Triton International Limited's (TRTN) CEO Brian Sondey on Q4 2019 Results - Earnings Call Transcript

Triton International Limited (NYSE:TRTN) Q4 2019 Results Earnings Conference Call February 14, 2020 8:30 AM ET

Company Participants

John Burns - Chief Financial Officer

Brian Sondey - Chairman and Chief Executive Officer

John O'Callaghan - Executive Vice President, Global Head of Field Marketing and Operations

Conference Call Participants

Larry Solow - CJS Securities

Michael Brown - KBW

Ken Hoexter - Bank of America Merrill Lynch

Robert Napoli - William Blair

Operator

Good day, ladies and gentlemen, and welcome to the Triton International Limited's 2019 Year-End Earnings Release Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded.

At this time, I would like to turn the conference over to Mr. John Burns, Chief Financial Officer. Please go ahead, sir.

John Burns

Thank you, Keith. Good morning and thank you for joining us on today’s call. We are here to discuss Triton’s fourth quarter and full year 2019 results, which were reported this morning. Joining me on this morning’s call from Triton is Brian Sondey, our CEO; and John O'Callaghan, our Executive Vice President and Head of Global Marketing and Operations.

Before I turn the call over to Brian, I’d like to note that our prepared remarks will follow along with the presentation that can be found in our Investor section of our website under Investor Presentations. I’d like to direct you to Slide 2 of that presentation and remind you that today's presentation includes forward-looking statements that reflect Triton's current view with respect to future events, financial performance and industry conditions.

These forward-looking statements are subject to various risks and uncertainties. Triton has provided additional information in its reports on file with the SEC concerning factors that could cause actual results to defer materially from those contained in this presentation. And we encourage you to review those factors.

In addition, reconciliation of non-GAAP measures to the most directly comparable GAAP financial measures are including in our earnings release and presentation.

With these formalities out of the way, I will now turn the call over to Brian.

Brian Sondey

Thanks, John. And welcome to Triton International's fourth quarter 2019 earnings conference call. I’ll start with Slide 3 of the presentation. Triton achieved solid results in the fourth quarter of 2019. Triton generated $77.5 million of adjusted net income in the fourth quarter of $1.07 per share. We also achieved an annualized return on equity of 14.6%.

Triton's performance held up well in 2019 despite facing challenging market conditions. Triton generated $4.57 of adjusted net income per share and our return on equity was 16% for the full year. And while our purchases of new containers were limited in 2019, we were able to redirect our strong cash flow to other high-value investments.

The resiliency of our financial performance and our ability to create shareholder value in a tough market environment, are reflective of our strong and stable cash flow, our well structured long-term lease portfolio, and our industry leading operating and marketing capabilities.

The first quarter typically represents our weakest quarter of the year, since it represents the depths of the slow season for dry containers, has the fewest number of days, and has extra SG&A expenses. Our first quarter this year will also be negatively impacted by the decrease in our utilization during the fourth quarter of 2019.

Our lease extension transaction with a large customer and our issuance of preferred stock ahead of opportunities to deploy the capital, as a result we expect our adjusted net income will decrease from the fourth quarter of 2019 to the first quarter of this year.

During December and January we saw several positive market developments and a stabilization in our utilization. This suggested to us that the current down cycle was poised to turn, especially as we head toward the traditional summer peak season. Over the last few weeks these positive signs have been complicated by the outbreak of coronavirus in China.

While events are just still unfolding, our expectation is that work and travel disruptions will lead to reduced factory output and limited export volumes from China for at least the next month and so delay any rebound in market conditions.

Beyond this the impact of the coronavirus outbreak on us is unclear. Previous trade disruptions have had a mix of positive and negative effects. The balance of effects in this case will likely be driven by how long the disruptions last and whether the economic disruptions spread to other countries. We will be monitoring events closely and believe we are well prepared to deal with any negative surprises or spikes in demand as they arrive.

I will now hand the call over to John O'Callaghan, our global Head of Marketing and Operations.

John O'Callaghan

Thank you, Brian. Turning to Slide 4, as Brain mentioned with the economic backdrop of the U.S.-China trade dispute and global trade growth lower than expected, market conditions through 2019 were challenging. There were limited new container transactions through the year. Prices were low due to aggressive competition amongst manufacturers for the limited volume of orders and in turn there was aggressive competition for the available deals.

