This feature, examines the Iso tank container Leasing today. The things we know, things we know we don’t know, and at the same time we hazard a peak into things we don’t know we don’t know. Confused? ‘Well let’s get started to try and unravel this. We know that the conditions out there in the Leasing industry are not exactly favorable. There appears to be an overhang of what some say are about 20,000 new tanks, stacked up in depots at factories, in China mostly, with the rest in tank depots across Asia, West European ports and in depots in the America’s. There seems to be a maritime dimension or commonality to problems we see today related in terms of overcapacity and the creation thereof? Amongst ship owners across container shipping as well as the VLCC oil tankers, and chemical product tankers it has been a cyclical ‘tradition’ to periodically inflict injury unto itself by building too much capacity. Later when the slack has been taken out of this extra capacity the whole thing is repeated all over again. Could there be something of this kind at work in the tank container industry? The iso tank industry has over the last three years seen robust pace of iso tank manufacture which some argue considerably outstripped market demand? According to ITCO total factory output numbered 48,200tanks for 2014 up from 42,600 in 2013, and 39,700 in the year before? Why did leasing companies continue to buy tanks at a time when it was plain to see that the World at large continued to struggle with the effects of the global economic crisis in 2008? The answer must be pricing! With the price of T11 of 25Kl dropping the below US$17K mark some say US$16K, the attraction of the ever alluring prospect ‘to buy low, sell high’ over the course of the asset life cycle of some 15 years, proved once again hard to resist. Secondly, the availability of ‘cheap money,’ something that is not expected to last going by the ‘chatter’ from the corridors of the Fed about impending interest rate hike? An interest increase by the Fed would not only herald the end of ‘cheap money’ but also further depress the currencies of emerging markets, and with that stifle market demand. On top of that, right now the currencies of developing countries are battered following the recent devaluation of the Chinese Yuan.
To be sure, there has been increased buying of tanks before at times when the purchase price was down, nothing new here. But bringing too many tanks to market, at a time when the global economy fails to gain momentum has the potential to lead to oversupply and a glut? The jury is out if we are there right now but it ain’t pretty. What about a bright site, is there one? Sure there is! The industry has come of age, and has over the years seen and weathered its fair share of troughs and peaks in the market place. With iso tank containers being what they are today i.e. the World’s packing of choice for intermediate bulk parcels, it can be expected to weather this and the next storm. The sum of all the issues that plague the global World economy right now will not reverse the inevitable i.e. the global economic power shift from USA and Europe to Asia and emerging economies by 2050, either. It is happening! The tank container industry by and large tracks this development in particular under influence of the ever growing importance of China and India, as engines of growth.
The tank container industry is certainly not immune to global economic cycles, quite the contrary. Its fortunes continue to be closely tied to its main patrons i.e. the energy and chemical & petrochemical manufacture sector. Petroleum alone, fuels, lubricants, lubricating oil additives and aromatic solvents is said to account for close to 50% of bulk liquids transported world-wide. Hence no wonder that a fall in the price of a barrel of Oil is bound to impact market demand for iso tanks. And we all know where the price of Oil has went in the face of a rapidly decline in demand following unfavorable global economic conditions. The continued stagnation in Europe, of which Grexit was nothing more than one of the symptoms. The bigger hurt stems from the dilemma that the common currency the € created since its inception in 1999. This root of the problem is said to be the rift between the needed reconciliation of sovereignty and the requirement to relinquish controls over National budgets to a European body. The price of a barrel of Brent crude dropped since middle of last year when after hitting a peak of more than $105 per barrel in June, oil prices dropped to below $60 in December and down to US$50.00 today. This continues to reverberate in Oil & Gas related industries, everywhere you look. A crisis of confidence, too, compounds economic malaise everywhere you look perhaps with the exception of USA.
In the wake of the oil price tumble how exactly did the chemical manufacture industry hold up?
Plunging oil prices are generally a boon for many chemical companies because their feed stocks and main fuel come from petroleum and the lower cost has the potential to lift what have been shrinking margins for some time now. Therefore, we can say that there is some relief in the chemical manufacture space. That said, it does not mean that all is well in chemical manufacture. Lower feed stock cost does not really mean much when there are cost competitive pressures, and there is insufficient market demand in the face of a myriad of global issues as highlighted plus those that involve global security and the continued geopolitical drag on economic growth in the form of Ukraine and ISIS. Neither does lower feedstock cost do anything to level the global playing field in terms of competitiveness. In the chemical manufacture space, USA and ME clearly trump Europe when it comes to competitiveness. The growing availability of plentiful, competitively priced natural gas and petroleum feed-stocks recovered from shale formations has fostered the expansion of US chemical production and exports. The ready availability of LNG too, filtered through to the cost of power, there. Electricity cost in US hovers around US$0.055 per KWh as compared to about US$0.20 in Europe. It isestimated that operating a large modern petrochemical plant in US in a year, costs US$125 million less to operate than in Europe. Another cost differential illustration is the production costs for one ton of ethylene in ME which is US$250 – half that of Europe. On the bright site, the Chemical sector remains one of sustained growth. Global market volume for chemicals will more than double in the period through 2035 compared to current sales of 2.6 trillion euros in the industry.