Why Are Shipping Lines Investing In Reefer Containers?

Despite challenges in container shipping, the demand for transporting climate sensitive cargo – such as food and pharmaceuticals, has risen significantly over the last few years.

The controlled atmosphere technology used in many reefer containers allows for the air’s composition inside the refrigerated containers to be altered to accommodate the needs of the product being transported. This ensures that fruits, such as avocados and bananas, enter the marketplace at the optimum ripeness.

We see particular growth potential in the fruit sector. – Juergen Pump, Senior Vice President, Hamburg Sud North America

To accommodate the increase need for refrigerated containers, industry leaders – like Maersk Line and Hapag-Lloyd, have made investments in their reefer fleet. Others, such as CMA CGM, have said they will add more reefer assets before the close of 2016.

reefers higher margin business

Shipping lines have been targeting the reefer sector because of its growth and because of its economies of scale. Reefers tend to be a higher margin business as there’s more value-add you can bring to the product offering and to customers. Shifting trade directions are also a factor. – Nigel Webster, Director of Refrigerated Containers, Seaco

Recent investment into reefer development has introduced new shipping options for the transportation of fruits and vegetables to/from markets like Florida, Mexico, Brazil, and Cuba. This increasing demand in emerging and developed economies will certainly bode well for carriers and container lessors alike.

Container lessors can provide a valuable service by bridging the gap between the need for new investment from cash-strapped container lines and the increasing need for more reefer boxes in the marketplace. This approach is more attractive to carriers because it allows them to hold their capital and reduce their exposure to additional operating costs. Investors are drawn to investing in shipping containers because of the long-term benefits and lower risk.

reefer cargo means food always moves

Reefer cargo means food and food always moves. – Nigel Webster, Director of Refrigerated Containers, Seaco

Although Maersk Line is the biggest owner of reefer containers worldwide, the next four largest owners are leasing companies. In fact, of the 2.5 million reefer containers worldwide, leasing companies own approximately 42 percent of those assets.

Container leasing companies own 42 percent of reefers worldwide

Fact: Container leasing companies own 42 percent of the 2.5 million reefer containers worldwide.

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Maersk Line Repeatedly Shows Container Shipping is Profitable

Despite challenges in the container shipping industry, Maersk Line saw continued improvement over its Q4 2015 performance, with a Q1 2016 profit of US$37 million. The Maersk Group as a whole delivered a profit of $224 million ($1.6 billion)

Given where the markets are, it’s a good set of results, without bragging. – Chief Executive, AP Møller-Maersk

For most industry watchers, Maersk Line’s performance is regarded as an important indication of the state of the container shipping sector, and certainly provides valuable insight into the performance of the world economy and global trade.

The volume handled by the container shipping leader has grown seven percent year-over-year to 2.36 million FEUs. This increase was complemented by a 10 percent decrease in total operating costs and a 48 percent decrease in the price of fuel, which partnered to lower the average unit cost of transporting a container by almost 5 percent to US$2,060.

We improved our financial performance compared to the fourth quarter in 2015 despite continued drop in prices. In a market with record low freight rates, we won market share, drove down cost and continued to deliver positive free cash flow, enabling us to fund our own growth. – CEO, Maersk Line

The reductions to capacity made in the last half of 2015 have consistently increased utilisation, especially on its container shipping services from Asia to Europe, and are contributing to the company’s improved performance.

maersk line high utilization of vessels

Our network is now operating with very high utilisation and our vessels are full in the Asia-Europe trade. – CEO, Maersk Line

The worldwide demand for maritime shipping container transport is still expected to increase by one to three percent. To defend its market leading position, Maersk Line says that it intends to grow at least with the market and, like many other investors, profit from investments in global trade.

We expect the market to pick up towards the third quarter of 2016. In this quarter, we expect some upward price momentum ahead of the traditional peak in the third quarter. – CEO, Maersk Line

In keeping with their investment and growth strategy for emerging and developed markets, Maersk Line has announced three new services. The Seago Line’s Irish Sea service, SeaLand’s Atlantico service, and Maersk Line’s Transpacific TP18 service have been established to provide new trade opportunities to customers in Mexico, the United States, China, The British Isles, West Africa, and the Mediterranean.

maersk line thinks there is light on the horizon

We think there’s light on the horizon with the current turmoil in the container shipping industry potentially resulting in the elimination of industry overcapacity. – Chief Executive, AP Møller-Maersk

Maersk Line reported that at the end of 2015, its operating margin was five percentage points higher than the average of its rivals.

Time and again Maersk Line has demonstrated that, despite challenges, there are profits to be made in the container shipping industry. To be equally successful in their own approach, investors must carefully research opportunities and review investments to determine where the best opportunities are to be found.

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