The US Dollar is Rising and Container Prices are Declining
What You Need to Know
Anders Norlin Box Credit
We have heard it for some time now. The economy is getting stronger and the interest rates should rise. What this means is more expensive loans, less investments and slower growth. Depending on where you live in the country, you have more or less benefitted from the projected outcome. In addition, higher interest rates or the expectation of higher interest rates means a stronger USD$ and that affects everyone in every economy that is USD$ dependent, here and abroad.
Most people you talk to will look favorably on a stronger USD$. Perhaps it is built into our culture - we all want to pay less for vacations abroad. Keep talking and you'll learn it is a mixed blessing, as a strong USD$ isn't good for everyone. If you are an importer of products, you are happy because the cost of your merchandise is lower and you have better margins without raising your prices. On the other hand, if you are an exporter, your products become more expensive for your customers in other countries with no benefit to you.
Changing Trade Patterns
A change in the USD$ will have an impact on the cargo flow to and from the US. With a stronger USD$, expect imports to grow from countries that use the Euro or other currencies. This in turn has an impact on the container availability for portable storage companies. The inventories should increase and the container prices should decrease. Imports from China shouldn't change much as the Chinese Yuan Renminibi is more or less pegged to the USD$. Since most consumer products are shipped from China in containers, one shouldn't expect the container volume to change much on this trade route. Unless there is a continued strengthening of the USD$, it is safe to say that we will see more and lower priced containers available for sale in North America in the coming year. However, it will not be a glut.
Increased Sales Inventories in North America
Container leasing companies and shipping lines are looking to dispose of their containers built in the early 2000's, about 2 million TEU per year. With the strong USD$, unlike in previous years, there is a higher incentiveto direct their sales inventory to the US and take advantage of the favorable currency.
Declining New Build Prices
We are currently experiencing a decline in new build container prices due to over capacity and a slower economy in some parts of the world. At the recent Intermodal Expo in Shanghai, prices below $2,000 per TEU were mentioned. Don't get excited. These prices are ex. works Shanghai, China and there are costs involved with getting the containers to your market. Also, if prices go too low, the factories will stop producing and that means no purchase opportunities at all. Never forget, everyone has to make money along the food chain (i.e., the factory, the middleman, the shipper and the portable storage operator).
In summary, there are three factors that speak for larger inventories of containers and lower container prices in the United States in the foreseeable future:
The growing imports and declining exports;
The container owners' efforts to direct sale inventories to the United States; and
The declining new build prices in Asia.
Take Advantage of Lower New Build Prices
With challenges come opportunities. Since the retail prices of storage containers aren't in sync with changes in either the new build prices or the second-hand wholesale prices in the short term, now is an opportunity for a portable storage operator to upgrade his fleet. Look over your fleet and see what you can sell at the retail level and what prices you can obtain. If those numbers are close to the cost of a new build container, take advantage of this opportunity and start upgrading your fleet. A face-lift of your fleet now and then is not a bad idea. If you do it right, you may be able to sell units from your current rental fleet at higher prices than what you are buying new builds for.
Secondly, if you expect your fleet to grow over time, take advantage of the lower prices and buy more than you need at the moment. Very often portable storage operators tend to be reactive rather than proactive. There is risk involved in taking on lower priced inventory in excess of your immediate needs, but on the other hand if you expect growth, you'll be able to rent it out with a higher margin than containers you buy in the future. Remember, the future is always bright.