STEEL PRICES $3,000 $2,950 $2,500 $2,000 $2,158 $1,500 $1,000 $1,250 $1,136 $500 $0 Mar-00 Aug-00 Jan-01 Jun-01 Nov-01 Apr-02 Sep-02 Feb-03 Jul-03 Dec-03 May-04 Oct-04 Mar-05 Aug-05 Jan-06 Jun-06 Nov-06 Apr-07 Sep-07 Feb-08 Jul-08 Dec-08 May-09 Oct-09 Mar-10 Aug-10 Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15 Aug-15 Jan-16 Jun-16 Nov-16 Apr-17 Sep-17 Feb-18 Jul-18 20ft Standard Dry-Freight China Hot-Rolled Coil Steel Price (USD per tonne) Asia Carbon Steel (all products) (USD per tonne) World Scrap Steel (USD per tonne) Source : Harrison

19 Container Price Dynamics Used Dry Box Market FT DRY CARGO VALUES AND RESALE PRICES New price Asia Resale Price Europe (LH Axis) Europe Resale Price as Percentage of New Price (RH Axis) Europe Resale Price as Percentage of OEC (RH Axis) % 90% 80% 72% 70% 60% 60% 50% % % % 10% 0 0% Source : Harrison

20 Container Price Dynamics - Used Reefer Market FT HC REEFER VALUES AND RESALE PRICES New price Asia Resale Price Europe (LH Axis) Europe Resale Price as Percentage of New Price (RH Axis) Europe Resale Price as Percentage of OEC (RH Axis) 30% 29% 25% 24% % % % % 0 0% Source : Harrison

21 Hi-Lo Chart Used Box Prices (12-15 year old units) 140% 120% 100% Highest Average Lowest 100% 100% Yr Old Used Containers Prices as % of original equipment prices 108% 115% 80% 78% 83% 85% 82% 60% 40% 52% 43% 45% 39% 44% 58% 40% 58% 68% 43% 20% 27% 20% 22% 28% 20% 18% 13% 13% 26% 19% 28% 16% 0% 20ft Standard Dry 40 ft Standard Dry 40 ft HC Dry 20 ft Reefer 40 ft HC Reefer Tank 20 ft Open Top 40' Open top 20' Flat Rack 40' Flat Rack Source : Harrison

22 Hi-Lo Chart Used Box Prices (12-15 year old units) Yr Old Used Containers Prices as % of contemp. new replacement prices 100% 90% Highest Average Lowest 88% 80% 70% 71% 71% 76% 74% 68% 60% 50% 40% 30% 20% 10% 52% 34% 42% 43% 24% 26% 47% 30% 24% 22% 16% 17% 53% 36% 58% 46% 24% 36% 48% 41% 38% 30% 17% 16% 0% 20ft Standard Dry 40 ft Standard Dry 40 ft HC Dry 20 ft Reefer 40 ft HC Reefer Tank 20 ft Open Top 40' Open top 20' Flat Rack 40' Flat Rack Source : Harrison

23 Hi-Lo Risk Years? ' Dry Container Prices - 10 year history HI LO Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Source : Harrison

24 Top 10 Lessor s Fleet Share Increasing WORLD CONTAINER FLEET BY OWNER CATEGORY (M TEU) Source : Drewry Maritime Research

25 Lessor s Share CONTAINER FLEET OWNED OR MANAGED BY LEASING COMPANIES, (M TEU) Source : Drewry Maritime Research

26 Lease Rates 1600 Per Diem Lease Rates (LTL) REEFERS 20' 40' 40'HC 20'RF 40'HC RF DRIES Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Source : Drewry Maritime Research

27 Dry Cargo Container Leasing $3,500 $3,000 20ft Dry Cargo, Lease Rates and Initial Cash-on-Cash Returns Purchase Price (LH Axis) Per Diem x 365 (LH Axis) ICoCR in % (RH Axis) 25.00% 20.00% $2,500 $2,000 < Purchase Price (New) 15.00% $1,500 $1,000 Initial Cash-on-Cash Return > 10.00% $500 < Per Diem x 365 (LH Axis) 5.00% $ Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q2 0.00% Source : Harrison and Drewry Maritime Research

28 Reefer Leasing $30,000 $25,000 40ft HC Reefer, Lease Rates and Initial Cash-on-Cash Returns Purchase Price (LH Axis) Per Diem x 365 (LH Axis) ICoCR in % (RH Axis) 25.0% 20.0% $20,000 < Purchase Price (New) 15.0% $15,000 $10,000 Initial Cash-on-Cash Return > 10.0% $5,000 < Per Diem x 365 (LH Axis) 5.0% $ Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q2 0.0% Source : Harrison and Drewry Maritime Research

29 ICIR = Initial Cash Investment Return ICIR (or simple cash on cash ) is a simplified benchmark to calculate how attractive it is invest in containers ICIR calculates the per diem for the initial lease contract (x 365) as a percentage of the investment in the new container ICIR has decreased over the past decades because of : Growing competitiveness of the leasing business Shift from Master Lease to Long Term Lease (less risk, high utilisation) Lower operating cost Economies of scale in container management systems Pressure from lessees, shipping lines on per diems Optimized finance structures with lowest possible interest cost Introduction of investor classes that only require modest equity returns Ancillary income : RND, penalties, profit on used equipment sales etc. Below a certain minimum ICIR (depending on their WACC), Lessors will not invest in new containers

30 Initial Cash-on-Cash Ratio s Downward Trend Coming to an End? 40.00% Initial Cash-on-Cash Returns 35.00% 20' 40' 30.00% 25.00% 20.00% 40'HC 40'HC RF 20' RF 15.00% 10.00% 5.00% REEFERS DRIES 11.79% 11.46% 9.73% 9.67% 0.00% Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q2 Source : Drewry Maritime Research

31 Conclusions Containers form a relatively simple - but robust - asset class, compared to other transportation assets, such as trains, planes and ships Still there is more complexity to it, especially on the crossroads of money and metal For investors / lessors / financiers it is an attractive asset class, provided one is comfortable with the tracking / tracing mechanisms The risk of technical obsolescence is very limited, except maybe for reefer-containers, due to stringent environmental regulations Container manufacturers can quickly adapt to changing market conditions, enabling the industry to reduce surplus container capacity almost instantaneously, thereby preventing the shipping bust-boom -cycle The container business is continuously looking for efficiency gains, via equipment specs., operational / interchange rules, management systems but also optimized finance structures (lower interest rates and capital cost) Financing of container fleets / lessors has proven to be fairly low risk business but financing boxes for (2 nd tier) shipping lines may represent a higher risk (post default recovery)