Triton International Limited (TRTN) Q1 2020 earnings call dated Apr. 24, 2020
Corporate 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
Analysts:
Michael C. Brown — KBW — Analyst
Larry Solow — CJS Securities — Analyst
Ken Hoexter — Bank of America Merrill Lynch — Analyst
Presentation:
Operator
Good morning, and welcome to the Triton International Limited First Quarter 2020 Earnings Release Conference Call. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to John Burns, CFO. Please go ahead.
John Burns — Chief Financial Officer
Thank you. Good morning. And thank you for joining us on today’s call. We are here to discuss Triton’s first quarter 2020 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 Global Head of Marketing and Operations. Before I turn the call over to Brian, I would like to note that our prepared remarks will follow along a presentation that can be found in the Investors section of our website under Investor Presentations. I’d like to direct you to slide two 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 differ materially from those contained in this presentation and we encourage you to review these factors. In addition, reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the earnings release and presentation.
With these formalities out of the way, I’ll now turn the call over to Brian.
Brian Sondey — Chairman and Chief Executive Officer
Thanks, John and welcome to Triton International’s First Quarter 2020 Earnings Conference Call. Before I start with the main presentation, I would like to thank all of our employees for their extraordinary efforts over the last few months. It’s of course has been a difficult time for everyone but Triton has been able to transition seamlessly to working fully remotely. Our team has maintained their strong focus on our customers and made sure our internal and external operations are proceeding smoothly. I would also like to thank our customers for their close communication and ongoing support. We are proud to be part of your efforts to keep the vital global supply chains moving during this extraordinary time.
I’ll now start the presentation with slide 3. Triton achieved solid results in the first quarter of 2020, despite facing significant market disruptions from the COVID-19 outbreak. Triton generated $67.1 million of adjusted net income in the first quarter or $0.93 per share. We also achieved an annualized return on equity of 13.1%. We expect the impacts from COVID-19 to increase in the second quarter as the effect of the widespread business shutdowns fully weigh on economic and trade activity. But Triton is well-positioned to manage through the current challenging time and benefit from the eventual recovery. Our high quality lease portfolio continues to generate strong and stable cash flow. Our leverage is well below our typical level.
We have over $500 million of cash on hand plus extensive borrowing availability. And we have a large share of the available containers in key demand areas and are ready to support our customers with our unrivaled container supply capability when the market recovers. Triton continues to use our strong cash flow to drive shareholder value. We awarded a $193 million of containers for delivery this year. We declared a $0.52 per share dividend this quarter. We have repurchased 2.1 million shares so far in 2020, and have now purchased over 13% of our outstanding shares since the current program started in August of 2018. And we recently re-upped our share repurchase authorization to $200 million.
I will now hand the call over to John O’Callaghan, our Global Head of Marketing and Operations.
John O’Callaghan — Executive Vice President, Global Head of Field Marketing and Operations
Thank you, Brian. Turning to slide 4, as Brian mentioned, COVID-19 is having a significant impact on trade volumes. All manufacturing in China closed for the Chinese New Year holiday period at the end of January and remained closed through February as China implemented extensive work restrictions due to the COVID-19 outbreak. As these restrictions eased in China, export volumes started to recover through March with exports from China starting to approach normal levels by the end of the month. Our customers are now preparing for another significant decrease in cargo volumes in the second quarter resulting from the spread of COVID-19 and the extensive global economic shutdowns.
The exception is that May and June will be exceptionally slow for the Trans-Pacific and the East-West trade. While we expect underlying trade volumes to be very weak in the second quarter, we have not seen a major impact on our own operations. Although we’re not seeing much pickup activity, container off hires are moderate and utilization is holding up well, on average dropping 40 basis points over the quarter. We are well-protected for the near-term drop-off risk due to our long-term lease portfolio. Another factor supporting our performance right now is that the operational container flow disruptions actually create more need for containers because containers have been stuck in terminals and movements disrupted by blank sailings.
In addition, the distribution challenges for cargo movers are leading to them to use containers for longer term storage. Refrigerated containers are also not typically heavily impacted by economic cycles and we are also seeing refrigerated containers being used as storage for food as the cold chain gets back up. New container prices increased strongly in the first quarter due to an early expectation for increased demand in 2020 and by actions taken by container manufacturers to reduce production capacity. 20-foot dry container prices increased from under $1,800 at the end of last year to the $2,150 range in March. While the mild expectations for 2020 are much reduced, the capacity reductions remain in place and container prices remain above $2,000.