Triton participated in some, but generally chose to allocate equity cash flow elsewhere. Triton's operating performance remained solid through the year, despite utilization, rates and disposal prices coming under some pressure. We did a good job of managing our exposure through weak market. The fleet held up well due to the structure of our portfolio which helped us to mitigate risk and reduce volatility.

Indications pre-Chinese New Year were that we may be coming out of a cycle and conditions could improve in 2020. Utilization was stabilizing, container prices were increasing, all helped by the initial trade agreement between the U.S. and China.

Slide 5 shows Triton's key operating metrics. The metrics illustrate the tough conditions of 2019, but we are pleased with the way we came through it and things were looking up. The fourth quarter was seasonally slow and is reflected in the drop off activity and although negative our utilization averaged 95.8% down by only 0.9% over the quarter. You can see that the picks remained low which is normal for this time of the year. This is also expected and will extend into the first quarter.

Slid e 6, looks at the key measures of container supply and demand. The chart on the upper left shows the container trade and economic growth was low in 2019. The bottom two charts are measure of supply. Available factory new production inventory decreased to about 800,000 TEU. Soon in fact, new production orders are not even replacing disposals, so container supply remains well balanced.

The bottom right chart shows Triton's inventory in Asia. We have seen an increase in our depot fleet rise [ph] in Asia, however it remains under control and the equipment is where we need it for when the market picks up. We are active where we can be and choose to be. We are unwilling to renew leases at rates that we think are less for the long-term value of our equipment just because the market is slow. Because of that, we have an additional 150,000 TEU in exactly the right place, ready to go back on hire as the market improves. We've retained our upside leverage in the business with these run of fleet units in addition to our new production availability.

Slide 7, looks at recent developments. Initial indications were that we may be coming out of the cycle reflected in our business metrics and that conditions could improve. We saw a slowdown in our size [ph] and increased pick-ups from December through to January. Utilization inflected in December and started to improve.

In response to the expectation of some trade growth and manufacturers trying to adjust capacity to better balance supply, container prices started to move from under $1700 to $2000 over the last few months. Available factory new production decreased and the total inventory is about 2% of the global fleet, so in effect not even replacing container disposals. And as such, the fleet remains well balanced.

I'll now hand you over to John Burns, our CFO.

John Burns

Thank you, John. Turning to Page 8, on this page we have presented our consolidated financial results. We generated adjusted net income of $77.5 million or $1.07 per share in the fourth quarter. And we finished the full year of 2019 with adjusted net income of $341.7 million or $4.57 per share. These results represent a return on equity of 14.6% for the fourth quarter and 16% for all of 2019. This solid performance in a challenging market was supported by our strong lease portfolio and industry leading operating capabilities. Our earnings per share also benefited from our share repurchase program, which has reduced our outstanding shares by 8.8% over the last year.

Turning to Page 9, our results for the fourth quarter and the full-year of 2019 were driven by several factors. We limited our investment in new containers to $242.5 million in 2019 due to the weak market conditions. This was well below our replacement level and resulted in 5.8% decrease in the net book value of our revenue earning assets over the course of the year. However, the average book value of our revenue earning assets was up roughly 2.5% over the prior year due to our significant investment in 2018.

Overall, our leasing revenue held up well in 2019 supported by our investment momentum from 2018 and our strong lease portfolio. Our utilization declined gradually throughout the year, but averaged a solid 96.9% for all of 2019. In the fourth quarter, which is typically the slow season for dry containers lease demand moderated further and average utilization declined 90 basis points from the third quarter to 95.8%, resulting in a 1.6% decline in leasing revenue and higher storage costs compared to the third quarter.

We continue to generate strong gains and container disposals in the fourth quarter with a combined trading margin gain on sale of $7.5 million. This was down $3.2 million from the third quarter, reflecting a continued moderation of sale prices and a seasonal decline in sales volumes. In the fourth quarter our adjusted net income also benefited from two non-cash items. First, the runoff of the purchase accounting adjustments related to our merger in 2016 provided a $13.6 million net benefit and we expect this benefit to grow over the next several years.

