Shipping slump spreads the pain to box makers
When slow recovery meets high inventory levels, the result is never good for shareholders.
If you think the container shipping business is depressing, try the container making business. A good 20 percent of the 30 million boxes in circulation around the world are more than 20 years old, even though their lifespan should be 15 years.
With weak demand and poor export orders, shipping lines are hanging on to their old boxes and making them last as long as possible.
That, unsurprisingly, translates into extremely bad news for the people that make containers. Apart from a brief spike a couple of years ago the container makers have been in a dark place ever since the global financial crisis.
There is no champagne being popped at he world’s largest container maker, that’s for sure. China International Marine Containers (CIMC) reported a 41 percent fall in net profit in the first six months. It warned that the rest of the year was looking equally dismal.
The company’s container inventory currently stands at 600,000 TEUs after hitting the one million level earlier this year. But few lines are buying boxes and there will be no need for standard dry containers in the second half either.
The world’s second largest box maker, Singapore’s Singamas Container, has also been feeling the pain, recording a 28 percent drop in net profit in the first half.
It is focusing on reefers that cost twice as much as dry boxes and bring far better margins and boss Teo Siong-seng reckons strengthening US consumption will bring increasing demand in the next few years. He plans to more than double the revenue brought in by the specials (53-footers and reefers) and wants it to be half the company revenue in two to three years.
The bad times will last for a little longer, but there is hope in the form of four million TEUs of new ship capacity that will hit the water by 2017. Ageing containers cannot be used indefinitely and will have to be replaced pretty soon. Exports will gradually improve and new boxes will be required.
With demand up, container prices will rise and there will be big hugs all round. In the meantime, get out the duct tape and the welding torch and be careful what you put in your battered box.