Intermodal container leasing

Intermodal container leasing

By Bert van Leeuwen, DVB Bank S.E.

Bert van Leeuwen from DVB Bank S.E. looks at the rapid maturity of the container leasing industry over the past years. Container boxes probably are amongst the least “glamorous” assets in the world of equipment leasing. For most people, containers are just dirty, rusty metal boxes with an unclear (and probably hazardous) content, blocking your car in a traffic jam. Indeed, a commercial jet or a high speed train and even a ship is sexier, but for those who take the trouble to look a little deeper into the intermodal container business, it will soon become clear there is more to it than meets the eye. A widely used “Container Handbook” published by the German Insurance Association contains over 1,500 pages, just about intermodal containers! Actually, it is thanks to this simple metal box that global trade could develop the way it did. Without the container we wouldn’t be able to buy exotic fruit at Tesco the day before Christmas or buy fashionable sneakers at Walmart for rock-bottom prices during our summer holidays.

History. The standard intermodal container actually is even younger than the modern jetliner. BOAC operated the first commercial jet service, from London to Johannesburg, in 1952 with the de Havilland Comet jetliner. While early forms of containerisation were initiated in coal mining regions in England beginning in the late 18th century, it was only in 1955 that trucking company owner Malcom McLean developed the modern intermodal container. He designed a shipping container that could efficiently be loaded onto ships and would hold securely on long sea voyages. The design incorporated twist-locks on the corners of the box, allowing the container to be lifted by cranes. In April 1956, McLean put 58 containers aboard a converted tanker, the “Ideal X”, and sailed with these from Newark to Houston. The age of containerisation had begun.

Between 1956 and 2016 a lot has happened, which probably can be best illustrated by the growth of the container fleet. From a few dozen boxes in 1955, the fleet grew to circa one million TEU within the first 15 years. “TEU” stands for Twenty Foot Equivalent Unit, the standard measure of container capacity expressing each container’s capacity as a multiple of the standard 20ft long box. A 40ft box consequently measures two TEU. By 1990 the fleet reached six million TEU and by the year 2000 almost 15 million. Today, 2016, the estimated total fleet size is ca. 40 million TEU, or over 26 million individual units.

While a simple metal box, the intermodal container has made the transportation of most – non bulk – commodities a lot faster, cheaper and safer compared to the old break-bulk system (crates, bags, boxes, drums). First of all, goods in a container are much better protected against theft and pilferage. The goods are never touched before they reach the final destination. Next, containers significantly reduce the time a ship has to spend in port. A container vessel can be unloaded and loaded in a day, where it would take up to two weeks for an old fashioned break-bulk vessel of the same capacity. Finally, labour and handling cost are only a fraction of the cost of handling break bulk, making global trade of even low value products feasible.

Today the container box is an indispensable part of the modern global logistics network. Container ships that can carry up to 20,000 TEU connect the continents, offering frequent, high quality scheduled services. Maersk, MSC, CMA/CGM, Evergreen, HMM are amongst the top-tier liner companies, many of which have bundled their capacity in strategic alliances with names like 2M, The Ocean Alliance and THE Alliance. While the liner industry struggles with overcapacity as a result of disappointing trade growth and over-ordering of very large vessels, demand for container boxes has not collapsed. To get any productivity out of the new mega-ships, that can cost over US$150m each, any shipping line will need tens of thousands of additional container boxes. Over the past decade, the container/slot ratio (average number of containers per container position available on container vessels) has fluctuated between 1.8 and 2.0, implying the industry needs roughly twice as many containers as they have vessel capacity.

 Equipment characteristics. Intermodal containers are designed to be used by different transportation modes. They fit into standard “slots” on ships, railcars and trucks and can easily be transferred from one mode to the other. Most (“maritime”) containers meet a set of international requirements and are built to specific ISO standards. Other standards are specified in the Customs Convention on Containers, the International Convention for Safe Containers (CSC) and the TIR Customs Convention. Containers are identified by an ISO determined alpha-numerical code, such as the hypothetical code “DVBU 001 234 5”, where “DVB” would be the owners code, “U” stands for “freight container” (as opposed to e.g. “Z” for trailers), “001 234” is the individual container’s serial number and “5” would be a check digit. Container registrations are issued by the Bureau International des Containers et du Transport Intermodal (BIC) in Paris. It is important to note that throughout the life of a container there is a continuous chain of responsibility for the unit. At any point in time some party will take over responsibility for the unit, be it a shipper, a depot, a terminal operator, a trucking company or a shipping line.

