misinformation

REEFER INDUSTRYReefer box building on the up againReefer box production,after a small recoveryin 2014, is on the riseagain. A relatively high output,of up to 260,000 TEU (135,000units), is forecast for 2015 and,even if this falls short of the recordachieved in 2011 (when 300,000TEU were delivered), it is likelyto top all other years to date.Around 135,000 TEU (equivalentto almost 70,000 units) wereconstructed during the first sixmonths of 2015, according to industrysources, comprising 65,00040ft high cube and 4,000 units as20ft and other specials. This interimproduction compared with a deliveryof 100,000 x 40ft high cube,21,000 x 20ft and 1,500 specialsthroughout the whole of 2014.Second half production is expectedto be at least as a high asduring H1, as the current year’speak reefer season has yet tocome. It usually occurs duringthe final quarter when perishableshipments from the southernhemisphere are at their highest.Global reefer productionexperienced some recovery during2014 and is expected to makefurther gains this year, when up to260,000 TEU may be producedAround 40% of all reefers producedin 2014 were delivered inthe final three to four months ofthe year.Bullish buildersThe three established builders ofreefer box equipment are, consequently,bullish about their immediateprospects – and moreupbeat than at any time in recentyears. For many years, this trio hasbeen headed by China InternationalMarine Containers Group(CIMC), and includes SingamasHoldings and Maersk ContainerIndustry (MCI).For several years in succession,they have previously had to contendwith an unpredictable market.After the downturn of 2009,which ended many years of strongand growing reefer production,there came a brief recoverysurge in 2010-11. Output thendipped again during 2012-13, asit fell back by 50% on the peak of2011, but picked up once again in2014, when production virtuallymatched its 2012 level. It has continuedto improve during 2015.The dip of 2013 came largelyin response to a cutback on reeferpurchasing by major shippingcompanies, headed by the marketleader Maersk Line, althoughmany have since restarted theirinvestments again.Nevertheless, the lines’ collectiveappetite for reefer buying isstill relatively weak, even six yearson from the financial crisis of2009, and funding remains elusivefor some. Instead, the majority ofall reefers built since 2009 havegone to the leased fleet, with thisexpanding at an unprecedenteddouble-digit annual rate duringrecent years. It compares with relativelylittle growth for the reeferfleet owned by shipping lines, andapproximately 6-7% per annumfor the global count. Leasing firmshave already gone from owningaround 30% of the world’s reeferfleet, to over 40%, in the space ofa few years. In 2013, lessors accountedfor over 70% of all reeferorders, and they again took morethan 50% in 2014. The outlook isfor another 50% share in 2015.Although this strong rentaldemand has kept the reefer boxmanufacturing industry busy, thelatter has still had some difficultycontending with the recent fluctuationin overall output. During2009-10, the four existing reeferfactories (which were alreadyAfter recently completing its final commissioning, MCI San Antonio (MCIS)in Chile received its debut order for 500 x 40ft high cube reefers, complete withintegrated Star Cool machinerylong-established) had generallybeen underutilised, although thesituation was to change abruptlyin 2011. During that year, whenproduction was at its height, theirmanufacturing lines were havingto operate virtually flat-outin order to meet demand, whichprompted a round of new plantconstruction.New factoriesWithin a couple of years, twonew factories were commissionedin the central (Shanghai) regionof China, with Singamas openingone in Qidong and CIMCat Taicang. These were the firstnew reefer building facilities to beopened in 15 years. In addition,CIMC decided to renew its existingreefer building complex inQingdao, while MCI constructeda new factory in San Antonio,Chile. All of the plants are locatedon spacious greenfield sites andmake use of environmentally advancedproduction techniques,including cyclopentane and othernon-HCFC foaming processes intheir creation of panel insulation.However, just as these newprojects were nearing fruition,reefer production was decliningagain and thereby changingthe industry’s former capacityshortfall to potential oversupply.This renewed imbalance has onlybeen redressed (albeit partially)in the past year or so, as outputhas picked up again, and so providedall three manufacturerswith much-needed extra businessto more fully occupy their newproduction lines. Some long overdueplant consolidation has alsobeen carried out in the past year,as production has been stopped atone existing reefer factory (datingback 20 years), and cut backat another. By early 2015, all fourof the new plants, (planned originallyin 2011) had been broughtinto operation, following the finalcompletion and opening of MCI’sSan Antonio site.Capacity boostBy the beginning of this year, thenew plants were already providingcapacity close to 300,000 TEU/year, although the potential existsfor this total to be increased eventuallyto 500,000 TEU/year. Anadditional 100,000-plus TEU ofannual capability is still offered byexisting sites (the most importantof which is MCI’s long-runningplant at Qingdao). Its inclusiongives a current total of well above400,000 TEU/year, based on anaverage working of between oneto two shifts, which is viewed asmore than ample to meet demandgoing forward and particularlyduring the busiest months of thepeak season. It compares with atwin-shift maximum of less than300,000 TEU/year existing priorto 2013 – and during the productionsurge of 2011.Around 200,000 TEU ofpresent annual capacity is operatedby CIMC’s two new factories,each of which commencedmanufacturing in 2013. Themajority is centred at QingdaoCIMC Reefer Container ManufactureCo – located within thecompany’s recently developedCold-Chain High TechnologyIndustrial Park – with a slightlysmaller balance provided byTaicang CIMC RefrigerationEquipment Logistics Co.ConsolidationAs these plants have come morefully on stream, CIMC has beenable to consolidate its reefer manufacturingfacilities by reducingproduction at the company’s oldestreefer building site, ShanghaiCIMC Reefer Container ManufactureCo, which was originallyopened in 1995.The Shanghai CIMC plantwas finally closed to reefer boxmanufacturing at the end of lastyear, although its production hadpreviously been reduced to lessthan half its former level. Outputfrom Shanghai CIMC fell below25,000 TEU during 2014, comparedwith 65,000 TEU comingfrom Qingdao CIMC and45,000 TEU from Taicang CIMC.During the first half of 2015, theQingdao plant is reported to havebuilt 45,000 TEU, with TaicangCIMC supplying 35,000 TEU.CIMC’s total output is thus setto be higher this year than last, asboth of its two new productionsites gear up towards optimumworking. The eventual plan is foreach of the two plants to be expanded,with their combined capacitypossibly being increased byup to 50% on its present size, asand when demand dictates.Singamas offers a further 95,000TEU/year of capacity, roughlytwo thirds of which is operated byQidong Pacific Logistics EquipmentCo Ltd. This commencedproduction in early 2013 (severalmonths ahead of the two newCIMC factories) and has sinceattained full single-shift working.The balance of Singamas’ capacityis provided by its olderShanghai Reeferco Container Coplant. This too had opened origi-Table 1: Averaged quarterly steel and 40ft container price (US$)2013-Q22013-Q32013-Q42014-Q12014-Q22014-Q32014-Q42015-Q1Hot-rolled stainlesssteel* price per tonne2,5002,3502,3502,4002,7252,8502,6252,40040ft high cube reefercontainer** price per unit9,7009,5009,7009,7009,8009,8009,7509,600* High-grade SUS 304 (muffler grades are approximately half this price).**Excluding machinery. Source: MEPS and manufacturers’ own data28June 2015