THE OTHER ROLE OF CONTAINER IN MARITIME TRANSPORTATION - COMPETITIVENESS OF CONTAINER AS INVESTMENT PRODUCT-

Transcription

1 THE OTHER ROLE OF CONTAINER IN MARITIME TRANSPORTATION - COMPETITIVENESS OF CONTAINER AS INVESTMENT PRODUCT- Taichiro Sahara Senshu University Higashimita Tama-Ku Kawasaki-Shi, Kanagawa JAPAN, C/o Tatsuro Watanabe Laboratory taichiro007@aol.com Tel/Fax Prof. Tatsuro Watanabe Senshu University Higashimita Tama-Ku Kawasaki-Shi, Kanagawa JAPAN, C/o Tatsuro Watanabe Laboratory tatsuro@isc.senshu-u.ac.jp Tel/Fax ABSTRACT The contribution of containers for maritime transportation is tremendous. Since the structure of container was standardized by ISO in late 1960 s to early 1970 s, the use of containers has dramatically increased and impacted maritime transportation in both speed and efficiency. Various researches have focused on and contributed to reveal the issues of container transportation and its traffic volume. Those researches cultivate our knowledge regarding the role of container for maritime transportation. The use of container has grown continuously, and in terms of its ownership, the statistics show that roughly half of the containers in the world are owned by shipping company and the rest half is lease containers leased by container leasing companies to shipping companies. Although the container transportation and the traffic volume have been well-focused and researched, the other role of container, as asset-backed investment product, has been silent. The container has been playing the other essential role as investment product. Container has been contributing not only to maritime transportation industry but also to financial service industry. This paper tries to review the use of lease containers in maritime transportation, focus on the role of container as investment product, and analyze the competitiveness of container investment. KEY WORDS Container, container investment, container leasing, maritime transportation

2 INTRODUCTION The invention and standardization of the container has dramatically impacted to the speed and efficiency of maritime transportation in the world. As Figure-1 shows, the container traffic volume has grown continuously and it is now considered as one of major statistics to measure the economic condition. The shipping companies own roughly half of containers in the world, and container leasing companies operates the rest half. < Figure-1: World Container Fleet by Main Owner Category for Period and Projected 2008> 30,000 WORLD CO NTAINER FLEET BY MAIN OWNER CATEGO RY FOR PERIO D AND PRO JECTED FIGURES ARE RO UNDED TEU (X 1,000) AND INCLUDE ALL CO NTAINER TYPES. 25,000 20,000 15,000 10,000 5, Leasing Company Shipping Company Total <Source: Containerisation International Market Analysis: Container Leasing market 2008> < Figure-2: Container Traffic Volume between Asia and North America>

3 There are some factors to explain why the large volume of lease containers has been utilized by shipping companies. The demand of container transportation has been fluctuated by seasonal reason and the economic condition. Therefore adjusting the container volume is the key factor for the shipping companies to manage container inventory. The use of lease containers enables shipping companies to control total container volume, which could contribute to save storage charge for unused containers stored in depot. This would explain one of the reasons why shipping companies use lease containers and why the large volume of lease containers has been utilized in maritime transportation. In addition to it, there are some other advantages for the shipping companies to utilize lease containers. Shipping companies are able to save their initial cost for container procurement by utilizing leasing containers. Also they are able to select the lease term based on its lease agreement. The lease agreement between shipping companies and container leasing companies would generally be categorized into two types by its leasing term; the long term agreement (3-10 years duration) and master lease (or short term) agreement (up to three year duration). The rate for one day use is called per diem rate and the rate is determined by the agreement. According to Containerisation International Market Analysis: Container Leasing Market 2008, regarding total leased dry freight fleet, annualized per diem rate per TEU for long term agreement and master lease agreement were $0.65 and $0.82 respectively in Regardless of using or not using the on-lease containers, the shipping companies are charged lease payment calculated based on the per diem rate. < Table-1: SUMMARY OF ANNUALIZED RENTAL PER DIEM PER ASSET VALUE TEU > SUMMARY OF ANNUALIZED RENTAL PER DIEM PER ASSET VALUE TEU (US Dollar) Year Long Term Agreement Master Lease Agreemen <Source: Containerisation International Market Analysis: Container Leasing market 2008> CONTAINER LEASING BUSINESS AND CONTAINER INVESTMENT Regarding the ownership of containers operated by the container leasing companies, the lease containers are not always owned by container leasing companies. In some cases, the container leasing companies don t have the ownership title of their lease containers. They just manage the containers for the container owners. As Table-2 indicates, according to disclosed SEC fillings of three major container leasing companies listed on New York Stock Exchange, their total operating TEU refers to Twenty-foot Equivalent Unit. TEU is calculated in terms of the unit length: 20FT=1.00, 40FT=2.00.

