Why are containers still being produced but still not enough?

The shortage of containers in the US is also very serious. A few days ago, the New York Times specially reported that there were simply not enough containers to meet the global demand for international cargo transportation. The problem has been going on for a long time.


The New York Times reported last Friday: "The demand for containers...far exceeds their supply"... The current epidemic in the United States has eased, and retailers can increase their prices without being accused of price fraud. The cost of transportation is passed on to consumers. In the end, "the cost of almost everything is rising."

The shortage of containers has been going on for several months. How serious is the problem now?

In this regard, the reporter deliberately interviewed several container leasing companies that have the most say. By the way, most of the container leasing companies in the United States come from very few Chinese factories.

Triton International (NYSE: TRTN) and CAI International (NYSE: CAI) are the two top public container leasing companies in the United States. Last Thursday, they reported the results for the first quarter of 2021 and commented on the availability of containers.

Generally speaking, the more profitable container lessors, the tighter the supply of containers, and the more freight for shippers. However, for US importers and exporters with opposite market positions, this bad situation may continue until 2022.

Tim Page, interim CEO of CAI International, said: “The shipping companies don’t seem to want to see the tight supply ease. So...at least until the end of this year, the outlook is pretty good for us, and It may exceed our expectations."
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There is still only 2-3 weeks of inventory available

Three Chinese companies, CIMC CIMC, Oriental International DFIC and New Huachang Group Co., Ltd. CXIC, produce approximately 80% of the world's containers. They stated that production has been on the rise and is expected to increase by 6%-8% this year. But even so, it is still not enough to alleviate the current shortage of containers.

John O’Callaghan, Triton’s global marketing and operations director, said: “Although the factory has accelerated the production of containers at the end of last year and early this year, the inventory level of new containers is still very low, only enough for two to three weeks.”
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The price of containers is also one of the reasons for its continued shortage. The current cost equivalent unit-CEU (measured in multiples of 20-foot dry cargo units) for new containers is approximately US$3,500, compared with US$1800 per CEU at the beginning of 2020 and US$2500 per CEU at the end of 2020. In the past three months, the cost has remained roughly stable, at $3,500 per CEU.

The price increase in the second-hand container market is even more breathtaking. According to Container xChangede, the price of second-hand containers in China has almost doubled from US$1,299 per CEU in November to US$2,521 in March.

O'Callaghan said, "Prices have risen significantly from the previous month."

Why are containers still being produced and still not enough?

First of all, this year's output growth lags behind the renewed demand for containers on the market. Triton CEO Brian Sondey said: "Part of this year's production will be used to make up for the low output in 2019 and the first half of 2020." O’Callaghan added: "It is still being made up."

Page believes that another reason for the insufficient number of containers is that Chinese factories have not expanded their production capacity. He said: "The manufacturer does not seem to be preparing to increase container production."

When asked why leasing companies would not lower prices in order to compete for market share, Page replied: “Because container manufacturers do not do this in the first place. They prefer to pursue market share by producing more containers. So for leasing For the company, under this circumstance, it will choose to seize the opportunity to own too many containers, and then sell them on the market at high prices."
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When can the shortage of containers be alleviated?

The shortage of containers is more than just production. Many shortages were caused by port congestion and the Ever Given accident on the Suez Canal. So if these two problems can be solved, there will be more containers that can be used.

Sondey said that the problem of container shortage started with the global blockade caused by the new crown epidemic in early 2020. Then, in late 2020, the import and export boom caused serious port congestion. Now there is the Suez Canal incident and the situation has become even worse.

Page said that an unusual situation has happened to goods exported from China. The ship was eager to make a U-turn at the port of destination, so the empty containers in the United States and other places failed to squeeze into the ship's space.

"Several of our major customers have reported that almost every vessel leaving China and other export regions is full of cargo. However, due to the tight sailing schedule and the need for rapid transshipment, they cannot wait for all empty containers. 5%-8% vacancy."

Sondey said: "We hear most customers think that these bottlenecks will not disappear soon. But they don't think this problem will never be solved...

"So the top priority for all of us is to work out how to clear the bottleneck. I have not seen any of our customers say that they are confident of eliminating their operational bottlenecks in this special period. Our general view is that this situation It may continue until the trade slows down. No one knows when it will get better. I think it may start to return to normal at the end of this year or early next year."
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Container leasing company stocks soar
Triton, Textainer (NYSE: TGH) and CAI, the three major public equipment leasing companies, have seen their stocks rise strongly in the past year, although the gains peaked in mid-to-late March and have recently declined.

Triton announced last Thursday that its net income for the first quarter of 2021 was US$129.3 million, compared with US$67.2 million in the first quarter of 2020. Adjusted earnings per share (EPS) was US$1.91, higher than the consensus estimate of US$1.74.

After the announcement, Keefe, Bruyette & Woods (KBW) raised its full-year earnings per share forecast from US$7.25 to US$8, and B Riley Securities raised its full-year earnings per share forecast from US$7.04 to US$8.26.

 The CAI report stated that net income in the first quarter of 2021 was US$32.47 million, compared with a net income of US$10.46 million in the first quarter of 2020. The adjusted net income per share was US$1.85, which exceeded the consensus estimate of US$1.76.

KBW increased its CAI's full-year earnings per share from 7.30 US dollars to 7.75 US dollars, and B Riley increased its own earnings per share from 7.21 US dollars to 8.02 US dollars.
sea freight from china