Second, our adjusted tax rate declined to 7.6% for the quarter and 7.9% for all of 2019. We expect our effective tax rate to be in the 18.5% range in 2020. Although 2019 was a challenging market, we took advantage of the weak conditions and used our strong cash flows to repurchased 6.9 million of our common shares reducing our outstanding shares by 8.8% during the year.

Turning to Page 10, this page highlights how we've been able to use our strong cash flow to create significant long-term value for our shareholders. The graph on the top left shows our cash flow before capital spending and you can see the steady growth in our cash flow over time as we have grown our fleet. And you can also see the resiliency of our cash flow across market cycles.

The stability of these cash flows, together with the short order cycle for containers, also enables us to maintain our leverage and a steady range over the long-term as shown in the graph on the bottom left. In fact we typically delever during challenging years due to reduced container investment as was the case in 2019. The graph on the right demonstrates how these strong cash flows and our financial stability have enabled us to create significant shareholder value by steadily growing the book value of the business, while paying a substantial dividend.

Over the last year we have increased our adjusted tangible book value by nearly 7% or $2.25 per share to over $36 a share and paid a $2.08 dividend.

I'll now return you to Brian for some additional comments.

Brian Sondey

Thanks John. I'll continue the presentation with Slide 11. We believe Triton has created significant value for shareholders by managing our capital effectively. We are highly focused on maximizing the value of our strong cash flow. During 2017 and 2018 we took advantage of strong demand and our unrivaled supply capability, to drive strong value added growth in our container fleet.

We estimate our leasing share was over 40% during that time and we believe we will achieve excellent lifetime returns on these investments. In 2019 we pulled back on container investments and aggressively repurchased shares as market conditions softened. We have now repurchased over 11% of our outstanding shares for an average price well below our adjusted tangible book value per share. We believe the investment returns on these share repurchases will also be excellent. We have recently slowed our repurchases as our share price has increased.

We also believe we have improved the safety and efficiency of our capital structure. We've issued $555 million of perpetual preferred stock over the last year with an average fixed-for-life yield of 7.6%. We believe the perpetual nature and dividend structure of the preferred stock provide risk protection quite close to that of our common stock, and believe that it allows us to target youth-oriented investors and improve the cost efficiency of our equity. We are well-positioned to take advantage of any opportunities that arise. We have significant dry powder to fund even very large investments. We have a large inventory of new, and depot containers in prime locations, and we are uniquely situated to quickly deliver large and creative solutions for our customers.

I'll now wrap up the presentation with a few summary comments on Slide 12. Triton achieved solid performance in 2019 despite facing difficult market conditions. We had limited new container purchases in 2019, but redirected our strong cash flow to other high-value investments and we also improved the safety and efficiency of our capital structure.

We expect our net income to decrease from the fourth quarter of 2019 to the first quarter of 2020, due to typical first quarter weakness and several additional headwinds this year. We had recently seen several positive developments indicating that market conditions are poised to rebound as we move toward the peak season in 2020. The coronavirus outbreak will likely delay this rebound and it adds uncertainty to our outlook.

But we are in strong shape to manage through the current environment and very well-positioned to take advantage of any improvement in market conditions. We remain the clear scale, cost and capability leader in our industry. Our well structured lease portfolio continues to deliver strong and stable cash flow. Our balance sheet is in great shape and we have significant dry powder for investments. We stand ready to quickly provide large and creative container solutions for our customers and we believe we are prepared to address any unexpected challenges and quickly capitalized on any opportunities as they arise.

We'll now open up the call for questions.

Question-and-Answer Session

Operator

Yes, thank you. [Operator Instructions] And the first question comes from Larry Solow with CJS Securities.

Larry Solow

Hi good morning. You guys measured, it sounds a little bit like a mixed bag. I'm little new to the names, so do you normally in Q1 would you normally start seeing some signs of the improvement and I realize it is seasonally the slowest quarter of the year, right? So, I guess, I'm trying to take away, it looks like some optimism your container prices have bounced pretty nicely, utilization actually started to shift in December and January, I don’t know what happens to the coronavirus, but these kind of things, seem to be a little bit against the normal seasonal slowdown and may be suggests if we can get by the coronavirus issues maybe things will start to rebound?

