Why Invest in Shipping Containers

Summary of Industry Fundamentals

  1. World trade is growing consistently which increases shipping demand.
  2. Shipping companies are fighting for market share, so each is inclined to spend capital on superior ships  rather than on owning containers.
  3. In their attempts to capture market share shipping companies may lease units beyond their present need in line with their projections of higher market share.

Together, these factors mean an increased size of the container pool and an increased percentage of that pool being owned by lessors. In other words, the container leasing industry's demand is extremely healthy in the near future.

With so many positive catalysts in the shipping and shipping container industries, it is worthwhile to examine the various choices for investment within them. We believe the container lessors will outperform the shipping companies for two reasons:

  1. The aforementioned competition for market share among shipping companies could reduce their profit and increase lessor's profits
  2. Fluctuations in the cost of steel 
Modern ships, particularly the very large ones with (10,000 + Twenty foot Equivalent Unit {TEU} capacity) have greater cost efficiency. Several Shipping lines have spent capital acquiring these superior ships and are aggressively pursuing the capture of market share. As the shipping companies battle for market dominance it has two positive effects on the container lessors:
  1. A greater ratio of leased to owned containers
  2. Increased overall container demand

Percentage of Leased to Owned Containers

Container investments combine a high degree of investment diversification, comparatively low market volatility and a high residual value.

High degree of investment diversification:

  • Individual container units being relatively inexpensive means that a small capital outlay on a container investment can provide broad-based diversification purely due to the number of containers in the portfolio.
  • A container portfolio typically consists of several different container types across different age groups.
  • The lessees in container portfolios are widely spread and ranging from global shipping lines to freight forwarders and other specialized users.
  • Lessees are also spread across different geographical regions which further reduces concentration risks. 

Comparatively low market volatility:

  • Lead times to order new containers are minimal, allowing the container industry to react quickly to changes in container demand. Therefore pronounced market cycles vis-á- vis the shipping industry can be avoided.
  • Container factories are able to quickly reduce or completely suspend production to trim variable costs. On the first sign of an economic turnaround, production can rebound equally as fast.

High and stable residual value:

  • International standard on container design greatly mitigates obsolescence risk.
  • Wide variety of uses of containers outside maritime logistics in the so-called “secondary market.”
  • Benefit of buying new containers at wholesale prices and selling them into the secondary market practically at retail prices (i.e. customers in the secondary market do not produce enough volume on their own to order containers directly from manufacturers).