Drop in dollar boosts container leasing

April 1, 2004
TANK container leasing in the United States is higher than it's been in almost four years, according to Rich Parillo, president of Matlack Leasing LLC.

TANK container leasing in the United States is higher than it's been in almost four years, according to Rich Parillo, president of Matlack Leasing LLC. A key factor driving demand is a low dollar that has boosted chemical shipments to Europe.

Responding to the growing demand, Matlack Leasing recently added 100 containers, bringing its fleet to 600 units. Almost all of these are standard 24,000-liter (6,340-gallon) IMO-1 units.

Increased leasing activity has boosted optimism throughout the tank container market. “I think things will stay very good for this year due to the presidential election,” says Walter Boasso, Boasso America Corp. “And, as long as the Euro stays strong, things will be okay into 2005.”

Mike Kramer, Stolt-Nielsen Transportation Group, expects the container leasing sector to improve slightly over the next two years, but does not anticipate significant improvements in rates. “There is still a very large issue of additional capacity being available in the market,” he says.

Another element for a prospering future lies with the development of intermodal services, according to Trifleet Leasing USA information. The company predicts a continued demand for tank containers in North America with additional potential lying in South America.

Trifleet sees operating companies, rail companies, and chemical companies investing in intermodal infrastructure to handle tank containers, but notes that more companies must make the commitment for significant growth to occur in the United States.

US growth

Many in the tank container industry still believe that the United States eventually will embrace the concept of using tank containers and rail for a high percentage of long-distance domestic hazardous chemicals shipments.

In addition, problems developing because of new hours-of-service regulations that complicate long-distance truck driving time are expected to further boost tank container/rail use.

“Getting tank trailers off the highways is by far the main benefit (for security),” Kramer says. He, Boasso, and a Trifleet Leasing (USA) spokesman responded to questions from Modern Bulk Transporter about security and other issues the industry is facing today.

“Right now there is a shortage of drivers in the United States who are capable of hauling tanks safely on a long-haul basis,” says Kramer. “Fuel expenses, insurance, and other costs are increasing, as well. By working more closely with the railroads in the United States, we see significant potential for increased long-haul volume in tank containers.

“Tank containers on the railroads are routed on more secure, direct routes through heavily congested areas, which removes the danger from local highways. Safety is the major concern, and it's one of the biggest factors driving this trend in Europe and other areas.”

Kramer also noted that reduced pollution and improved supply-chain costs are other factors enhancing the use of tank containers.

Safe transport

Trifleet Leasing is seeing increased demand for tank containers in North America. The safe transport of hazardous materials is a making the intermodal business a major potential area of expansion. In the last quarter of 2003, Trifleet saw its intermodal business in the United States increase nine percent overall.

However, it's not just the shipments of hazardous materials that are sparking increased used of tank containers in the United States. Tank container usage appears to be on an uptrend in general, albeit remaining far behind the utilization in Europe and other parts of the world.

“We see the concept of tank containers gaining wider acceptance in the US market for intermodal shipments,” says Kramer. “Improvements in on-time rail performance, as well as improved pricing and increased regulations concerning driver working hours, is a very positive step in the acceptance of a truck-rail-truck supply chain for shipments over 750 miles.”

All of this is good news for the industry, which already has begun to recover from an economic slump linked to the overall economy. Worldwide, tank container lessors control a combined fleet of at least 100,000 units, according to industry estimates.

“The upturn started late last summer (2003) as the Euro drove the dollar into the ground,” says Boasso. “As it looked like the dollar was going to stay in a weakened state, the fall was good for leasing companies taking large stocks of inventories sitting in storage and finding homes in the market.”

Kramer points out that economic conditions have generated increased demand in the door-to-door sector. “But, we have not seen — nor do we expect to see — any major changes in the leasing rates for tanks.”

At Trifleet, another boost for tank container leasing lies with chemical companies outsourcing more and more core responsibilities, such as fleet maintenance and repairs, which is good news for all operators and leasing companies that provide those services.

In addition to growth in maintenance services, the industry is experiencing demand for tank containers for storage purposes.

“We see tank containers increasingly being used worldwide for both interim and long-term storage, as we are able to put lower cost solutions on the table for our customers,” says Kramer. “Tank containers, whether grounded or on chassis, offer greater flexibility at a lower cost than, say, tank trucks. This translates into lower operating costs and real value for our customers.”

Cost situations

Although the economic picture appears bright, there remain cost-incurring situations, such as increases in the price of tank container materials.

As tank container companies find their businesses growing, they must wrestle with the higher tank container prices in order to increase inventory.

Prices for tank containers have been as high as $30,000 when the industry was just getting underway in the United States — and as low as $12,000 a few years ago, says Kramer. “At the moment, the price of stainless is up and the value of the US dollar versus other currencies has changed significantly,” he adds. “So pricing for new tanks is now in the range of $16,000 per tank, assuming an order of some significance.”

“There was reluctance for new orders due to the rise in tank cost,” says Boasso. “But it was beneficial for the leasing companies that were taking the older inventories and refurbishing and making them affordable to put back in the market.”

Boasso predicts that China “will be the new South Africa of tank containers, so even with the increase price of stainless steel, these tanks will still be affordable to put into the fleets to come.”

“The increased price of nickel will likely drive up the cost of manufacturing tanks in the short term, but long term we expect tank prices to come back down, as increased production capacity comes on line,” says Kramer.