Brian Sondey

Yes, that was certainly our view. We were pleased with what we saw in December, both the developments I think was encouraging for the industry overall when the U.S. and China signed their interim agreements, I think that gave our customers a little more confidence that trade growth in 2020 would be okay. We're also very pleased to see container prices strengthen that typically as very good implications for the value of our existing container fleet and there we saw prices go up from just over $1600 at the start of the fourth quarter to approaching $2000 for 20 feet dry container and then has a corresponding effect on market leasing rates as well.

And then we saw our pickups accelerate in the end of December into January ahead of Chinese New Year and some slowdown in drop off volumes too and so because of those things we saw utilization inflect in January, which is a positive sign and something that we actually don't always see in January. And those combination of factors had us thinking that, yeah you know looked like the market was ready to turn in 2020 assuming that the economic backdrop remained okay.

As we tried to say in our prepared comments, the outbreak of the coronavirus at a minimum probably delays any rebounds by just limiting factory output for the next month or so at least and limiting exports, but longer-term we don't have a great sense of how it plays out. In the past we've seen trade disruptions being maybe generally positive for the industry as typically you know the unusually slow period is followed by some period of doubling up and typically for us what matters is peak demand rather than average demand. But in this case there is so much uncertainty surrounding it that we we're hesitant to say how it plays out. And maybe just in terms of your first question of, when we typically start to see seasonal improvements, usually that's during the second quarter.

Larry Solow

So how about spending, I know you guys have been spending a lot in 2019, I mean it sounds like you are in a holding pattern, just and see what happens, are competitors or is anybody buying containers, are your competitors buying containers which would or is this slowdown by the manufacturing side and nobody is buying and not having as much effect, I'm just trying to get the supply and demand in the near term?

Brian Sondey

Fair enough. So we bought some containers in 2019, yes purchases were just under $250 million, but that given the size of our business still leads to overall reduction in our fleet size. We have spent you know container, where we have purchased containers for delivery in 2020, I believe our purchase to date or are just over $100 million for containers for delivery this year. Really just getting ready for the peak season and like we also have a well priced inventory, given that a lot of the containers we have in the back we have purchased in 2019 when prices were lower.

In terms of the overall market in 2019, it wasn't that robust and so overall container buying was fairly low for the leasing industry, especially starting in the second quarter and into 2019 and continuing for the year. And the factory inventory of equipment is, it's in a pretty reasonable shape. There's about 800,000 TEU in the factory for shipping line and leasing company containers, which represents about 2% of the operated fleet.

So you know it is probably a kind of a normal level of inventory for this time of year. But you know, one of the other effects of the outbreak is that container production along with lots of other, factory production in China is right now constrained and that likely will add as we get into the second quarter some additional constraints on supply.

Larry Solow

Right, and if you could just speak to a little bit about the detail on this lease extension transaction, anymore color on that, the size of it or anything?

Brian Sondey

Yes, so it is something we often do, is when containers expiring off lease we look to keep them on with the same customer, usually that's a win-win for the customer, it allows them to avoid the frictional cost of returning containers and for us it continues to lock in stable revenue and cash flow.

In this case, we did a fairly sizable transaction with one of our bigger customers to basically keep containers on higher through what we considered that might be the balance of the remaining low period. So this was sort of a temporary extension, for the next couple of quarters.

Larry Solow

Okay.

Brian Sondey

While we kind of waited for the market to recover, it is not necessarily sizable in the overall scheme of our business, but in terms of quarter-to-quarter comparisons it has some impact on our revenue.

Larry Solow

Understood. Okay, great. Thank you. I appreciate it.

Operator

Thank you. And the next question comes from Michael Brown with KBW.

Michael Brown

Good morning guys.

Brian Sondey

Hi, Michael.

Michael Brown

So I just wanted to start on the steel prices, there was positively on the new container prices. So I was just positively surprised to hear that new container prices have increased given we have seen a decline in the steel prices recently. So is that – what's kind of changed the dynamics there, has it been driven by some of the consolidation of the factories or has there been upward pressure on the labor costs in China, I guess what are kind of the key drivers that we should be thinking about?

Brian Sondey

So, I think the key thing to point out is just that container prices were exceptionally low in 2019. And that's true both for the absolute price of containers where probably only less than, I don’t know, seven or eight quarters in the last 12 or 13 years where container prices were in the range where they were last year. And then it's also even more true when it comes to the margin over steel prices.

