The leading container shipping lines have their global network of services connecting the major trade routes. They have sizeable fleet of containers of their own to meet their global business requirements. Nevertheless it is neither operationally acceptable nor cost effective to maintain 100 per cent own containers to do business by the shipping lines. In order to ensure flexibility and quickest access to container units in the desired location at the right time as per demand, many Shipping lines prefer to keep a blend of owned and leased container available to them.
The carriers might face a situation where they have shortage of containers at certain locations or they might have requirement of certain types of containers (Flat Racks, Open Tops, high cube GP 45ft/48ft etc) at certain locations. Necessity to ensure availability of container units as and when required is the prime consideration for the shipping lines to go for leasing. Thus Leasing indeed may be an appropriate option for the carriers to avoid the costs and problem of re-positioning their own units and also capital investment in container purchase. To respond to the volatile and complex shipping market conditions, the shipping lines try to maintain their own container stock in the range of 40% to 60% out of total container fleet.
Container Leasing Companies as the second largest owner group of marine containers, are playing an important role in developing worldwide network of their dedicated services of different lease options for the shipping lines / clients to meet their needs of worldwide containerization. Although leasing is approximately 60 to 70% more expensive compared to ownership from operational point of view, yet size of container fleet handled by the pioneer Leasing companies like Textainer, Pacific Tycoon, CAI International. Triton, Florens etc show their growing market share in the container leasing business of the world. This is due to comparative business advantage of different lease options provided by the world class Leasing companies. Statistics show that in 2019, container leasing companies owned approximately 41% of the global container fleet and the remaining 59% was under the ownership of ocean carriers and other transport operators.
Various types of Container Leases
The various types of leasing arrangements prevailing in the container leasing market, are generally divided into three main categories.
Master lease agreement is unique among the leasing options as it allows a great amount of flexibility to the shipping line or other lessee. A master lease is established for a range of containers (maximum and minimum), the duration of term is variable (usually short to medium), and the collection and return locations are generally more flexible and based on credits.
The leasing company is responsible for the full management of the container fleet (maintenance and repair) and for re-positioning following off hire and contract termination. Under this agreement, the leasing company acts as a logistics service provider as it must allocate the distribution of its container assets in view of the lessee’s transport strategies. This type of agreement allows maximum flexibility with regards to the location of the containers and as such helps the shipping line to plan and calculate their costs accordingly.
Long Term Lease
Long term lease (sometimes referred to as dry lease), is executed for longer periods of time which varies between five to eight years. The duration of lease is equal to about half of the useful life of a container. Unlike master lease, it does not involve any management service by the lessor / leasing company. Long term leasing comprises a fixed number of containers and has a predetermined re-delivery schedule. Under this agreement, the lessee is responsible for all sorts of management of the containers during contractual period, including maintenance and repairs and re-positioning. At the end of the period, the lessee can either renegotiate the terms for extension of the lease or deliver the container to an agreed location.
Short Term Lease
Short term lease (sometimes referred to as ad hoc or spot lease) is generally associated with the lessee’s temporary need for equipment. Its duration may be for one way or round trip service of a vessel. The arrangement normally takes place when there is a temporary surge in demand either cyclical or unforeseen. Leasing companies try to avoid having a large share of their equipment on the spot market as leasing fees are volatile and strongly influenced by the current market conditions. During low demand periods, the risk exposure of Short term lease is high due to expected increase in the volume of idle equipment. The lessee is responsible for re-positioning & repair of the equipment.
Container shipping lines need to build up a container inventory having suitable blend of owned and leased containers which would help maximum utilization of the equipment for fulfillment of its growing business commitment. At the same time container units to be hired under combined policy of Mater and Long Term Lease to obtain maximum flexibility for optimum utilization of the units as per business plan / strategy of the company.