Our business continues to be actively managed remotely, with the team performing well. There were no disruptions serving our customers or with internal processes. I would like to congratulate and thank our team for their extraordinary accolades. Moving to slide 5, slide 5 shows Triton’s key operating metrics. Triton’s operating performance remains solid through the first quarter. Drop offs remain moderate in the first quarter despite the COVID disruptions in China. And we have not seen an acceleration of container returns in April. Our utilization averaged 95.4% in the first quarter and so far it dropped 10 basis points in April. Our average selling prices remain at healthy levels and we continue to generate gains on used container disposals through that period.
Moving to slide 6, slide 6 looks at the key measures of container supply and demand. The chart in the upper left illustrates the general expectation of the global economy and trade will contract deeply in 2020. The expected contraction in the second quarter to be well into the double digits, though the industry is hoping we’ll see volumes recover in the second half year. The bottom two charts are measure of supply. New container production volumes were very low from the third quarter in 2019 to the first quarter 2020, with production over that time considerably less than our estimates for container disposals. We expect container production to increase in the second quarter due to orders placed earlier in the year. But since then, new orders have been low for the last month. We expect new container production will decrease again in the third quarter, if we do not see an improvement in market conditions. The inventory of new container in the factory is moderate, with just under 800,000 TEU, presenting slightly over 2% of global container capacity.
I’ll now hand you over to John Burns, our CFO.
John Burns — Chief Financial Officer
Thank you, John. Turning to page 7, on this page we’ve presented our consolidated financial results. Adjusted net income for the first quarter was $67.1 million or $0.93 per share, a decrease of 13% from the fourth quarter. The solid results represent a return on equity of 13.1%. Turning to page 8, our results in the first quarter compared to the fourth quarter were largely driven by the normal seasonal slowdown compounded by the initial impacts of the coronavirus. We continue to limit investment in containers as lease demand has been limited resulting in a 1.5% decrease in our revenue earning assets since year-end. The decrease in our fleet together with a 40 basis point decline in utilization drove a 2.9% decrease in leasing revenue compared to the fourth quarter.
Our direct operating expenses, which were largely made up of storage for off-hire units and repairs for containers redelivered decreased by $500,000. As lower redeliveries in the first quarter reduced repair costs, offsetting an increase in storage expense. In the first quarter, we provided a $3.9 million allowance against the receivables of a mid-sized customer whose payments have deteriorated. However, overall customer payment performance remained strong in the first quarter. We generated solid gains on sales and trading margins in the first quarter though they were down $1.1 million from the fourth quarter due to a decline in sales volume and a small reduction in sales prices. We increased our share repurchase during the first quarter purchasing 1.4 million shares at an average price of $27.43 and have repurchased an additional 700,000 shares through April 17.
Turning to page 9, on this page we have highlighted our strong balance sheet, significant liquidity and a well-structured debt maturity profile. We show our balance sheet as of December 2018 relative to our March 31 balance sheet to capture the full impact of the actions we have taken to strengthen our balance sheet over the last five quarters. Since the beginning of 2019, we have issued $555 million of preferred shares and due to the challenging market conditions, limited our investment in new containers. Together, these actions have led to a significant reduction in our leverage. We focus on net debt as a percentage of revenue earning assets or REA as our key leverage metric.
We typically manage our leverage based on our pre-purchase accounting balance sheet as our debt facilities are structured based on those asset values. As you can see below the pre-purchase accounting balance sheet net-debt-to-revenue earning assets has dropped from 74.5% at December 2018 to 67.8% at March 31. This is the lowest level in our history. In addition to reducing our leverage, you can see in the table on the bottom left that we have significant liquidity. Our strong cash flow, current cash balances and additional availability under our credit facilities gives us liquidity of more than $2 billion in excess of our major cash commitments over the next 12 months. On the bottom right graph we show that we have a well-structured debt portfolio with no significant maturity cliffs enabling us to meet our debt obligations from our cash flow, which is shown by the blue line without the need for refinancing for several years.
Overall, we believe we are well-positioned to manage through the current environment and fully participate in the eventual recovery. 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 shareholders. The graph on the top left shows our cash flow before capital spending and you can see the resiliency of our cash flows across market cycles. The stability of our cash flow, together with the short order cycle for containers also enables us to maintain our leverage in a steady range over the long-term as shown in the graph in the bottom left. 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.
I will now return you to Brian for some additional comments.
Brian Sondey — Chairman and Chief Executive Officer
Thanks, John. I’ll wrap up the presentation with a few summary comments on slide 11. Triton achieved solid performance in the first quarter despite facing significant economic and trade disruptions from the COVID-19 outbreak. Looking forward, we expect market conditions to be more challenging in the second quarter and there’s a high level of uncertainty to our outlook for the rest of the year. Trade volumes are expected to decrease significantly in the second quarter and we expect to see weak dry container demand until global economic conditions recover.