Tracking and tracing of containers is increasingly automated by using Automatic Equipment Identification devices. Every container is equipped with a clearly visible metal data plate, featuring safety related data and evidencing CSC approval. Often the data plate includes ownership data, such as the contact details of the lessor or financier. Because of the above, and contrary to popular believe, very few containers are lost due to theft. Obviously some containers are lost every year due to accidents, ranging from derailment of a container train, sinking of a container vessel, a fire on a depot or the flooding of a container terminal, but even this percentage is minimal.

While highly standardised at the interface points (somewhat similar to Lego bricks), containers do come in many shapes and sizes. The most important category is that of the “maritime” 8ft wide containers that are used worldwide by deep-sea shipping lines. Much smaller is the group of “regional” containers, made up by the 8ft 6in wide North American domestic containers and the 2.5 metres wide European containers and non stackable swapbodies. The majority of maritime containers have a length of 20ft or 40ft although also 45ft boxes are used. The North American domestic units that are used on trains and trucks are 53ft long with a smaller sub-fleet of older 48ft or even shorter. The length of a container is generally determined by the maximum dimensions allowed for highway transport. While maritime containers originally were 8ft 6in high, so-called “high cube” 9ft 6in high containers enjoy increasing popularity. 20ft boxes are used for high density cargo such as machinery that “weighs out” before its “cubes out”, while 40ft units are more suitable for lower density cargo (consumer goods, toys).

Apart from different dimensions, containers differ in design and construction according to the type of cargo. The most popular design is the (corten) steel box with wooden floor for general or “dry” cargo. Next is the refrigerated or “reefer” box. Modern reefers are of the integral design, meaning the refrigeration mechanism is integrated in the insolated stainless steel or aluminum box. The refrigeration mechanism need supply of electricity, either from the ship or depot or from a diesel-electric generator or “gen-set” mounted on the container itself or under the truck-chassis. The reefer mechanism is computer controlled and the composition of the atmosphere as well as the temperature setting are optimised for each type of cargo (mainly fruit and other types of perishables). Open top and flat-rack containers are suitable for odd shaped or outsized cargo, such a pipes, marble slabs, bull-dozers or scrap metal. Of a completely different design is the tank container. Essentially a cylindrical tank mounted in a frame with the dimensions of a standard container. This way even tank containers can be stacked. Tanks are used for liquids and gases and sometimes have to withstand high pressures or highly corrosive chemicals. Some tanks can be heated or refrigerated depending on the requirements of the cargo.

Values. Moving on from the “metal” to the “money”. Obviously an individual container box is not a “big-ticket” item. Prices of new standard 20ft dry cargo boxes fluctuate between US$1,300 and US$3,000 ex works China. China is where the vast majority of containers are produced, by just a handful of major manufacturers; CIMC, CXIX, Dong Fang, Singamas and the non-Chinese reefer specialist MCI. Container price levels are obviously driven by container demand and supply but also by the cost of steel. As of early 2016, steel reached rock bottom price levels and so did container prices. Between 2010 Q4 and 2016 Q1 container prices dropped by almost 60%. While this should trigger high demand from speculative buyers, lease-rates were equally depressed, putting pressure on initial cash investment returns. More about that later. 40ft dry cargo boxes are about 1.6 times as expensive as 20ft units. Refrigerated boxes are a lot more expensive. A 40ft high cube unit has a new-build price of between US$15,000 and US$18,000. The refrigeration machinery is not supplied by the builders of the boxes but by separate specialist manufacturers including Carrier, Thermoking, Daikin and MCI Star Cool (=Maersk). The most expensive units are the tank containers. These stainless steel units trade new for between US$17,000 and US$29,000. Sophisticated high pressure and refrigerated units can exceed US$50,000.


Positioning of a 20’ container from e.g. China to Europe can cost almost as much as the cost of a new container. Consequently, container buyers, either leasing companies or container liner (shipping) companies, avoid empty positioning. As production of many industrial products as well as container boxes tend to concentrate in low-labour-cost areas, overall it is not too difficult to find suitable paying cargo during a positioning trip. Shipping companies try to avoid empty positioning trips and because of this, during return trips e.g. back from Europe to Asia, even low paying, low value cargo is accepted, such as waste paper or waste plastic.

