SeaCube Container Leasing has become the third-largest lessor of refrigerated containers, ordering more reefers in the last three years than any other equipment lessor.

In the past 26 years, SeaCube Container Leasing Ltd. has grown to become a leading lessor of refrigerated containers, commonly known as reefers, as well as gensets, diesel generators used to power reefers when they are not plugged into electrical outlets on ships or at ports, for example, when they are moving by road or rail.

SeaCube, which is headquartered in Woodcliff Lake, New Jersey, has an owned and managed fleet of 954,000 TEUs of reefers, 756,000 TEUs of dry containers and 90,000 gensets. The company says that makes it the third-largest lessor of reefers and fifth-largest lessor of dry containers. The asset value of the company’s fleet is approaching $3 billion.

Gregory W. Tuthill, the chief commercial officer of SeaCube, said the company is “focused on being the customer’s first choice for refrigerated equipment.” It has purchased more new refrigerated containers than any other leasing company in the last three years: 53% of new reefers purchased by lessors in 2017, 40% in 2018 and 42% in the first six months of 2019.

It’s also the largest lessor of gensets. While the company’s reefers and dry containers are marine containers that travel around the world, the company’s gensets are used to power containers while they are in the United States. Gensets can be clipped onto the corner castings at the front of a container or mounted under a container chassis.

While refrigerated containers are more expensive than dry containers and only make up about 7% of the global container fleet, Tuthill says the company likes the reefer business as leases for refrigerated units tend to have more price stability, have longer terms and offer better returns.

“We expect reefer container freight rates to continue to outperform dry box rates,” said Drewry last month as it released its latest Reefer Shipping Annual Review and Forecast.

The global reefer container fleet grew more rapidly at a compound annual growth rate of 6.9% between 2009 and 2018 compared to the CAGR of 5.2% for dry containers. It is expected to continue to grow at a CAGR of 4.5% between 2019 and 2023, said Drewry.

Even so, a presentation by Robert Sappio, the chief executive officer of SeaCube in September at noted “The global reefer fleet is not keeping pace with market growth demand and in the near term there may be a shortage of refrigerated equipment.”

The robust growth for reefer cargo is due to several trends, including continuing growth in shipments of perishable cargo such as fruit, seafood, meat, flowers, confections and pharmaceuticals, driven by global population growth and economic growth in developing countries. Technological improvements such as controlled atmosphere are allowing refrigerated products to be shipped over longer distances, opening new markets.

At the same time, refrigerated maritime cargo continues to migrate from purpose-built break bulk ships to refrigerated containers. The break bulk share of the refrigerated market has slipped from 55% in 2000 to 18% in 2019 and is projected to dip below 14% in 2022, says SeaCube, citing industry studies.

SeaCube adds that the cost of complying with the requirement promulgated by the International Maritime Organization that starting Jan. 1 ships use low-sulfur bunker fuel or install scrubbers to remove sulfur from engine exhaust could accelerate the shift to moving refrigerated cargo in containers rather than in break bulk reefer ships.

SeaCube leases equipment to most of the major container carriers and it buys containers and refrigeration equipment from all of the major suppliers. They include the container manufacturers China International Marine Containers and Singmas, as well as the four major makers of refrigeration units for containers: United Technologies’ Carrier Transcold, Ingersoll Rand’s Thermo King, Daikin Global and Maersk Container Industries’ Star Cool.

Tuthill says sourcing from all manufacturers gives carriers the opportunity to acquire the equipment they most favor.

SeaCube makes “triple net leases” in which the insurance, taxes and maintenance are paid by the lessee. On Jan. 1, the International Accounting Standards Board published IFRS 16, a new accounting requirement that the accounting firm PwC says eliminates “nearly all off balance sheet accounting for lessees and redefines many commonly used financial metrics such as the gearing ratio and EBITDA.”

The change will affect many international shipping companies and improve EBITDA for some, but Tuthill says SeaCube has not seen a change to date from the accounting rule change and does not think it will drive the decision by carriers on whether to buy or lease containers.

What’s the life of a container? Tuthill says SeaCube depreciates dry containers over a 12.5-year period and reefers over 15 years. The initial lease generally runs from five to 13 years, and a container usually is leased again once or multiple times. At the end of its useful life, the container is sold to a company that may use it for one-way moves or for secondary uses such as storage or construction of commercial or residential buildings.

Through both leases and financing, Tuthill says SeaCube assists carriers with cash flow management and preserving scarce capital for projects that may have a higher priority.

In addition to owning ships and containers, carriers have needs to invest in everything from terminals to scrubbers to meet the new IMO 2020 regulations to upgraded information technology platforms. Or they may just need operating capital.

Carriers are relying more and more on leased containers than in the past years. According to a SeaCube presentation, in 2009 lessors owned just 42% of the 25.2 million TEU global fleet of dry containers and 28% of the 1.7 million TEU global reefer fleet. By 2018, the share owned by lessors had increased to 53% of a global dry container fleet that had grown to 39.7 million TEUs.

The swing was even greater in the reefer industry. In 2018, lessors owned 54% of the 3.1 million TEU global reefer fleet.

SeaCube also assists shipowners in raising cash through sale-leasebacks in which SeaCube buys equipment from a carrier and leases it back to the carrier for its continuing use, generally for a period of three to five years and generally when a container is five to seven years old.

“Given uncertainty for 2019 and 2020, many ocean carriers have taken advantage of sale-leaseback options to improve liquidity and to raise cash for alternative investing,” the company says.

Over the years, SeaCube has done sale-leaseback deals with many of the major carriers ranging from $2 million to upward of $20 million.

Sale-leaseback deals also can be useful in “distressed finance situations,” says Tuthill.

An area of expansion for SeaCube is the bundling of equipment with technology solutions for things such as tracking and tracing containers, managing equipment and improving security.

“If there is a request by the customer to include telematics, we will finance the technology and bundle it into the lease,” says Tuthill.

Demand for telematics equipment is stronger for refrigerated containers and gensets than dry containers because of the higher average value of cargo inside them and susceptibility to damage if something goes wrong.

In September SeaCube and Globe Tracker, a Danish company that specializes in “internet of things” technology to track and monitor logistics assets, collaborated in a deal to provide gensets for Ocean Network Express (ONE). The gensets will use Globe Tracker technology to provide information on fuel level and battery voltage and will be able to transmit events and alarms. There is even remote shutoff capability for certain genset brands.

“This provides ONE with the most robust amount of data and assists in setting maintenance intervals, reducing maintenance costs, extending asset life, monitoring fuel consumption and having full operational visibility of their genset assets,” says John Harnett, senior director of marine and intermodal at Globe Tracker.

As with manufacturers of containers or refrigeration units, SeaCube will be agnostic as to the preferences of its customers for what technology they desire to use. Says Tuthill, “If they request Globe Tracker, we use Globe Tracker; if they request ORBCOMM, we use ORBCOMM.”

SeaCube traces its history back to 1993 with the formation of Carlisle Container Leasing, The company was acquired by Fortress Funds in 2006. The following year it was renamed SeaCastle and acquired Interpool Containers. In 2010, the company went public and was listed on the New York Stock Exchange.

In 2013, SeaCube was acquired by the Ontario Teachers Pension Plan, which is also one of the owners of Global Container Terminals, which has facilities in both British Columbia and the Port of New York and New Jersey, and other infrastructure assets such as the Chicago Skyway and airports in the U.K., Belgium and Denmark.

Ownership by a pension fund is a good match for the container leasing business, says Tuthill. Container leasing companies have “long-term leases that generate consistent cash flow. There is stability in the cash flow.”

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