Chinese container makers have been aggressive at present because shipping lines and container leasing companies have been trying first to order them the new production. Container makers have not nearly expanded their production capacity so buyers have to share the limited production capacity. The production price for Feb, 2011 is $2,700 per 20f and it is said that March price would be $2,800 per 20f. In the peak season in summer it would get close to $3,000 per 20f.
It would be like first come, first served due to limited production. The production would be fully booked till Feb, 2011. The majority of the current production lines have been secured by leasing companies because they had committed their order with makers in order for them to secure the production lines before the purchase prices are shown by makers. As a result, shipping lines have been classified by two groups. One is they already give up their own production and rely on the leasing companies and the other stick the own production but approach to leasing companies to share their production due to shortage of new production in plan.
Leasing companies presumably think that their speculation of new production would be getting more value as they intended. They have been taking risk in ordering new production in speculation so that it would be natural for them to enjoy the reasonable return. In addition it is necessary for them to put shipping lines in debt by doing a favor for shipping lines in such difficult situation.
It is an ideal if shipping lines could bring back idling containers from surplus places in demand season of summer time to meet right places, right volume of containers in right timing. However, it is not easy to control inventory like that. Shipping lines just load empty containers on ship to fill the space and bring them back. It would be OK as long as ships have been operated as schedule. Ships could not load planned empty containers when ships delay due to some reason. To operate ships regularly is credit of Liner shipping lines. In addition, the alliance make it complicated to bring empty back.
Flow of containers is one way movement from demand place to destination. Therefore, the import oriented places such as Los Angeles, New York, Rotterdam and so on have been always surplus. Shipping lines used to use the ship as a sweeper by new container ship before putting in service, ships in dock for the regular inspection. However, it costs them lots to bring back empty containers in any case.
Shipping lines could not maintain the volume of containers in the highest demand. They try to minimize or to make them in appropriate size of container fleet and then try to lease in short from leasing companies. They lease necessary quantity at the right places in right timing and on the contrary they return them in surplus places in order to make their fleet in right shape. This is subject to each shipping line and it is related to their policy.
If we determine annual production capacity of Chinese makers to be max 3 million teu the monthly production number would be 250,000 teu. New production order from leasing companies is to be for shipping lines. It is not simply because of speculation but based on Shipping lines’ actual demand in the past. Shipping lines’ demand usually concentrate on summer time. Leasing companies try to negotiate with Chinese makers to get the big share of production in demand season of summer time in order to make leasing companies looks more meaningful. In the meantime, leasing companies could not avoid competing with shipping lines. However, if shipping lines come to think that leasing companies would order new production after hard negotiation with Chinese makers for shipping lines it would make them feel leasing companies more supportive to them.
An ordinary way of thing would be not welcome to place an order for new production in sluggish season in winter but it would be the best for shipping lines to prepare necessary volume of new production in advance from slow season. It would be well accepted by Chinese container makers because they could continuously produce through the year.
How much does new production of 250,000 teu mean to be available in demand places in China?
The comparison in container movement from Jan’10 to Sep for USA and Jan’10 to Oct for Europe which is quoted from Shipping Guide dated Dec.7 & 8, 2010.
AA) Import/Export between Aisa and USA (Jan’10 to Sep’10)
1) Export from Aisa to USA――――＞ 1.08 million teu per month
2) Import from USA to Aisa――――＞ 0.69 million teu per month
Import/Export gap： △ 0.39 million teu per month
BB) Import/Export between Aisa and Europe(Jan’10 to Sep’10)
1) Export from Asia to Europe―――＞ 0.47 million teu per month
2) Import from Europe to Asia―――＞ 0.18 million teu per month
Import/Export gap: △ 0.29 million teu per month
Meantime, No.1 Export month from Asia is Aug this year.
CC) Aug’10 Export from Asia to USA/Europe
1) 1.26 M teu（for USA）―＞ +17% more than average monthly export 1.08 M teu
2) 1.24 M teu（Europe）―＞ +264% more than average monthly export 0.47 M teu.
It is quite understandable how container demand concentrate on the peak season in summer. Especially for Europe it is quite amazing for seeing such big gap.
Next is the gap by service route which is also interesting.
DD) Gap of Import/Export with USA/Europe respectively
1) Gap between Asia and USA △ 0.39 Million teu
2) Gap between Asia and Europe △ 0.29 Million teu
Total Gap with USA/Europe： △ 068 Million teu
Shipping lines have to bring back empty containers to fill the gap of Import/Export by using their empty space of their ships from surplus places. This comparison is just made with the main trade of USA/Europe. There are many other trades such as Intra Asia, South/North and so on. Therefore, all different trades make inventory control more difficult. The inventory control team of shipping line has to avoid any claim from their business section that they could not solicit the cargo without necessary containers.
It would be more complicated by container repair, timing of retired containers, termination or extension of long terms containers from leasing firms, replacing the old ships with the new ships, the new service routes to be introduced. They exactly plan to move containers into the demand places not only China but other Asia at the right volume in right timing by making the above into consideration. Thus, it is big headache to the inventory section of each shipping line.
By this reason it is quite meaningful to make new production of 250,000 teu available in China in demand places.
EE) Meaning of New Production
1) 38% ＜―― contribution to the monthly average Import/Export gap.
2) 15% ＜―― contribution to Aug’10 of the peak month.
Here is the significant presence of leasing companies. Even if leasing companies contribution would be half of this figure the existence of leasing companies would be of great help to shipping lines. Leasing companies would not be competitors. They would be reliable partners to shipping lines if they make good friends with leasing companies. From the viewpoint of this the shipping lines have become friendly with leasing companies these days. In Japanese shipping lines they usually ask leasing companies to give them rather longer pick-up time such as 6 month build-up period of long terms. For example, during 6 month build-up period from April to Sep they could receive the delivery of their long term containers. Of course, they don’t know how much the purchase prices from Chinese container makers would be so that they have a review clause on leasing rates as necessary. Both parties would take some risk for an emergency. Leasing companies would get some return to some extent as long as there would be not much big difference in their prospect. This has made shipping companies able to adjust the inventory control easily by themselves while it has also made leasing companies to grow with some profit. Leasing companies could secure profit by using the fund of an institutional investors.
Asia including China will enter the Luner New Year from Feb.3, 2011. There would be an export rush expected before the Luner New Year. However, there are unlimited and uncertain factors in the world economy such as China in the bubble economy, USA in the supper lowest interest rate, Europe in financial uneasiness, developing countries in competing with lowering own currency, Japan in comparatively high Yen and deflation and so on. In addition, the decision made by FRB of USA to buy back the bond of $600 billion by end of June, 2011 might push up gold, crude oil price in the a commodity futures transaction and then might bring into the currency crisis in the developing countries such as China, India, countries in Middle East & South East Asia in the near future. However, shipping lines operating in the main trades would take an positive attitude under uncertainty in the world economy by securing aggressively new production at the beginning of the year. As a result, the number of the retired containers from shipping lines and leasing companies would be limited in 2011? We will continuously have to keep an eye on actions of shipping lines and leasing companies.