This year, Luna New Year is Feb.3. The national holiday was set from Feb.2 to 8 for 7 days. So China is still quiet because the Luna New Year will end on Feb. 17 which is equal to Jan 15 of Luna New Year. We will have to wait for ending Feb. 17. In China the Luna New Year is the most important event of festival in the year. During the holiday more than 2.8 billion people will move through the country called massive migrations of people. Its energy of China would be beyond imagining. The Nikkei Newspaper (the leading Economic Newspaper in Japan) reports China’s consumption is staying strong by quoting the nation retail sales reached 5 trillion Yen for 7 days of national holiday period. It is a bit hard to imagine the scale but it is equivalent to the annual budget of the city of Tokyo. I feel the huge powerful China in energy of massive migrations of people.
China would strongly request the whole world to change after recharging after long holidays. Any countries of the world could stay as they are. They are requested to change as China changes. If any countries could not cope with their request nobody could prosper, much less to survive. China keeps asking us for it. In order to avoid the past failure of Japan such as Japan could not break out of stagnation of the lost 2 decades China government has been obstinately doing in their own way even if they have been criticizing from other countries. China has been requested the urgent solution for housing bubble, inflation, difference in economy between inland and the coastal cities, job creation, pollution of the environment, ethnic conflict and so.
Big cities in China like Beijin, Shanghai, Tianjin have been suffering from serious air pollution which is subject to the places to some extent. If you walk a few minutes in Dalian you probably feel a tingling pain in the throat. I could not help sympathizing with such situation. I remembered an American friend joked that in China human being help cleaning the air. It is not long ago that Japan was in the same situation if we recall.
Chinese government has been sincerely tackling to find the best solution of these problems in the superb balance of control while they have been criticized. The nation in the world should be in the process of a trial country longing for happiness of people. Therefore, we could not simply deny self-centered and developing Chinese government. It could make them possible because of a single party of Communists to govern China. It could be difficult to manage energy of the red hot magma by the policy of the conventional free economy. However, the history proves that such red hot magma could not continue forever. China has been trying to challenge the difficult steering. Therefore, I would like to support them to create China which other countries envy after controlling energy of the red hot magma. I feel impatient at the present figure of Japan which should have changed according to China.
The new container production price of 20F has already increased over $3,000 from the order of March. It is said that the number of new production in the factories in China has been over 500,000 teu as of the end of Jan’11. Two thirds of them are the order of leasing firms. The leasing firms who have money enough have bought them in speculation. They could expect some profit for already built containers if the container price will continuously increase. Shipping lines would be cautious about ordering new production. In the meantime, the leasing firms would take an strategy of making an order for containers to the makers as many as possible. The price increase would be not avoidable unless the container makers expand their production capacity. As a result, containers ordered by leasing companies would be getting profit under the price hike pressure. This trend would stay strong toward the summer peak season (Sep, Oct). This situation would be welcome by Chinese makers because they don’t need competition in securing an order from leasing firms. Their price would be accepted by leasing firms without hard negotiation under a sellers’ market of container makers. Leasing firms would understand they could secure some return from speculation order of containers. Their expectation would not prove mistaken unless container makers produce more.
Shipping lines have secured profit after recovery of cargo, leasing firms have been enjoying high utilization of around 98% and container makers have been attaining close to 100% operation of the factories. 3 business sectors have been in the most favorable situation in the history.
However, the world is moving. The surplus of money situation has been unchanged. It is said that the working assets by the hedge funds in the world as of the end of Dec’10 would be back to the largest level (1.9314 trillion dollar ) recorded at the end of Jun’08 before Lehman Shock. The hedge funds in the world have kept an eye on the places where they could operate in the highest investment efficiency such as the stock market and the commodity market in the world. The businesses in the world try to boost the competitiveness in order to survive by M&A and raising funds in anticipation of the hike of the prices in the stock markets and the natural resources. According to the Nikkei Newspaper M&A in the world was recorded 309.6 billion dollar during one month from Jan’11 to Feb’11. It is the highest after 454.2 billion dollar in 2000.
Container leasing firms are not exceptional. The Reuters reports on Feb.7 that Warburg and Vestar, the worldwide investment company might buy out Triton, one of the largest container leasing firms in the world at the price of one billion dollar. Triton has been looking for the buyer because of their parent company of The Pritzker Family (a quarrel over an inheritance). This time it would be materialized due to the time limit. Warburg and Vestar, the privately owned company has been established in 1966 in New York who has assets of over 30 billion dollar. They have been investing the money of about 35 billion dollar over 600 companies in the world. This is the first time for them to invest for shipping and transportation business. As a result, the management of Triton seems to be independent from them.
Triton is the excellent company because of no deficit since started. The Triton is not the case but in the M&A case of leasing firms the more profitable the leasing firm is the more it is sold. It is clear if we see their history. The history of leasing firms would be subject to M&A. there were many leasing firms born from 1970 to 1980 when containerization had been built up its position as the epoch-making transportation system. Containerization invented in America would be at the stage where many entrepreneurs realize their success as American dream.
The leasing firms could be separated from two groups, one is the first generation leasing firms born in 1970s and the 2nd generation ones early in 1980s. there is no longer first generation existed. The entrepreneurs of the first generation had realized the American dream of making a fortune by selling them after making them grow. It would be the herald of American dream of the successful computer IT entrepreneurs of the called Silicon Valley in San Jose in the suburb of San Francisco. There were many excellent talented people turned out from the first generation and they created the 2nd generation leasing firms.
In the meantime, the leasing firms were separated European from American in 1980s. European firms were rather in small size coming from forwarders. On the contrary American ones had been powerful with large fund as the revolutionary of the distribution. The large one absorbed small one. The mega leasing firms have come from the American firms. It is the theory that the scale merit would bring large cost saving. Therefore, the owner of the leasing firms would move from the individual to the investment companies. Computer would help them to grow bigger. In early 1980s CTI would be the largest leasing firm with the operating scale of 140,000~150,000 teu. But their scale would impress to me quite huge at that time. The largest leasing firm is Textainer operating over 2 million teu at present. They have grown to this size after buying others and entrusted the fleet from other investment companies. The leasing firms would continuously aim at the scale merit for growth. The leasing firms would become a target of M&A in accordance with the investment companies. We will have to keep a watchful eye on movement of leasing firms.
Old containers from shipping lines and leasing firms would be put into the 2nd hand container market of which volume is not big. The shipping lines have stopped selling tens of thousands of old containers by their purchase year. Shipping lines and leasing firms have been disposing old containers by small lot at the places where they could sell at a higher price. However, supply of old containers has been limited so that demand has always created tightness in 2nd hand container at the demand places such as China, Korea.
2nd hand container price would increase owing to the new production price exceeding $3,000 per 20F. Higher new production price would force shipping lines and leasing firms to use container longer. Old containers would become older containers once they release out of their fleet. In other words powerful shipping lines would replace the old containers with the new containers in certain volume every year to keep their in-fleet younger. Therefore, their in-fleet has been kept younger. this would give a good impression to their shippers. This is very important for them to differentiate them from others. They could not say that container appearance would not matter. It is inevitable to make them look young under severe competition in order to survive. To acquire the new production is one of the strong sales points to the shippers. This should apply to the leasing firms as well.