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BUILT TO LAST LESSORS • THE COVID-19 PANDEMIC HAS AFFECTED ALL SECTORS OF THE CHEMICAL SUPPLY CHAIN, INCLUDING TANK CONTAINER LEASING COMPANIES, AS PEACOCK CONTAINER REPORTS
CHEMICAL MARKETS AROUND the world showed a lagged response to the impact of the Covid-19 outbreak due to the nature of order cycles. Tank container lessors are at the end of this chain and operators needed time to get clarity on market direction and volumes. From March to May, inefficiencies and imbalances due to lockdowns and blank sailings supported lessors’ utilisation rates. While some markets – particularly the automotive sector – were impacted significantly early on, this was offset by other product flows such as isopropyl alcohol for use in hand sanitiser, which spiked. For tank container lessors, then, the impact of Covid-19 was muted during the first six months. Where there was impact was through delayed projects as lessees postponed the collection of new equipment. But with the market slowly normalising and supply chain efficiency improving, lessors are now seeing more rational behaviour and decisions being made by customers as more information becomes available and capacity needs become clearer. OUT OF THE CRISIS The road to recovery is still unclear, however. As Peacock Container says, it is difficult to tell if the market has seen the bottom or whether it is still heading down. There has been improvement in some regions but, again, it is unclear if this is sustainable demand or just restocking of inventories. Government support packages have created a false sense
PEACOCK’S COMPOSITE SWAP TANKS CAN LOWER USERS’ CARBON FOOTPRINT
HCB MONTHLY | OCTOBER 2020
of demand, leading to a spike in underlying volumes in the short term, some of which may disappear on the withdrawal of that support. The US elections in November seem to be a key moment as it is unlikely that the support packages will be cut before then, but the desire to keep them in place after the election will wane. At the time of writing, Covid-19 cases are increasing again in Europe and the possibility of a ‘second wave’ creates yet more uncertainty. The main determining factor here will be the way in which governments respond. Will there once more be blanket lockdowns or will they be more surgical to help ensure economies remain open? Peacock believes that, within the next six months, demand will stabilise and improve in line with overall economic development in
both Europe and the US. In the medium term it remains unclear how long the recovery will take, though Peacock believes it will be a considerable time before markets are back to pre-Covid levels. In the long term, the fundamentals of the tank container market remain strong. Improved efficiencies, a modal shift and the increasing focus on safety and sustainability all work in support of the tank container market. SUPPLY-SIDE FACTORS In the tank container leasing market, there is a clear split between standard and non-standard tanks. Standard 20-foot tanks with a capacity of 24,000 to 26,000 litres are the workhorse for most operators and constitute the bulk of the world fleet. There has been overcapacity in standard tanks for a few years now and this has not been changed by the Covid-19 crisis, though there has been greater discipline among lessors in terms of new orders over the past eight months, which is a positive development. The underlying driver for this excess capacity is a disconnect between actual demand levels and the volume of capital looking for a return. Recent low interest rates and central bank behaviour have resulted in declining returns on almost all traditional investment routes and the long-term cashflow dynamics of the tank container sector have looked attractive.