The useful life of a container is around 12-15 years in the deep-sea markets, after which the units are sold for static storage, one way trips to less developed areas or regional land transport purposes. Price levels of 12-15 year old 20ft boxes follow the pattern of the new equipment and fluctuate between $ 700 and 1.700 in “wind and water-tight” condition. The industry utilizes a range of maintenance standards governing the interchange of boxes, some more liner/lessee-friendly, others more lessor friendly. The used container market is very much a “regional” market with price levels depending on local circumstances. “Dumping” many used boxes in one port over a short timespan generally is not a good idea, given the risk of oversupply. At the end of the life of the units, after say 20 years, still usable parts like locking gear etc. are salvaged for recycling and the remaining metal is sold for scrap.

 Container ownership and container leasing. Container leasing companies play an important role in the industry. Until a few years ago, the container leasing business was a small, relatively unknown niche in the equipment leasing market. Many investors and financiers avoided container boxes because of the perceived risk of equipment disappearing and the relative high cost of tracking, tracing and repossessing this relatively low-value equipment. Asset-based financiers and investors are used to a scenario where they repossess their assets in case of a default and store the asset in a protected environment (the Mojave desert for aircraft or a Norwegian fjord for ships) awaiting remarketing. This is not the smartest scenario for a defaulted container fleet.

Given the high cost of gathering and moving containers compared to the value of the equipment, it is best to remarket the equipment at or near the place the box is located. Maybe this can be best compared to a telecom satellite. In case of a problem, the satellite is not brought back to earth to sell the transponder capacity and subsequently brought back into orbit. In a similar way, a container should either be sold “as is, where is” or re-integrated in the global transport network (i.e. by offering a new lessee free usage for a certain period).

Over the past decade or so, container leasing has become more mainstream and apart from a few listed companies, container lessors are owned by private equity investors or pension funds. Over time, the character of container leasing has changed dramatically. Initially, container lessors were true service providers that offered liner companies boxes on short-term leases in case of temporary (local) equipment shortage. Contracts were mainly “spot market” or “master lease” (offering the lessee the option to off-hire containers under certain pre-agreed conditions). Lease rates – or “per diems” – were relatively high and fleet utilisation was low.

Container leasing in the early days was a relatively labour intensive activity. Gradually the character of the business changed. Liners became better managers of their box-fleets and the flexibility offered by spot- and master-leases became less relevant. Lessors transformed from service oriented suppliers to quasi financiers focused on the lowest “per diems”. Buying equipment at the lowest possible price, achieving economies of scale in their own operations and ensuring the lowest possible funding cost became the main success factors for lessors. To compensate for the significantly lower per diems, the long term lease contracts ensured a significantly higher equipment utilisation.

Two other sources of income boosted the leasing company’s income. First, some big lessors sold parts of their fleets to investors and subsequently managed the containers for these investors in consideration of a certain fee. The other source of income consisted of the return compensation paid by the lessee to the lessor for any damage to the container during the lease. While normal “wear and tear” is for the account of the lessor, “damage” has to be compensated by the lessee. In many cases, the lessor cashes the return compensation, but never actually repairs the unit. This RND-income (“Repairs Not Done”) together with the usually strong residual value of the container (even in unrepaired “as is, where is” condition) proved an attractive kicker at the end of the lease contracts. In some cases, lessees rather extended the lease term to avoid paying the often substantial return compensation.

The share of leased containers in the global fleet fluctuates over time, based on the investment climate, financial condition of the liner companies (weak financials generally result in higher percentages leased boxes), purchase price level of the equipment (liners are more prone to buy when boxes are cheap, lessors also take prevailing per diems into account), etc. Between the year 2000 and 2016 the share of lessors in the global fleet has fluctuated between 41% and 49% (Source: Drewry Maritime Research).

While the lessor’s fleet share is relatively inert, the share in annual purchases is more volatile. Since the year 2000, lessors have been responsible for between 35% (2005) and 69% (2010) of the annual purchase volume. It has to be taken into account that total container production volume can fluctuate wildly as well. During the year 2007 about 4,250,000 TEU were produced, while two years later in 2009 the annual volume was only 450,000. 2009 was a “unique” year as container prices – and more importantly manufacturer’s margins – had dropped to a level that was unsustainable. The container manufacturers consequently closed their factories and decide to wait for the market recovery, which materialised during 2010/11. It is interesting to note that while in 2009 container production stopped as the market prices dropped to US$1,800. Early 2016, prices are even lower at ca. US$1,250 and production continues. The big difference is the price of steel. In early 2009, Chinese hot rolled steel traded at over US$600 per ton, while in early 2016 this price has dropped to ca. US$350 per ton (Source: Harrison Consulting).

