Container leasing is big business in the shipping industry. But is leasing for you? Learn more about the different types of container leasing, right here.
The container leasing market has been fast-growing over the years. Today, around 55 % of the global container fleet is owned by leasing companies. Making container leasing a force to be reckoned with.
Are you considering leasing containers instead of buying? In that case, keep reading. We’ll tell you all you need to know about the different types of container leasing. As well as weigh the pros and cons of buying containers vs leasing them.
Here are the different types of container leasing we’ll go over in this blog:
- Master container lease
- Long-term container lease
- Short-term container lease
- One-way container lease
Why consider container leasing?
If we look at the numbers, container leasing is estimated to cost more than double, compared to owning your own container boxes.
But there must be more to it, seeing the popularity and growth of the container leasing market.
And there is. Container leasing has one big advantage: Flexibility.
The leasing rates might be higher than if you bought used containers. The flexibility of leasing containers for however long you need them can make it easier for you to do your job. You can increase your container fleet instantly and lease extra containers for a short period of time. All without showing up with a big lump of cash in hand.
Buying a container can typically cost you between $1,400 – $5,000. The price depends on the location, type, and quantity. Whether you buy new or used containers, will also impact where in the price range you’ll find yourself. Buying containers you’ll stand with the full responsibility of the container boxes.
Want to see exactly how much it costs to lease a container through the online platform of Container xChange? Get the full overview of which locations you’ll have to pay the most – and where you’ll actually get paid to move the container.
Here’s a sneak peek of what’s in store for you:
Want to know more? Get it all with our full rundown of global leasing rates 2021 right here 👇
Lease containers or buy the boxes
It’s a big decision to decide which route you want to take. It isn’t always best to buy containers. The same can be said for leasing. Here’s a brief overview of situations you might find yourself in – and whether leasing or buying should be your choice.
|Lease containers||Buy containers|
|Need containers but don’t have the capital at hand||Need few containers for storage on the premise|
|Your need changes, and experience a temporary surge in demand for containers||Need few containers both for storage and cargo transportation|
|When you don’t know for sure, how your long-term demand will develop||Need to modify containers, or convert them into something else|
|Need containers for an indefinite period, use them often, and perhaps don’t need too many of them|
How often you will use the container boxes is an important factor to consider. If your demand is forecasted to stay high, buying can be a better alternative for you. For example, carriers try to hedge the risk of fluctuating demand by both owning and leasing.
Even when you have the upfront capital to make the purchase, consider the alarm to your shareholders when they see your lowered profit margins. Those containers sitting on your balance sheet might make more sense as an operating expense lessening your tax liability. Not creating the panic that a sharp cut to profits (from a sizable capital investment) would. Especially when you’d like to operate a large fleet.
Size matters… and container leasing companies know it
The container leasing market owns the largest share of shipping containers in the world. The companies are essentially a financial logistics tool in business to lease out the rights to use them.
Approximately 52% of the global fleet of containers is owned by 13 global leasing companies.
During the last recession, many container owners were forced to sell containers and the leasing companies were there to scoop these up. Leasing companies also offered lease-back options. An option where the carrier sold the container to the leasing company. The containers were then left with the carrier to keep using under a new lease agreement. Another reason why many major shipping liners make use of container leasing companies too.
Different types of container leasing
Now, let’s get to the different leasing types.
Any lease agreement comes with standard obligations from the lessee. Such as return the equipment in the same condition (more or less) that you received it in. Usually, the leasing company covers wear and tear to an extent, such as replacing stickers. Of course, leasing agreement conditions vary and are dependent on many factors.
Here’s a simple overview of the basic types of lease agreements.
|Agreement||Duration||Maintenance and Repair||Drop-off Location|
|Master Lease||Variable||Leasing Company||Restrictive|
|Long-Term Lease||5-8 years||Lessee||Very restrictive|
|Short-Term Lease||Greater than 6 months||Lessee||Very restrictive|
|One-way lease||Variable||Lessee||Shipper’s desire|
Master lease agreements provide the most flexibility. This is why it often comes with a higher price. Some perks include a long list of pick-up and drop-off locations from which you can mix and match. By storing containers at the lessor’s depot, you save on storage fees. While you still have those hefty fines for drop-offs in disallowed locations, your options are much more numerous. Also, as opposed to the container quantity and rental rates which must be defined beforehand, these are flexible under a master lease. In other words: Your container demand forecast doesn’t necessarily have to be spot on. You’ve got enough flexibility in the lease.
