Clarkson’s Research has forecasted 2011 global containerized trade volume to grow by 9%, with Asia, the Middle East and South America growing at relatively higher rates than the U.S. and Europe. Growth in trade volume drives growth in container usage and has the need for container investment.
Growth in trade volume is also positive factor in utilization rates. During the 2008, 2009 recession utilization rates fell as trade volume decreased. Declining trade volume is not the case today, trade volumes are increasing. Consequently, we expect continued demand for new containers and for utilization rates to remain robust.
A second macro trend is that in spite of increased volumes of freight shippers are facing earnings pressure as a result of fuel cost and an oversupply of ship capacity. This earnings pressure may translate into opportunity for the container leasing industry as shippers look towards lessors to provide a greater proportion of their total container needs.
We do not expect the recent decline in container box prices to have an adverse impact on our earnings. While new lease rates will reflect lower per diem on the incremental investment the overall returns will be relatively unchanged from the recent period of higher box prices, because lower box prices result in correspondingly lower depreciation and lower interest expense per unit.As we look out to the third quarter and into next year, it is important to understand that 87% of our own fleet on a TEU basis is on long-term leases, which are not subject to market based per diem rate adjustments or equipment churn. As a result, our container rental revenue and associated expense profile from existing leases is relatively locked in over the short to medium-term. In summary, the expected growth in global trade volumes, our planned investment levels and the high percentage of our fleet that is on long-term leases all combine to lead us to believe that we can expect continued strong revenue and earnings growth at CAI. Read the rest of this transcript for free on seekingalpha.com