And so, we actually have some materials that we usually put out there on our investor decks looking at both the absolute price of containers, but also - what's the cost relative to the two tons of steel that go into a 20 foot dry container and those were close to historic lows in 2019. And I think the manufacturers that they were losing significant amount of money operating at the margins where they were. And so to some extent, we actually just look at the - where the container price now is probably the appropriate level given where steel prices are. So a lot of it again is just this elimination of these unusually low margins in 2019 returning to some level of normalcy.

I think the reasons for it were twofold, you know, one is that as we headed into 2020 with - I think the signing of the agreement between the U.S. and China and just the general expectations that downturns in our business typically don't last much more than 18 months. I think there was a little bit more optimism among the shipping lines about the year and we saw some orders in the fourth quarter from them and then some other orders in the market, which created some demand in the, what typical is a slow season for containers.

And then secondly, the manufacturers have taken some steps to control factory capacity and sort of better align it with the level of current production volume. And I think that's allowed them to take a different view on pricing and not trying to price right down to materials and marginal costs, but trying to return to some normal level of margin in their business.

Michael Brown

Okay, great. And so, it sounds like you kind of slowed down the buyback activity due to valuation this quarter. I guess, what kind of levels - how do you think through what's the right valuation point where you'd say, it doesn't make sense for us to doing buybacks and we should be looking to deploy that excess capital elsewhere. And then, obviously, we've seen the pick-up in preferred issuances in recent months. So, you mentioned that you're kind of looking to deploy that capital. So is that looking to be deployed into CapEx or how should we be thinking about that or is it just maybe further delever, I'd appreciate any color on that?

Brian Sondey

Sure. So for the share purchases, we look at a variety of measures to just get a sense of how we think the current share price at any time compares to sort of the valuation that we see in the business. And I would say for share repurchases we like to be highly confident, that we think the, of course, you never know, but we like to be highly confident that the repurchases are really good investments for us. And, you know, in 2019 we were trading well below tangible book value, well below our estimated lease run off value for most of the year. And so, we were purchasing at no aggressive volumes relative to our own trading volume.

You know, as the price increased, again, we certainly still think it's a good investment. But just the – we've set up our plan, so that as price rises, and we get away from kind of deep discounts versus some of those metrics, we slow down the purchasing volumes. And it's something we look at regularly. So as we head into 2020 and we constantly evaluate the relative attractiveness of different investments and adjust accordingly.

In terms of our preferred stock offerings, we mentioned that we have raised or have issued the preferred stock and raised the additional equity capital ahead of having the investments opportunities to deploy that capital. We did so mainly just because we think the preferred stock is a really nice addition to the capital structure and provides a pretty interesting mix of risk protection in terms of equity capital, as well as cost, by allowing us to target these kind of yield oriented investors at a time when investors are looking for yield.

And in terms of how we'll deploy it, again, I think we'll look as we move into 2020 at what opportunities we have and it gives us even more ability to make very big investments into our business if market conditions recover and we have another opportunity to do what we did in 2017 and 2018. It allows us to do many other things in the business if opportunities come up, and of course, it would allow us to buy back even more stock if we saw that to be an attractive opportunity for us too. And I think we tried to emphasize in the prepared materials that we really try to be quite thoughtful and disciplined on how we deploy our cash flow and capital and certainly expect we'll do that in 2020 as well.

Michael Brown

Okay, great. Just one last one from me. So I appreciate the cautious commentary on the outlook. I guess, I'm a little bit unsure about what the base case expectation now is at this point, you mentioned that the improvement that you had expected in December and January could now be delayed.

So is your base case expectations still though, that the second half snap back and come alongside the peak season or is it and really the wild card is just the coronavirus and just remains to be seen how that kind of plays out over time, is that correct?

Brian Sondey

Yes. I think that summarizes it well. I think there's a variety of reasons why we thought that 2020 was a very good chance that could be a year where the market would rebound. And that we would see our performance metrics improve and have good opportunities to invest in the business and we've talked about some of those things.

