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CONTAINER INDUSTRY
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As indicated earlier, depots in though it is possible that over- rates. In the past, leasing companies lines will take matters into their
the United States do not appear to crowding in Europe might result and shipping lines have demanded own hands and enter the storage
have experienced the inventory in boxes being directed to the US. discounts on storage to alleviate business themselves.
increases seen in other regions, at their own financial burden and Plans by leasing companies, in-
least so far. CGI, the largest off-dock Ups and downs many depots, unable to resist com- dividually or in partnership with
operator, reports that although its High depot inventories are an op- petitive pressures, acceded to those competitors, to establish their own
depot network has seen the total erations headache and cost burden demands. But when the market storage sites have been dismissed as
inventory of containers rise from for customers, of course, but are a turned, those same customers rap- unworkable, however. Lessors do
75,000 TEU to 125,000 TEU in boon to depots, many of which idly exited the more expensive stor- not have the skill-set to lease land,
recent months, more boxes can be have been starved of significant age sites. Depots were often unable acquire handling equipment and
accommodated. Baldwin notes that storage revenues for years, since to contract at the same rate as cus- maintain a secure facility.
CGI’s capacity is between 165,000 they increase the return from the tomer demand fell, leaving a sur- Nor do cooperative solutions
and 170,000 TEU. If so, CGI fa- use of the land. feit of costly land with no income. between depot and customer or a
cilities, averaged network-wide, are There is a point of diminishing Hansen notes that, as in past group of customers appear to offer
still less than 80% utilised. return, however, which many de- recessions, many customers in Eu- a solution. Although some deals to
Baldwin doesn’t expect to see pots in Asia have already reached. rope are resisting increased costs lease extra land on behalf of a spe-
the kind of overcrowding being At such high levels of occupancy, and that “some simply refuse to cific customer will be written, in
Inventories are rising but most US depots still have space available
experienced in Asia and suspects profitability begins to suffer. Al- pay any storage.” Depots that find general such agreements will need
customers may be unduly con- though it will vary from depot to those related to on- and off-hire have also weakened, diminishing overflow space have typically seen to protect the depot operator by
cerned about the problem in the depot and depend on configura- activity or cargo moves - are down. revenues from container sales. One strong customer opposition to securing guarantees from custom-
US. His view is supported by a tion, handling equipment and other The same is true of repairs. beneficial consequence of the sur- paying higher rates for premium ers for the entire length of the lease.
number of factors - leasing com- factors, when inventories climb sig- Equipment owners have already plus of containers, however, as land and to cover the extra costs Customers are reluctant to enter
pany controls over redeliveries in nificantly above 85% of capacity, begun imposing holds on repair Baldwin points out, is that falling of trucking and handling associ- into such agreements.
North America, for example, a rela- congestion slows gate and in-de- activity to minimise costs. Most retail prices have had the effect of ated with more remote locations. Shipping lines may fare much
tively weak dollar, and the fact that pot handling operations and over- repair work for leasing companies broadening the customer base. Curiously, when depots face better working with competitors or,
American consumers are buying far all operations become less efficient. and shipping lines is being ordered Buyers previously priced out of the high demand for their services, they importantly, port authorities and
less, pushing imports down and And while demand for storage on an as-needed basis. At Houston- market are now finding boxes con- have typically been expected to re- marine terminals. Ports will be far
bringing the ratio of exports to is rising, the outlook for other rev- based Equipment Management siderably more affordable. duce rates. Customers argue that more receptive to the idea of find-
imports into more balance. De- enues is becoming less favourable. Services (EMS), for example, fourth discounts should apply as business ing additional land to help their
mand for second-hand containers As depots fill up, in- and out-gate quarter 2008 sales of repair labour Rate pressures increases. On the other hand, like shipping line customers.
