SeaCube Container Leasing Ltd. (BOX-NYSE)
July 15, 2011 Issue
The Most Powerful Name In Corporate News and Information
Having Gone Public in November 2010, SeaCube Container Leasing is Well Positioned for Future Growth
SeaCube Container Leasing
Ltd. is one of the world’s largest container leasing companies based on
total assets. Containers are the primary means by which products are shipped
internationally because they facilitate the secure and efficient movement of
goods via multiple transportation modes, including ships, rail and trucks.
The principal activities of our business include the acquisition, leasing,
re-leasing and subsequent sale of refrigerated and dry containers and
generator sets. We lease our containers primarily under long-term contracts
to a diverse group of the world’s leading shipping lines. As of March 31,
2011, we employed 74 people in seven offices worldwide and had total assets
of $1.3 billion. We own or manage a fleet of 553,130 units, representing
870,565 twenty-foot equivalent units (TEUs) of containers and generator
Interview conducted by:
CEOCFO: Mr. Bishop, what attracted you to SeaCube?
Mr. Bishop: I have worked in transportation and logistics most of my career in COO/CFO type roles. However, I had not actually looked at the container leasing space previously, so when Fortress Investments asked me to consider this opportunity and I looked at it, I discovered that it is actually a very good business and SeaCube is a very well run company. So for me, it was a nice opportunity for me to come in and help the SeaCube team get ready to become a public company. We took the company public in November of last year.
Mr. Bishop: Today, there are six major container leasing companies, and at that time three of them were public, so we became the fourth to become public. There are some advantages for companies like us to be public. It makes it somewhat easier to raise capital, and it gives us better market visibility. So there were some good reasons to take the company public, but the timing really had to do with the fact that it would have been challenging to do a public offering prior to November of last year. The initial transaction was a stock price around $10, but the stock price today is about $18, which we think it is actually much more reflective of the company’s value.
Mr. Bishop: SeaCube is one of the world’s largest container leasing companies. Container shipping is a very large business; it is how most goods move from point A to point B in today’s world. The industry itself has grown over the last thirty years about 9% a year. In terms of the number of containers that are out there, today there are about 28 million, 20-foot equivalent units, and containers can come in twenty foot or a forty-foot unit. They typically talk about them in “TEUs”, which stands for twenty-foot equivalent units. Today, about 45% of all containers used in shipping are owned by container leasing companies like SeaCube. Therefore, it is an important part of global trade and SeaCube is a major player in the container leasing business.
Mr. Bishop: Our customers are the shipping companies and currently the top twenty shipping companies control about 80% of all container trade. So when we enter into lease transactions, they are typically with shipping companies who then in turn use our containers to carry goods for their customers.
Mr. Bishop: There are some significant reasons that the larger leasing companies in general are becoming bigger and capturing a larger percentage of the container leasing market. In general, we have better access to capital, so they are able to make larger commitments. We have significant depth in our organization and we have people and infrastructure that supports worldwide operations. For a major shipping company, they want to work with SeaCube, because they know we will always be there and have the ability to write a check for $10 or $50 million in not only good times, but also when times are a little more challenging.
Mr. Bishop: There are a number of different types of containers. There are dry containers, there are refrigerated containers, and there are specialty containers. Dry containers are roughly 70% of the market value of all containers and refrigerated containers are probably around 23%. Then the balance would be in specialty containers. Dry containers are going to be carrying goods like furniture, electronics, and almost anything that does not need special handling or refrigeration. Typically, what happens is that shipping companies will contract with a company, either a freight forwarder or a large company to fill the container. They will then take that container, which may be full of for example, Apple computers or something like that, and those computers will then be transported from point A to point B. At point B, Apple Computer will take delivery and then distribute the computers around the U.S. (or elsewhere in the world). SeaCube is the largest leaser of refrigerating containers and we started the company in 1993 focusing only on refrigerated containers. Refrigerated containers are used for fresh fruit and produce predominantly as well as meats and seafood. Typically, fresh fruits and produce or other refrigerated goods are following a north/south trade lane. So in the winter it is going from South America to North America or South Africa to Europe, or Southeast Asia to northern Asia, It started as a predominantly U.S. market, then Europe. Now in Asia, as people are looking to have fresh fruit, bananas and blueberries on their table everyday, this is creating growth for SeaCube.
Mr. Bishop: We are an industry leader. SeaCube’s market share is 27% of all refrigerated containers.
Mr. Bishop: We have 550,000 containers and this year we are going to invest at least $400 million in containers. If each one of those containers was a dry container, $400 million divided by 2,800; that means we would be adding another 142,000 containers this year. We will probably invest about half of the $400 million in refrigerated containers and half in dry containers.