4 containers are divided into owned fleet and managed fleet. < Table-2: FLEET COMPOSITION BY PUBLIC CONTAINER LEASING COMPANIES AS OF December 31, > FLEET COMPOSITION BY PUBLIC CONTAINER LEASING COMPANIES AS OF DECEMBER 31,2009 (TEU) Container Leasing Company Owned Fleet Managed Fleet Total Fleet Textainer 1,017,210 1,221,827 2,239,037 TAL 1,084,084 55,439 1,139,523 CAI International 235, , ,763 <Source: Textainer SEC 20-F File, March 17, 2010., TAL SEC 10-K File, March 1, 2010., CAI International SEC 10-K File, March 15, Now, this chapter focuses on the managed fleet and tries to clarify what the managed fleet is. The container leasing companies generally procure containers from container manufacturing companies and lease the containers to the shipping companies by lease agreement. In this case, the container leasing companies have ownership of those containers and right to receive leasing revenue from the shipping companies. Then, in some cases, the container leasing companies sell certain amount of on-lease containers to third party investors as investment portfolio. The investors purchase the on-lease containers with the expectation of leasing revenue as their return on investment. By this transaction, the ownership title of the containers shall be transferred to the investors and the right to receive the lease revenue as well. The container leasing companies wave the ownership of the containers and start to just manage the containers on behalf of investors, and also they start to receive container management fee from the investors.

5 COMPETITIVENESS OF CONTAINER INVESTMENT There is close relationship between maritime transportation industry utilizing lease containers as loading/unloading equipment and financial service industry providing the on-lease containers as investment product. The financial service industry has found the competitiveness of container investment and provides it to investors as one of their investment portfolio. < Table-3: CALCULATED AVERAGE RESALE PRICES FOR USED STANDARD 20FT DRY FREIGHT CONTAINERS AT MID-2008 > CALUCULATED AVERAGED RESALE PRICES FOR USED STANDARD 20FT DRY FREIGHT CONTAINERS AT MID-2008 Original Year of Build Averaged Age (Years) Average Resale Price(USD) Mid newbuild ,500 2,405 2,225 2,050 1,870 1,690 1,510 1,340 1,240 1,150 1,070 <Source: Containerisation International Market Analysis: Container Leasing market 2008> One of the advantages of investing containers would be that the investors can expect stable leasing revenue to receive. As it is sated in previous chapter, regardless of using or not using the on-lease containers, the shipping companies are charged lease payment calculated based on the per diem rate. Also, they can expect the return by container sales to exit the investment. Since there is the demand for used containers, the average resale price of used containers has been stable. Container is basically the box made of steel. Because of its simple form and globally standardized structure, new technology is unlikely to impact the value of container, therefore; the value of container remains as long as it maintains cargo worthy function. Due to its globally standardized form, low tech structure, the container is easily replaced one and the other, thus the secondary market for the containers is well-developed. The used containers are traded in not only within the maritime transportation but also in the markets such as storage equipments and mobile houses. With the demand for used containers, the average resale price of used containers has been stable. Statistics show that even 10 year old 20FT dry freight containers have been sold with the average price of $1,070 at middle of the year 2008, while the new build 20FT dry freight containers have been sold with the average price of $2,500. That competitiveness of container investment has been found by financial service firms and the firms have developed container investment funds as one of asset-backed investment products. There is also the movement that container leasing company actually establishes the company specializing on arranging container investment fund. There are some other asset-backed investment products they provide other than containers such as ship and aircraft. However, both of them could be affected by new technology and their structure is much more complicated than

6 containers; therefore, it could be possible that the resale price of the ship and aircraft will dramatically decrease in the future. This uncertainty of resale price would be the potential investment risk for investors. The financial service industry has taken advantages of the nature of on-lease containers utilized in maritime transportation, and delivered them as investment product to the investors. Container is the tangible asset which physically exists. It is globally used for maritime transportation and its volume has been growing continuously. Therefore, investing container means the investment in tangible asset which has been used for ongoing and growing industry. Therefore the nature of container investment would be different from that of other securitized financial products based on intangible asset. CONTAINER INVESTMENT FROM CROSS-BORDERS: JAPAN S CASE While the most of major container leasing companies is Western country based, the container investors are not limited in Western countries. The recognition of container investment has been gradually spread in Japan. For example, CAI International, one of the NYSE listed container leasing companies, owns its subsidiary in Japan which focuses on container investment fund arrangement. In its annual report in 2009, the subsidiary arranged 20.4 million U.S. dollars investments in container funds from 2007 through The recent appreciation of Japanese yen and lower interest rate also positively affect to Japanese container investors. The value and competitiveness of container investment will be widely recognized in Japan. REFERENCES Levinson, M. (2006) The Box, New Jersey, Princeton University Press. Containerisation International:Leasing Market Analysis, (2008) Informa. Tsusho Hakusho, (2008) Ministry of Economy, Trade and Industry of Japan. Sahara, Taichiro. (2010), The Role of Container Leasing for Maritime Transportation - Analysis and Introduction of Container Leasing Business to Asia -, APDSI 2010 July, Hong Kong.