With the downturn of global economy, container leasing investment is facing both opportunities and challenges. On one hand, falling trade volume decreases the demand for containers; on the other hand, cash-strapped shipping companies are more willing to lease instead of purchasing containers. In this article, we will analyze the market conditions, business models, financial risks and investment returns of container leasing industry to help investors make wise decisions.
Decreasing trade volume brings risks to container leasing business
The global trade volume has declined significantly due to COVID-19 pandemic and geopolitical tensions. This leads to overcapacity of containers and falling leasing rates. However, the demand contraction is likely temporary as fundamentals remain positive in the long run. Investors need to assess their risk appetite and investment horizon.
Cash-strapped shipping companies turn to leasing containers
Many shipping companies are struggling with high debt levels and weakening financials. Buying new containers requires significant upfront capital investment. Therefore, shipping lines now prefer leasing containers through sale-leaseback or direct leasing. This shift towards leasing helps mitigate the downside risk.
Sale-leaseback model balances risks and returns
In a sale-leaseback deal, container investors purchase containers from shipping lines and then lease them back. It provides financing to shipping firms while generating stable rental income for investors. Investors take ownership risks but avoid volatility in usage rates and repositioning costs.
Direct leasing promises higher yields but has flip side
Direct leasing doesn’t involve an initial sale transaction. It enables investors to lease out their own containers and have higher yield potential. However, it also exposes them to more usage and repositioning risks which are handled by shipping lines themselves.
Container leasing investment provides a stable income stream but also poses risks from the cyclical shipping industry. Investors should choose business models aligning with their risk preference and target return horizon.