The turning of the screw - Steering deeper towards a reefer box shortage

The Cool Logistician talked to Robert Sappio, CEO of SeaCube
The changing balance between reefer boxes owned by reefer lessors and shipping lines is essentially a reflection of the unprecedented process of consolidation between the carriers in 2016, and years of challenging financial results. Since the global recession in 2008/09, the global shipping lines have been cash constrained and as such have reduced direct reefer box purchases. Lessors have increased their share of reefer box orders and have gained in their share of the reefer container fleet to slightly over 45%.

“2016 has been a remarkable year with consolidation leading to the container shipping market being dominated by less than a handful of carriers: Maersk, MSC, CMA, COSCO, and Hapag Lloyd,” Robert Sappio, recently promoted to the position of CEO of SeaCube, the world’s third largest reefer lessor.
As former COO of SeaCube and a carrier spanning almost 30 years at APL, Sappio is well placed to spin the coin and take a view from both sides.
Shrinking fortunes
With the Maersk takeover of Hamburg Sud being approved the number of container operators has shrunk even further.
Last year saw not only the demise of the 7th largest container carrier (Hanjin), but the takeover of APL by CMA CGM, the merger between Hapag Lloyd and UASC and the merger between Cosco and China Shipping. With a new round of consolidation between the three Japanese carriers scheduled to take effect next spring and the likely takeover of OOCL by Cosco or possibly CMA, the number of independent container carriers is fast approaching vanishing point.
Consolidation between leasing companies has followed a similar route. Following the merger between Triton and TAL last year and before that Seaco taking over Cronos in 2015, somewhat anticipating the shipping shakeout, the top table of lessors is also becoming less crowded.

Whereas before 2008 and still up to 2011 carriers always owned the lion’s share (up to 70%) of reefer equipment, the situation began to change when world recession began to bite and carriers’ fortunes took a nosedive. This is when leasing companies were called upon to fill the gap. However, returns in the leasing market and rock bottom per diem rates of ‘less than 4 dollar a day three years ago, meant that the investment hole left by the carriers suddenly hit home last year. In 2016, only 75,000 orders for new boxes were placed — a far cry from the 100,000–150,000 boxes that reefer box manufacturers had become used to, leading to temporary mothballing of reefer lines from China to Chile. The delay in MCI’s new reefer factory opening must be seen as a direct reflection of this.
Since then, the proportion of lessor and carrier-owned market share has changed.
“Last year, with carriers edging forward to owned 55% compared with 45% leased boxes, Sappio said. The world reefer fleet stands now stands at 2.7 mill TEU.

The current order book for reefer boxes this year stands at about 70,390 TEU and there is a small concern that the 2016 experience could be repeated this year.
The result will be an increasing age profile of reefer boxes in circulation. Taken together with the looming refrigerant crisis, i.e. the long awaited but step change between second and third generation refrigerants, the industry could be heading for a “new storm”.
For his part, Sappio was careful not to overstate the danger of the situation. But given the fact that reefer traffic has been increasing at a rate of 3–5% per annum in recent years, the current market “points towards the possibility of a reefer box shortage in 2017 and 2018.”
This year, only Maersk has bought significant numbers of new reefer boxes, believed to be nearing 45,000 TEU. (Most boxes are 40ft high cubes with a small proportion of 20ft boxes still be ordered). Some Asian carriers, including Evergreen, have purchased a few boxes. But this is almost like a drop in the ocean.
Even though the share varies widely between different carriers, Maersk remains not only the number one reefer box owner, but also has one of the lowest percentages of leased reefer boxes. With other carriers, the proportion of owned boxes compared with leased ones is quite different.

Sappio is also anxious to stress that the new shipping schedules developed by the new shipping alliances will take some time to transition and normalize, but in the end will offer very reliable services.
Shivering shippers?
Shippers wanting to export fresh produce to Latin America, North America or Europe China may be faced with the effect of a reefer box shortage next year. The Asian markets, remain the most attractive for Latin American exporters. This is reflected in more attractive rates from Latin America as a spokesman for NYK recently revealed in conversation. Yet, with rates from Qingdao, for example, remaining ludicrously low, the problem of reefer box imbalance is only being exacerbated.
SeaCube is open to discuss new forms of cooperation and partnerships with the carriers that would allow them to tap into the market of small volume shippers. But one-way leases do not always make sense. Sappio was quite sanguine: “We are not in the business of moving the cost of trade imbalance from the carrier’s balance sheet onto our own balance sheet.”
“Instead what we can do is to help the carriers move the discussion from price to cost and review network fit and balance to mutual benefit” he added.
Helping the carriers to cross the intermodal hurdle is one area reefer lessors such as SeaCube have been very good at, especially the US. The demand for gensets there is encouraging.
Even though the distances in Europe are much smaller, the company noted a significant uptake in the North Africa — Middle East market for gensets. Certain Southeast Asia markets may also see gensets take off in the future, SeaCube maintained.
Cool Logistics Resources provides top-quality business intelligence and networking for supply chain, logistics and transport professionals in the international perishables markets. The annual Cool LogisticsTM Global Conference in Europe connects perishable cargo owners with cold chain logistics and transport professionals from around the world. CLR publishes The Cool Logistician, a monthly curated collection of the best perishable trade and logistics news from across the worldwide web, including expert opinion, analysis and views from the Cool team and guest authors as published on the Cool Logistics blog
