Standard containers have made the world a global village. Since the 1960s, they have reduced costs for shipping significantly, thus creating growth and prosperity worldwide. Their worldwide distribution makes containers an attractive investment, which more and more private investors, institutional investors and also family offices are turning to. The German company Solvium Capital, based in Hamburg, has been offering such investments to German investors since 2011 and is currently opening up this asset class to Swiss investors.
The standard containers are leased to medium-sized shipping companies via subsidiaries in China, Singapore and South Korea. Over the past decades, the container rental market has repeatedly proven to be largely independent of crises. For example, even at the height of the economic and financial crisis around 10 years ago, the capacity utilization of the container fleet fell only slightly and recovered quickly. The market is still largely unaffected by the corona epidemic.
What makes a container profitable? Primarily it is the upturn in the global economy, the world trade, container handling, demand from tenants and demand from buyers of new and used containers.
The handling of containers has been growing steadily historically. In recent years, the annual growth rate has averaged between 2 and 4 percent. This stable growth makes investors rightly confident. After all, strong upward swings in the stock markets entail the risk of equally strong setbacks. Experience shows that consistency and a certain uniformity make investments noticeably more calculable.
What are the key figures that make containers a good investment?
Tenant demand has also been growing steadily over the past ten years. Shipping companies have been experiencing increasing problems with the financing of mobile assets for years, particularly due to supervisory regulations such as Basel III. As a result, leasing and rental of containers are first-class alternatives. By 2016, shipping companies had already leased more than half of the world's container inventory. This trend will continue to strengthen in the coming years. A very positive perspective for the Solvium business model.
What do new containers cost? The price of a new 20-foot standard container has hovered around the USD 2,000 mark in recent years - with relatively strong fluctuations. The consequence: With new standard containers, business calculations involve comparatively large uncertainties. Against this background, used containers are a first-class alternative for investors. And this is what Solvium does.
What do used containers cost? In the first three years value drops sharply at about 20 to 30 percent, while rental prices are only slightly lower than rental prices of new containers. Standard containers are usually sold after 12 to 15 years of use in shipping and then mainly serve as stationary storage space on land. It is crucial for investments and investors that they then have a easily calculable residual value. In the end, a container is never worthless, but is usually still worth around 50 percent of the price of a new container.
So, it’s very likely that prices for new and used containers will rise in the coming years. Another relevant factor is that containers are produced almost exclusively in China, where considerable capacities of steel production have been shut down in recent years. Moreover, the Chinese renminbi is being weakened against the US dollar. This should lead to higher production costs for containers of 2,000 US dollars and more. This in turn should also significantly increase the prices for used containers.
At the end of the day the relationship between supply and demand is decisive for the profitability of container investments. An important key figure in this context is the so-called technical capacity utilization. If this number exceeds 95 percent, the term "full capacity utilization" is generally used. This has been the case for some time with Solvium's big three competitors Triton International, Textainer and CAI International, for example. Once again, a solid basis for the Solvium business model.
Container markets show strength even in times of a pandemic
What consequences does the Corona pandemic have for the container market? At first glance it seems paradoxical, but despite declining transport volumes, demand for container capacities increased noticeably in many cases. This was due to the disruption of logistics and supply chains. Containers could not be loaded and unloaded at all, or only with extreme delay due to strict hygiene concepts and distance specifications. Manufacturers, dealers and logistics companies therefore needed significantly higher storage capacities. As a consequence, the Corona pandemic did not harm the container market at all.
A quite interesting example is this one: A soup manufacturer from Singapore was unable to deliver its soups to Malaysia for canning overnight. Storage capacities were therefore needed within a few hours. Solvium rented ten tank containers to the manufacturer at short notice, in which the soup is now temporarily stored.
Conclusion: By their very nature, economic growth, global trade and container trade are closely correlated. At the same time, however, the income streams from container investments are comparatively easy to calculate. Unexpected events such as the Corona pandemic may in future strengthen rather than weaken the demand for rental container capacities.