While investment equity is plentiful and container purchase prices were near an all-time low in early 2016, this did not trigger massive purchases from the leasing community. Partly this is because of the depressed state of the container shipping market but mainly because container per diems also have reached an all-time low, resulting in a very depressed Initial Cash Investment Return (= (per diem x 365) / container purchase price). Way back in 1983 per diems for a 20ft dry cargo container were as high as US$1.70. By the year 2000 this level had dropped to only US$0.75. After a short period of recovery, reaching a peak level of US$0.94 in 2011, the rates collapsed and early 2016 are at an all-time low of US$0.31. This trend for the benchmark 20ft also applies to the larger 40ft units. Reefer containers seem to show a little less volatility but follow a clear downward trend as well.


For the lessors, the combination of lower container prices and plummeting per diems has resulted in a seemingly eternal drop in the Initial Cash Investment Return. Going back to 1983, in that year the ICIR still was over 35%. By the year 2000, this number was halved to just 18%. By 2013 the ICIR fell below 10% and today we see another all-time low at 8.4% for a 20ft dry cargo container. Amongst the “standard” container types, the ICIR is highest on 20ft refrigerated containers with currently 9.8%, but it has to be taken into account that this type of equipment generally depreciates at a faster pace vs. the dry cargo containers.

The container leasing market is characterised by a combination of mergers and take-overs on the one side and the emergence of new lessors on the other side. Like the failed Irish aircraft lessor GPA gave rise to a host of other aircraft lessors, San Francisco based lessor ITEL is generally seen as the progenitor of the container leasing industry because many new lessors were started by former ITEL executives. ITEL’s end as a container lessor came in 1990 when its box fleet was sold to G.E.’s Genstar unit. According to the latest rankings, there are about 15 global container leasing companies of substance. Ranking can be by number of units, TEU or CEU. A “Cost Equivalent Unit”, or CEU, expresses the monetary value of a container as a multiple of the value of a standard 20ft dry cargo unit. As an example, a 40ft reefer container costing US$15,000 would be counted as 10 CEU assuming a standard 20ft dry cargo box would cost US$1,500. CEU’s are used to measure and compare heterogeneous container fleets. The container leasing business is highly consolidated. The top 10 lessors control just under 90% of the global leased fleet. Of this, the top four controls just over 50% of the fleet. The most recently published container leasing league table can be seen below.








Textainer Group







Triton Container







TAL International














Cronos Group**







Florens Container Leasing







SeaCube Container Leasing







CAI International







Dong Fang International







Beacon Intermodal Leasing







Touax Container Solutions







Blue Sky Intermodal







UES International HK







Magellan Maritime Services







CARU Container







Raffles Lease







Source: Drewry Container Leasing Industry 2015/16


Since the publication of this league table many things have happened. The second and third largest lessors, TAL and Triton announced plans to merge their fleets during the second quarter of 2016. In 2015, the numbers four and five, Seaco and Cronos Group, were united under the Chinese HNA/Bohai group, an emerging powerhouse in the world of tourism and transport (equipment). We expect this trend will continue for some time to come.

Conclusions. The container leasing industry has matured rapidly over the past years. From a service-oriented small-scale industry, it has become a global cut-throat battlefield for a limited number of financial powerhouses. During this process cost-cutting has taken place wherever this was possible and – as proven by the financial results over 2015 and 2016 Q1 – returns are now fairly marginal. For the future it remains to be seen if and when this industry will return to normality. Will global trade resume its growth path or is globalisation now at its peak? Liner companies have ordered more container vessel capacity than the market can absorb and their results are under pressure as well. This pressure is felt by their suppliers as well, including container lessors. For anybody starting in this industry, prevailing purchase prices for container boxes are at, or close to, historical lows, mainly as a result of the low steel prices. Enthusiasm for container purchasing however is dampened by the extremely low lease rates, or “per diems”. The low new built prices also affected used equipment values and current market values of existing container fleets.

Whether this is a great time to enter the business or not, one thing is certain, global trade will rely on this simple steel box for decades to come, so for sure the “good times” will come back. The only question is “when”?



Bert van Leeuwen, Managing Director – Head of Aviation and Intermodal Research

DVB Bank S.E.

Tel: +31 88 399 7986