"Mounting evidence that container spike could last into 2021"

" \n Bullish news on container shipping keeps pouring in, implying demand strength through February 2021 \u2014 if not longer. \n \n\n \n The latest green light comes from container-equipment lessor Triton International. Triton, the largest player in its sector, reported Q3 2020 results Friday and described Q4 2020 demand for equipment as \u201cexceptionally strong.\u201d \n \n\n \n Ocean carriers generally lease more than half their boxes from companies like Triton. The carriers\u2019 forward visibility on shipper demand drives their box-leasing demand. If leasing volume and rates jump, it\u2019s easy to connect the dots and anticipate higher future consumer demand. \n \n\n \n \u201cMarket conditions are expected to remain strong at least through early next year,\u201d reported Triton CEO Brian Sondey during a conference call on Friday. \u201cWe hear from customers [ocean carriers] that they expect a fairly significant container shortage to remain through at least Chinese New Year, which this year is in the middle of February. \n \n\n \n \u201cWhat happens after Chinese New Year is obviously harder to predict,\u201d acknowledged Sondey. \u201cThere is a lot of macro uncertainty out there although we haven\u2019t heard customers saying they expect anything negative.\u201d \n \n\n \n Chinese box builders ramp up \n \n\n \n As previously reported by FreightWaves, a very small number of major builders in China manufacture containers. Those producers are reportedly sold out until at least February . \n \n\n \n John O\u2019Callaghan, Triton\u2019s head of global marketing and operations, confirmed on the call that container \u201cfactory capacity [is] fully booked\u201d through 2020. \n \n\n \n Sondey said the unexpected spike in demand has prompted China\u2019s box builders to ramp up their output \u2014 which had fallen below normal levels pre-coronavirus. \u201cContainer manufacturers have started to increase their production by adding hours. Production is getting back to a normal levels,\u201d he explained. \n \n\n \n \u201cGiven the fact that our inventory and the market inventory is so low, we have been ordering more than we might typically for next-year production at this point,\u201d he continued. Triton has already placed $350 million of new container orders for 2021 delivery. \n \n\n \n Box prices, lease rates rising \n \n\n \n New container prices have risen to $2,500 per cost equivalent unit (CEU), said O\u2019Callaghan. (CEU expresses the value of a container as a multiple of a 20-foot dry cargo unit.) \n \n\n \n Fully booked Q4 2020 factory capacity \u201chelps explain why box prices have increased rapidly over a short amount of time,\u201d O\u2019Callaghan added. Earlier this year, prices were around $1,800\/CEU, putting the year-to-date increase at almost 40%. \n \n\n \n Equipment lessors are also securing much higher leasing rates from carrier customers. \u201cFor sure, lease rates are up significantly over the last few months,\u201d confirmed Sondey. \u201cThat reflects increased new container prices together with the strength of demand and the scarcity value for containers. Market leasing rates for new containers are up well over 50% compared to where they were during the second quarter.\u201d \n \n\n \n At Asia container depots, inventory has collapsed and the pick-up activity has skyrocketed past drop-off activity. These trends are specifically driven by \u201cextreme demand\u201d for 40-foot-high dry cube containers, which are \u201cconsumer-oriented, Asia-U.S. primarily and also Asia-Europe,\u201d said Sondey. \n \n\n \n (Charts by Triton International) \n \n\n \n Locking in future profits \n \n\n \n Stocks of box lessors like Triton, Textainer (NYSE: TGH ) and CAI International (NYSE: CAI ) are popular for container bets. Not only do they benefit from higher lease rates and longer contract durations as consumer demand for box shipments rises, but counterparty risk declines as carriers\u2019 bottom lines strengthen. Stocks of Triton and CAI have recovered from COVID drops; Textainer has more than recovered. \n \n\n \n (Chart data: Koyfin) \n \n\n \n On Friday, Triton reported net income of $45.9 million for Q3 2020 versus $85.9 million in Q3 2019. Adjusted net income came in at $1.14 per share, topping the consensus forecast for $1.06 per share. \n \n\n \n \u201cOur key metrics are still increasing,\u201d affirmed Sondey. \u201cWe believe the things we have done during this time of very strong demand and limited container shipping \u2014 the benefits of those things are going to be durable. In terms of the profitability and cash-flow improvement, a lot of that has been locked in \n "

"Mounting evidence that container spike could last into 2021"

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