How long does it take to build a container? The short answer is: time is insignificant, a matter of hours, including the automated process of assembling the steel walls and drying the paint.
The containers are built in highly efficient and highly automated factories, virtually all of which are located in China. Eight out of 10 containers built around the world are produced by just three Chinese companies: CIMC, Dong Fang and CXIC.
An indicator of how quickly new boxes can be released: Chinese factories can theoretically work around the clock and add a second 12-hour shift, but did not do so despite historic demand this year. One of the reasons they’ve limited themselves to one shift (besides supporting container prices) is customer preference.
In an interview with American Shipper in May, John Fossey, head of container equipment and rental research at Drewry, explained: “Water-based paint does not dry as effectively during night shifts. than during day shifts, especially during the winter months when temperatures are lower. Produce an entire box at night and paint containers at night – some customers don’t want this. They are not as good quality as those produced during the day shift.
The implication is that a box can be produced, painted and dried in one shift.
Another indicator of how quickly containers can be constructed is the volume produced itself. According to Drewry, factories produced 3,368,000 units equivalent to twenty feet of equipment during the first half of this year.
Fossey said that in May, factories were operating 10 to 11 hours a day for six days a week, with the majority of units produced being 40 feet versus 20 feet. Assuming deep down in the envelope that factories produce 70% of 40ft and 30% of 20ft, that comes down to a first half pace of over 20 containers produced every minute the factories were online.
The biggest question
In practice, however, the bigger question is not how long it takes a Chinese factory to build a box. The big question is: how long does it take between the moment you order the box and its commissioning?
Normally it would have taken as little as six weeks. Needless to say, these are not normal times. This year’s deadline would have been four months.
The last part of “how long does it take?” The timeline involves the delivery of the newly built boxes from factories to coatings for deployment.
In the case of 20ft and 40ft sea containers, the offset is minimal. One of the main reasons why box manufacturing factories are massively concentrated in China (besides the support of the Chinese government which has reduced production costs) is that the newly produced equipment can be immediately deployed in the export market. Chinese, without the need for costly repositioning by liners.
At the end of July, stocks of new boxes were only two to three weeks, meaning that the newly built equipment was quickly absorbed into the market within a month.
It’s a different story for US 53-foot domestic containers. Despite the fact that these boxes are only used in America, none are built there – they are all built in China because even with the repositioning costs, American manufacturers cannot compete with China.
After they are built, the 53-footers must compete with the 20 and 40-footers loaded for slots on eastbound trans-Pacific maritime services – services that are now experiencing massive delays. Some retailers are taking extreme measures: Walmart (NYSE: WMT), for example, brought 53-foot ships overseas this year onto the decks of non-container ships.
Put it all together and depending on the type of container, the time it takes from order to delivery seems to be around one to two quarters.
The “pig cycle”
This is still short enough so that container equipment does not suffer excessively from the so-called “hog cycle” effect that plagues commercial shipping. In economic theory, the pig cycle refers to the delay between production – the breeding season for pigs – and when the decision to increase production is driven by higher prices.
The effect of the pig cycle has historically had a considerable impact on the volatility of sea freight. For example, a container ship ordered today will not be delivered until 2024. By then demand may have fallen and the market may not need the new ship. Conversely, prices are so high today, in part because of the low number of orders two or three years ago when prices were low.
In contrast, the time between ordering and delivery of container equipment is short enough that production does not exceed or exceed too much, which reduces volatility.
Brian Sondey, CEO of container rental company Triton International (NYSE: TRTN), explained on his company’s July 27 conference call: “The last container orders we placed were due to be delivered until the end of September. Usually, we see shipping companies slowing the rate of introduction of containers into their fleets in the fourth quarter. This year is, of course, an unusual year. It is certainly possible that customers will continue to add equipment to their fleets in the fourth quarter to help them deal with ongoing operational disruptions.
“But the good thing about our business is that we don’t really have to guess, at least not yet. We’ll probably have an edge of a month or so before we have to start guessing ourselves if we want to order large volumes of equipment for Q4. As long as the market is there, we will continue to buy.
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