has also softened in recent months. moves, which generate handling for equipment modifications (for As demand for storage increases, any other commodity, when land And with tonnage way down,
Combined these trends have charges, dwindle. So while depots sale boxes) exceeded labour sales for often the biggest challenge for de- for storage becomes a scarce re- additional space may be available
made the US a less likely dumping are benefiting from the upsurge in off-hire and in-service repairs. pot managers is deciding how to source, the expectation should be in the terminal. An ominous sign
ground than other regions, al- storage, interchange revenues - Markets for used equipment resist customer pressure to reduce that prices will rise. for leasing companies is that lines,
In the current situation, scarcity denied access to leasing company
of land is driving pricing decisions off-hire depots, will simply demand
and depots have the upper hand in that equipment be off-hired in the
rate negotiations. Many have hard- marine terminal. This is reportedly
ened their position on storage rates happening already in Asia. If wide-
in recent years, especially those with spread adoption of this policy is
a dominant share in a local market. pressed upon leasing companies, an
In the US, the ability to fend increasing percentage of the off-
off customer pressure on rates has hire fleet will be in marine termi-
come as a direct consequence of nals around the world.
depot consolidation and the reduc-
tion in available land. In some mar- Credit crunch
kets there may be only one major The shift away from repair towards
depot provider, so customers are less storage has been accompanied by
able to leverage the local competi- an increasing reliance on container
tion to force rates down. sales as an extra source of earnings
Regardless of market power, for depots. As noted above, second-
depots are more than ever holding hand markets are softening, but the
the line on storage rates as a matter main threat to depots is probably
of sound business judgment. As one less from a slowing market than
operator noted, “Experienced de- from the tightening of credit.
pot managers with strategic alter- Many depots borrow to finance
natives will not only rebuff custom- ongoing operations and, crucially,
ers’ requests for discounts, but ac- to purchase containers for resale.
tually exercise their pricing power Access to revolving lines of credit
where they can, despite the inevi- is a fraction of what it was six
table outrage that will cause among months ago and some depots are
container owners.” feeling the pressure. Those without
“Strategic alternatives,” of the ability to finance large purchases
course, refers to the other diversi- lose out to larger, better-financed
fied means of earning a return on competitors. Some companies have
land assets depot operators have already been forced out of business
pursued over the past five years as after receiving notification from
a result of low demand for con- their banks that credit facilities were
tainer-related uses. being terminated.
But there is another side to this
Shift of focus story. As a result of depot closures,
Resistance to relaxing storage rates other local competitors have been
is, for many depots, also related to able to pick up thousands of con-
the shift in business focus that has tainers overnight.
been occurring over the past 20 The next year is likely to see
years. An increasing number of de- further consolidation in the supply
pots are shifting from a repair-based of storage services and probably
model toward a warehousing and some depot casualties. The depots
servicing mentality. Even before the that survive the downturn will be
current recession, storage was be- those that successfully resist cus-
ginning to take precedence over tomer pressure to reduce rates and
repair as the main source of earn- have only minimal requirements for
ings for many depots. As Kevin short-term financing. Cost control,
Smith, president of EMS notes, re- efficient use of systems, diversifica-
pair is one of a number of services tion, customer service and main-
depots can offer, but it is “no longer taining a strong balance sheet will
a business in its own right.” all come into play, but the depot
EMS has conducted a year-on- industry of the future will be popu-
year analysis, comparing storage lated by firms that understand how
inventories and repair revenues to properly manage and price stor-
from January to February 2008 to age services.
the same revenue categories in the The recession will determine
same two months of 2009. In 2009, the extent to which the depot
EMS had twice as many contain- business converts from being re-
ers under storage compared with pair-based into a warehousing and
2008 and storage revenues were up, container sales industry. As one de-
not surprisingly, by a similar pot operator put it, “there is no
amount. Tellingly, however, repair blood left in the stone” when it
revenue in 2009 was roughly the comes to repair.
same as in 2008. He sees the shift as a welcome
The message is well understood one. Others may continue to rely
among customers; for a host of rea- on the repair side of the business,
sons depot customers do not ex- but overall the industry is chang-
pect to see significant relief from ing. This recession will hasten that
depots on storage rates. change and make it very unlikely
Inevitably rumours abound that that things will return to the way
leasing companies and shipping they were. a74
34 March 2009
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