What are the different types of container leasing arrangements?

What are the different types of container leasing arrangements?

Advancing at a compounded annual growth rate of 17%, the shipping container leasing market is poised to reach US$7.10 billion by 2026. Leased containers are gaining popularity because it offers freight forwarders and shipping lines a level of flexibility that’s not possible with shipping liner-owned containers. It’s no wonder that 52% of the world’s shipping containers are leased.

In a market scenario dictated by customer preferences, different types of lease arrangements play specific roles to meet the demands and conveniences of customers. Let’s look at the different types of lease agreements and learn how they benefit the users.

Finance Lease
This is also referred to as Purchase Lease. Under its terms, the ownership of the container rests with the lessee, or in the other words, the lessee is the documented legal owner/ titleholder to the shipping containers. This type of ownership allows the lessee to record depreciation and interest expenses relating to the containers. Since finance leases are recorded as “leased-financed” assets, they come under “liabilities” and appear in the balance sheet. Although it does increase the net value of a company, it also impacts the taxable income from the asset by way of ownership. The lessee is also responsible for the maintenance and insurance costs of these containers. At the close of the finance lease, the lessee has the option to purchase the containers from the lessor at a price agreed upon when the lease agreement was signed.

Master Lease
They are also often referred to as Short to Medium-term Leases. They come under the category of Full-service Leases with no cap on the minimum or the maximum number of containers. The lease duration is variable and the lessor undertakes responsibility for maintenance, repair and repositioning of the containers. The agreement also involves an accounting system including debits and credits between the contracting parties based on the condition of the containers at the time of their return. The lessor must undertake the distribution of the containers to meet the needs of the lessee. Hence ensuring a steady supply of empty containers at pick-up locations assumes significance. Master Lease Agreements lay down primary conditions such as the cost of rent per day, the types of containers at disposal, the number of containers to be taken per depot, the collection and drop-off centres, payment terms, and so forth. The lessee is not obliged to use the containers until they are collected from a depot, and the contract takes effect only from the time when the lessee collects the container from the depot. A separate individual contract is signed for each container collected under the main Master lease agreement.

Long-term Lease
Also known as Dry Lease, the lease period extends from 5 to 7 years for new containers and 1 to 5 years for used containers. Such leases are commonly associated with prolonged use of the containers by carriers. In most cases, the lease begins soon after the purchase of new containers by the leasing company. The lessor also gains by gradually writing off the value of their capital investment during the lease period. The lessee is responsible for maintenance, repair and repositioning.

Short-term lease
Also referred to as Spot Market Leases they are influenced by market conditions dictated by the dynamics of supply and demand. Such lease arrangements usually take place during a temporary rush in demand, which can be cyclical or sudden. Due to such market volatility, leasing companies prefer not to keep a large stock of such containers to meet short-term lease demands to avoid the possibility of their underutilization over extended periods. But careful planning and forecasting can take care of unforeseen surges in demands. Maintenance, repair and repositioning tasks lie with the lessee.

One-way Lease
They are also called One-trip Lease agreements, where a container can be picked up at one location and dropped off at another location. Both the contracting parties benefit from such One-trip Lease arrangements by rationalization of operations and cost reduction. It is suitable for a customer’s varying regional requirements, with the added benefit of saving repositioning expenses.

iInterchange Systems / www.iinterchange.com offers software solutions on SaaS www.iboxsuite.com and “On-Premises” model. Their industry knowledge, technical proficiency and focus on customers’ needs make them the right people to collaborate for the software needs of container lessors, depots and terminals. iCORAL, a complete ‘cradle-to-grave’ container lessor enterprise solution from iInterchange executes all functions of container lessors and delivers ideal levels of workflow efficiency. iTRADE from iInterchange delivers an optimized solution for the key functionality of a container lessor business.

iInterchange offers iCORAL via “On-Premises” model by licensing and iTRADE either “On-Premise” or even on the “Cloud” via subscription model.