And, and I'd say in the absence of the coronavirus outbreak and all the uncertainty that that creates, I think we'd feel pretty good about the year. You know I think we still feel good about the year. It's just that this obviously, is kind of an unprecedented situation, and we're hesitant to try to predict how that all plays out.

Michael Brown

Okay, thank you, Brian.

Operator

Thank you. [Operator Instructions] And the next question comes from Ken Hoexter with Bank of America Merrill Lynch.

Ken Hoexter

Hey, good morning, Brian, John and John. Thanks for the detail on the outlook. Just maybe jumping into the container side, when was the last time you had 150,000 containers sitting at port? Is that is that normal seasonal, should we be looking at it as kind of high or low going into the season if you start seeing a rebound, maybe talk about that 2000 number?

Brian Sondey

Yes, it's not unusual, and when you think about where our utilization is, it's still well over 95%. And I think it's somewhat of a fact of just how big our fleet is these days, that adds 95% utilization, we can have 150,000 containers sitting at the right ports in China.

But I think, John and John O'Callaghan referred to it for a few reasons. One is it just, I think it reflects the general way we approach 2019 and being disciplined in our investments, and disciplined in the deals that we did with our customers. And where we- when market conditions are weak sometimes there's a temptation for leasing companies to extend containers that are expiring at maybe rates below long-term expectation for leasing rates or where to push equipment out on deals that maybe aren't really the kind of deals you want to do.

And so while we were active and extending leases and leasing containers in 2019, we also were pretty disciplined on when we said yes, and then we said no. And so therefore, we have accumulated some more fire equipment and just given the structure of our lease portfolio, it tends to be in the right locations.

And so, it's just one more reason why we were levered to – it is a benefit from a recovery that, we performed well in 2019, we also preserved the upside potential, remarketing that equipment as market conditions improve. And so, frankly, it's something that we feel really good about, both from a financial leverage to the upside, but plus a real ability to serve our customers. And so, between the depot inventory we have in China and our factory inventory, we have a significant share of the containers available to give to the shipping lines in China.

Ken Hoexter

Thanks, and Brian, I guess maybe when was the last time you saw the $2,000 per container or more importantly the $400 sequential jump, it seems like such a large move. And I guess, does that, should we be really reading through that directly to lease rates and kind of where we are right now in terms of rates in our - is the container $2,000 currently or has that continued to go up?

Brian Sondey

Yes, so the container prices as best you can tell, like you never know of course until you're placing an order. But - and we have been ordering over the last month or so. So container prices are in the $2,000 ranges it is certainly our experience. And $2,000 is actually quite a normal price for containers. If you look back over the last 12, 13, 14 years, the average price for containers over that time was somewhere between $2000 and $2100 per 20-foot container.

So, we're kind of right into that that normal place and in addition in terms of the margin over steel prices, that given where steel prices are right now the $2,000 is also you know, kind of right down the middle, when it comes to the margin over steel prices. And so, again, to us, it feels like this is a much more normal situation where the 2019 prices and margins were pretty unusual.

You know, in terms of market leasing rates, you know I think we've talked many times that the leasing rates adjust very quickly to changes and new container prices and changes in interest rates. Sometimes when container prices do jump quickly, there's some lag as I think leasing companies might look for the opportunity of the improved prices, maybe to push out some equipment that they had purchased and willing to accept part of the inventory profits of the move, while they wait and see if the this price movement is permanent. But to the extent that container prices remain at this level, yes, they'll be, there will certainly be a corresponding increase in market leasing rates.

Ken Hoexter

Yes, that's a great move on the box rates. I agree with you $2000 to $2100 over a long period of time, but I think it's been a while since we've seen a jump that much quicker?

Brian Sondey

Well, actually the, well certainly the jumps been big, but with a lot of – I mean container prices were in fact $2100 to $2200 for right up until the end of 2018.

Ken Hoexter

Yes, fair point. And it did come down kind of oddly into that really low level. The coronavirus, let me just hit on this to end, because I guess it really does have an impact. So maybe just your thoughts on let's bring it in near term on utilization in the near-term. You know, you've got some ships there that liners that are moving empty boxes, maybe leaving stuff at the shore because they're moving some empties. Maybe just talk about what does that mean from your perspective as the supplier to the industry in terms of disrupting that normal sailing cycle. What does that impact on demand and I guess I'm trying to figure out, let's just say the new cases continued to decline, how long does it take to get the cycle back into where you start absorbing some of the stuff you have sitting on the sidelines?

