What is container leasing ?

Container leasing is a process of renting containers to operators by a leasing company, who owns containers , basis the agreements entered into by both the parties. Both the supplier and the customer will also agree to other terms and conditions required by applicable laws, and any other negotiations made between the two entities. The leasing company agrees to deliver a minimum number of containers to the operators for a specified time, basis terms and conditions documented in the lease agreement.

A liner operator assess the demand for containers by forecasting the volume of business expected to take place for a period, both on strong and weak legs, on all locations. The demand also depends the turnaround time ( the time gap required for a container to perform a complete cycle) of the containers in various areas. Having determined the fleet size, the demand could be met either by buying containers from manufacturers or leasing them from the leasing companies, or a combination of both.Liners always require empty containers to be placed at the right place at the right time, to meet customer demand.

Generally the container fleet of liners consists of owned and leased containers, although the proportions vary from operator to operator. The fleet of a relatively new operator will have a high proportion of leased container where as the established operators will have a high proportion of owned containers.

Advantages

1. Outright purchasing of containers requires huge capital financing, which will not be viable for the shipping

    companies, by leasing capital funding could be avoided.

2. It will be easier to adjust the fleet size depends the demand fluctuations.

3. It is possible to enter into lease agreement in such a way that the repair and maintenance expense is on

    lessor’s account . This reduces the overhead expense of the liner.

4. To reduce equipment imbalance cost by leasing containers at the deficit area and returning them at surplus

    area.

5. By lasing special equipments, whose demands fluctuate very often, can avoid dead capital investments on

    buying them.

Types of Leases

Though the operators make ‘tailor made’ agreements with the leasing companies, there are 3 broad type of leases widely in practice

1. Long term leases

In this method the operators commit to lease a fixed number of containers for a fixed period of time, which varies from 1 year to the life span of containers. The longer the period of lease the cheaper the rate is likely to be as the leasing company is guaranteed a fixed income for a long period.

However , from the liner’s point, long term lease reduces the flexibility of resizing the fleet size by redelivering the lased units during slack period. To overcome this, some operators include a clause of redelivery before term period a penalty.

2. Short term or Trip lease.

As the name indicate , this is hiring of containers on an ad-hoc basis , just for a trip without any long term commitment. This leasing method gives operators maximum flexibility on fleet size adjustment depending demand.

For leasing companies, this is not that a good option as the hire charges will be for short period and then will have to find fresh customers for the containers. Also they will have to maintain a good stock of containers readily available for leasing and will have to incur high RnM and on/0ff hire expenses.

Trip lease generally is an expensive affair , often the rate will be more than double of the long term lease. This is due to the risk/ uncertainty involved in this business.

3. Master leases

In this type of leasing , the lessee guarantees to lease a fixed minimum number of containers for a defined term with a provision to on hire additional containers and off hire excess containers at listed locations . However, the total number of containers on hire at any given time should not be below the agreed minimum.

The lessee pays a fixed daily rental for all the containers on hired . The rate generally is on higher side consider to the term lease of equal period. This method helps operator to regulate fleet size according to requirement . Also , with suitable on /off hire clause in the agreement , the operator can avoid unnecessary empty container moves from one point to another.

Container leasing companies

There are many established leasing companies available to cater to the requirements of the operators. Cronos, TAL, Box, Cap etc are few among them. To provide the required services to operators, the leasing company should have a wide network of local depots and offices and large fleet of containers. Many of the medium / small leasing companies identify the requirements of the type of containers in their area of presence and ensure to meet their customer’s requirements.

In short, container leasing is a service as a financial business.