The container trade has grown about 9% a year for the last thirty years. In 2009 virtually no containers were produced, in 2010 the market came back very strongly at about 11% growth, and this year we are probably going to see about 9% to 10% growth. Then in 2012 and beyond, the current forecast is for 7% to 9% growth. If you think of those 28 million TEUs growing at about 9% a year, it is still an awful lot of containers, and a lot of capital that will need to be deployed. The shipping companies are looking for container leasing companies more and more. This is predominantly because first, the shipping industry came out of fairly challenging times in 2008-2009, and then had a good year in 2010. They are having an ok year in 2011, but they still need to have additional sources of capital for their balance sheets. Additionally, they have a new containers ships being delivered, and the first thing that the shipping companies need to be focused on is essentially providing capital to pay for ships and so they look SeaCube as an important source of capital for their containers, which are essential to their business.
Mr. Bishop: Both a dry and a refrigerator container will last twelve to fifteen years for marine use. After it is used for marine purposes, then it is typically used for land-based activities. Dry containers can be dead storage. Refrigerator containers are frequently used for storage or in developing countries they are used as the principle method of refrigeration.
Mr. Bishop: Yes, we think it is a good investment and we think it is a very good investment for our shareholders as well.
Mr. Bishop: What you see from SeaCube is we are an end-to-end supplier of services related to container leasing. When a container is first produced, we have people who are at the factory making sure the containers are built to our high quality standards. Containers are generally produced to a common specification, which is important because we can lease the same container for customer A that lease to customer B. It is also important that they are built to SeaCube’s demanding specification and that we get the quality that we expect. We have people who are inspecting our containers as they come off line. We have a team of people that work on leasing; we have a team of people who are working on contracts. At the end of the container’s lifecycle when we will take the container back, we have ten people around the world that do nothing but sell used containers. This helps us get the best possible price for the used container. In terms of systems, we have very robust technology that allows us to track, manage, and bill for our containers.
Mr. Bishop: We have more than twenty years of experience in doing this; we are there year after year. We have deep expertise in refrigerated containers as well as dry containers. We think that we have a very active and proactive sales force and customer-centric service and support. We are very focused on container leasing. We work closely with our customers to make sure that we deliver what we promise from the first day or a lease all the way through to the day they return a used container to us.
CEOCFO: SeaCube has consistently good utilization rates as well?
That is correct. Our utilization rate is currently at 98%. Historically we
have been able to manage our utilization better than 97%. One of the reasons
that our utilization is that high, which is important for our investors to
understand, is that SeaCube is focused on what we do and what we are not
going to do. Most of the SeaCube Leadership team has been working here for
more than ten years and in the industry for thirty years. That helps SeaCube
not only know what to do but what not to do.
Mr. Bishop: In terms of the company, we are looking at a strong growth opportunity. Last year we ordered about $230 million in containers, this year we have already ordered $316 million. We have publicly announced that we are planning to invest more than $400 million. This is a business that as you invest in your assets that help increase SeaCube’s revenue, our earnings and cash flow. We expect to grow in 2011 and in the following years.
Mr. Bishop: In terms of how investors ought to think about this company, I would like them to know it is a well-managed company. It has a good portfolio of assets, and the assets themselves have high return and low risk. The market dynamics are very strong for container leasing and the total container fleet has been growing at about 9% a year over the last thirty years. SeaCube is focused on the refrigerated container market and that is very stable and growing market. SeaCube has a lot of growth potential. At the end of 2010, SeaCube had about $1 billion of assets. As we look at 2011, SeaCube is going to invest $400 million or more and that is going to lead to increased revenue and cash flow. We have a balance sheet that is going to allow us to continue to make investments not only 2011 but in 2012 and beyond. In addition, we have a very focused and experienced team that has a proven track record we expect to continue to deliver consistent performance. What investors should know about SeaCube is that the container leasing industry is a very good industry; SeaCube is focused on managing our container leasing business and managing not only for good times, but for when times are not so good. As you look at our business strategy and you look at the company, we are very focused on mitigating and managing risk. We think it is important that as we grow our revenues and earnings, which allows us to grow our dividends, we also want to be able to maintain a very strong and stable cash flow, which allows us to maintain stable and consistent dividends.
At SeaCube, we are going to
grow the business but we are also focused on managing our risk at the same
time It has been an important part of SeaCube’s success and how we manage
Mr. Bishop: It is a very exciting time at SeaCube. We have a great team, a strong balance sheet, and strong growth prospects. SeaCube is continuing to capitalize on the solid demand for leased containers. Our significant investments in new containers will help us to grow our revenues, earnings and cash flows.
It is a very exciting time at SeaCube. We have a great team, a strong balance sheet, and strong growth prospects. SeaCube is continuing to capitalize on the solid demand for leased containers. Our significant investments in new containers will help us to grow our revenues, earnings and cash flows. - Stephen P. Bishop
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