Brian Sondey

Right, so certainly, the ships - the exports from China have been quite low, you know, since Chinese New Year. And to some extent, what we're just seeing is an extension of the Chinese New Year holiday beyond this typical duration. And so, as you mentioned, the loaded containers are getting taken off ships in China ports and to some extent staying there. And so, there must be an accumulation of shipping line operated containers in China at this point.

In terms of what we're seeing in our activity, as we haven't seen any real spike in drop off items, we certainly have seen very little on higher volumes, because again there's not many exports coming out of China right now. But we haven't seen an acceleration off hires and our take on it is - one, just our least portfolio is well structured and it doesn't allow any kind of real big jump in off hire volumes.

But secondly, you know our sense is, that our customers also are trying to figuring out what's happened and also are getting ready in case we see, which we typically do, you know, a spike - when the disruptions end, as everyone tries to catch up for the shipments that were missed. And so we think our customers probably are happy to have the inventory in China, anticipating that move.

I think, we do expect it to be a delay in terms of when we'll see pick up in export activity translate to at lease-outs for us, as the shipping lines kind of reabsorb the boxes that they've dropped into China. But in general, as we've talked many times, the inventory of containers is a very small number relative to the flow of containers. And so we don't think it would take too long for kind of a renewed activity to translate into demand for us.

Ken Hoexter

Great, I appreciate the time and thoughts is always fine. Thank you.

Brian Sondey

Yes, thanks Ken.

Operator

Thank you. And the next question comes from Rob Napoli with William Blair.

Robert Napoli

Thank you and good morning. Did your company has – that the Triton has done a really good job on the consolidation of the industry in the past. I guess, wondered what your thoughts are on a consolidation in the industry, obviously one of your significant competitors is looking at alternatives. Is Triton ready to take or and interested in partaking in industry consolidation?

Brian Sondey

Yes, I can, of course respond generally. I can’t talk anything about any particular situation. But I think we've talked before that we are believers in consolidation. We certainly got significant benefits in the merger of talent, right in 2016, cost efficiency clearly, also some benefits from pooling capabilities. And frankly, we find our customers liked the consolidation, so that they had a supplier that could deliver very quick and large solutions for them.

So overall, we remain - we think consolidation makes sense for us, that makes sense for the industry, and we think it'll continue to happen. I'd say also, as we've said a few times, we approach situations like that with a lot of discipline, wanting to make sure that we preserve value for our own shareholders and those kinds of things. But again, I don't really want to talk specifically about anything that's going on at the moment.

Robert Napoli

Are there just globally more opportunities for consolidation that you're seeing or not really in the U.S.?

Brian Sondey

Yes, so in general, I would say the leasing industry remains fairly fragmented, certainly compared to our suppliers and even our customers. And I think this is also realization that scale matters of course and both from a cost efficiency standpoint, and a supply capability standpoint. And I think a recognition by a lot of our competitors frankly that keep pace with us in this business, that they probably have to grow and it's awfully difficult to try to catch us with organic investment. So for all those reasons, and again, our own interest, I do think we'll see consolidation more in our industry.

Robert Napoli

Do you have any concerns that your market share would become too high that it would not be permitted regulatory wise?

Brian Sondey

Well, again I certainly wouldn't want to speculate on how regulators would view it. I'd say the one thing though, is that, recall that while we have a leasing industry, it's not extraordinarily high. And also the leasing industry represents only about half the containers in the world.

So, we think it's a long way to go from where we are in the business to any kind of market power, and we would be the first to admit we have none and we do these things- we do the consolidations not for any kind of market power effects, but really for just the basic industrial logic of cost efficiency and supply capability.

Robert Napoli

Great, thank you. Nice job on the business.

Brian Sondey

Yes. Thanks Bob.

Operator

Thank you. And this concludes our question-and-answer session. I would like to turn the floor over to Brian Sondey, Chairman and CEO for any closing comments.

Brian Sondey

Yes, thank you. Just want to thank everyone for their continued interest and support for Triton International, and we look forward to speaking with you soon. Thank you.

Operator

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.