Carriers that require very large fleets and unpredictable demand usually enter into this type of leasing contract. As an added benefit of the higher cost, the leasing companies take the burden of repair, maintenance, and repositioning.
Far less flexible than the master lease, a long-term lease is a favorite at many leasing companies. A contract is agreed upon for a fixed amount of time. As well as a determined number of containers and delivery schedule. This leaves the leasing company with little to do once the containers are signed over.
The lessee bears the costs of repair, maintenance, and repositioning. Though term definitions vary, most leasing companies define long-term leases as between 5 and 8 years. For the long-term lease, containers are usually brand new. That’s why many long-term lease agreements come with a negotiable clause. This clause allows rental rates to be negotiated after a few years in light of depreciation and market volatility.
Another way of describing this leasing agreement is “rent-to-own”. The agreement comes in different terms:
It can be a standard rental rate and a balloon payment at the end. Or a higher rental rate that accrues the final purchase price.
The total amount of money spent in a lease buy-out agreement is higher than flat out buying containers. However, this option can be the only way to go, if you don’t have the cash on hand. One downside to this is that if you don’t pay within the terms, you could lose the right to buy it. For smaller-sized companies, operations and projects, perhaps this lease agreement isn’t ideal.
Short-term container leasing is usually charged at higher rental rates. Similar to hiring a car, it’s great for turn around trips. One setback here, other than the higher cost, is the minimum time you must comply with to use the containers. Often leasing companies don’t want to lease out containers for less than 6 months.
The leasing agreements above don’t quite capture your needs?
Maybe you only need to borrow a few containers. Or perhaps many containers, but it’s only a one-way trip. Maybe you only need containers for short periods of time.
Well, that’s where the one-way container lease option comes in.
The online leasing platform at Container xChange helps companies realize their container moves. Container xChange is a digital platform that provides repositioning solutions. The platform connects businesses with leasing companies they wouldn’t otherwise have access to. This is an alternative to leasing companies when more flexibility is needed as well.
Transaction speed is another vital issue for businesses to consider. Every member of xChange uses the same blanket contract. This way, you don’t have to make a cluster of different negotiations with different companies based on different blanket contracts. One contract creates hundreds of container move possibilities.
Leasing companies are on the platform as well. Seeing as the nature of world economics and trade imbalances, there are consequently container volume imbalances.
But before you embark on leasing containers, don’t you want to know how much you should actually pay for that?
Figure out where you can get the best leasing rates around the world, with our Global Leasing Rates 2021 report. Here you get the lowdown on the locations with the highest pick-up charges and where the container owner will actually pay you when you lease their containers. Want to base your next leasing agreement on industry data? Get it all here 👇
Examples with one-way container leasing
Not completely sure if one-way container leasing is right for you? We’ve put together different scenarios that might help you figure it out.
Let’s revisit the master lease. Let’s say a leasing company’s customer returns the container to the depots. That doesn’t mean that the container is in a good location for you.
Is the container in an area, where there’s cargo waiting to be shipped to a location where the box can be used again? If not, it’s an undesirable place to waste storage costs.
The container has reached the end of its life. It’s left in a location where no one wants to buy it or where the sale price is too low. Repairs are high and it might not prove worthwhile to fix up the container. It could make more financial sense to reposition the container to a location where you could get a higher price.
When a leasing company’s customer goes bankrupt, they’ve got containers scattered all over the world; empty. The Hanjin bankruptcy is a prime example of this scenario.
To save money on empty repositioning, one-way container lease can be the solution.
A more regular case is when a leasing company needs a one-way move to get brand-new containers from the container manufacturer to its customer.
There are locations where carriers or leasing companies are unable or unwilling to provide boxes or only offer them at very high rates. It can be locations outside the busy shipping routes, war zones like Afghanistan and Iraq. Or even landlocked countries such as Uganda. Sourcing containers on your own and leasing them for one-way use is the best or only option in such a situation.
Want to avoid unexpected demurrage and detention charges? Then one-way leasing makes sense. You’re not obligated to move and/or return the containers to and from the carrier within a certain time frame.
When using a carrier’s container, loading times, customs clearance, drayage, port congestion, etc. should be taken into account when planning the shipment. Demurrage and detention charges can quickly escalate to hundreds of dollars per day.
Now, that you’ve seen a few scenarios you might want to get the full overview of prices and where you can get the best deal before you become a member? No worries, we’ve got you covered! Get the full overview of the average rates, the number of free days, and per diem charges across the world in our global leasing rates report 2021.