We are also facing elevated customer credit risk due to the sharp decrease in freight revenue for our customers. Credit risk will be especially high if the COVID-19 shocks result in a sustained economic and trade downturn. We have not yet seen a significant increase in container drop off volumes and container demand could spike if the global economy bounces back quickly from the COVID-19 shutdowns. Overall, we expect our adjusted net income to decrease from the first quarter of 2020 to the second quarter. The trajectory of our performance after the second quarter will be heavily impacted by the shape of the global recovery from COVID-19 and whether we face meaningful credit losses.
Despite the significant challenges from COVID-19, we remain in strong shape to manage through the current environment and we’re well-positioned to take advantage of the eventual market recovery. We remain a 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. We stand ready to quickly provide large and creative container solutions for our customers and we believe we are prepared to address unexpected challenges and quickly capitalize on any opportunities as they arise.
I’ll now open up the call for questions.
Questions and Answers:
Operator
[Operator Instructions] Our first question comes from Michael Brown with KBW. Please go ahead.
Michael C. Brown — KBW — Analyst
Great. Thanks for that operator. Good morning, guys.
Brian Sondey — Chairman and Chief Executive Officer
Good morning.
Michael C. Brown — KBW — Analyst
So I want to start with credit. Appreciate the color. Glad to hear that the payment trends have generally been good. So if you can first start with where are the cracks that you’re seeing near-term that you’re most focused on? And given your top two customers represent 35% of your lease billings and your top five is over 50%, can you specifically address how you feel about those customers specifically and how closely you’re working with them to kind of understand their financial position? Thank you.
Brian Sondey — Chairman and Chief Executive Officer
Sure. In terms of what cracks we’re seeing, I think the — we took a reserve of $3.9 million in the first quarter for one of our customers to a mid-sized customer that has been really — I think having financial challenges for some time and where we’ve seen erratic payments for some period of time, but getting payments. We decided to take the reserve in the first quarter of this year as their payments, I’d say slow a little more than they had been as well as just given our view that the environment has become more challenging and so just made losses on the receivable more likely. In terms of other cracks, as we’ve said a few times, we didn’t see a real problem with payments in the first quarter and we haven’t heard from customers outside of the one we mentioned, talking about having inabilities to pay going forward.
As you know, we typically don’t take significant credit losses for a bunch of reasons. We believe we underwrite carefully. We focus our business on the strongest customers. Our customers generally speaking are large and have deep resources, many are supported by governments or bigger industrial conglomerates and containers are critical to their operations. And so, when we do see customers go into financial restructuring, especially big asset owners, typically we see creditors wanting to have the operations continue and therefore we continue usually to get paid through financial restructuring. I’d say just a thing about the current situation is that just — I mean, it’s unprecedented and just the size of the impacts on the economy and trade makes it very difficult to rely entirely on history.
And so, we are having some customers come to us and ask for payment delays or deferrals, other customers coming to see if they can reduce expenses in the near-term. And I’d say we’re working constructively with customers. We often in these kind of situations look for a win-win transactions where we provide customers near-term relief in return for longer-term benefits for us. And we’re having a number of those kinds of conversations. In terms of the structure of our lease portfolio, it’s concentrated by the nature of our industry. The top, I think, seven shipping lines probably represent 75% or more of operated vessel capacity in the world, and so there’s no other really way to be in our business other than to be highly concentrated. Fortunately, the customers where we believe we have concentrations are great operators given their size, their significant components of the global supply chain, and so we have a lot of faith in their resiliency. But certainly it’s a very unusual time out there.
Michael C. Brown — KBW — Analyst
Okay, great. And then just given the years of experience here in this industry for everyone in the call, would love to just get some color from you guys as to how this environment really compares to prior downturns? So assumingly, enter recession and have kind of more of a projected downturn, not a V-shaped recovery. How could the credit cost this time compare to the financial crisis or what we saw in 2015-2016 including the Hanjin bankruptcy? Thanks.
Brian Sondey — Chairman and Chief Executive Officer
Yeah, sure. So I’d say the unusual thing so far in this crisis is that while we have — we did see trade volumes drop significantly in the first quarter because of the — just the manufacturing problems in China. And there’s expectations for a very significant decrease in trade volumes in the second quarter. We haven’t yet seen that translate into a big increase in off hires for us just yet, where we did in the financial crisis, we went from a situation of having strong demand in August of 2008, basically facing massive redeliveries in October and November of 2008. And then saw very quick translation of change in market conditions to change in our utilization. In the financial crisis interestingly, we didn’t really take any significant credit losses.
I think probably for a lot of the reasons I was just describing that we did see major customers do financial restructurings, but we typically repaid right through those, and didn’t take any big financial losses. In the Industrial Recession of 2015 and 2016, again we saw — as economic and activity and trade activity slowed, we saw our utilization move down fairly readily. We also saw, really the only major credit hit we’ve taken in our history, at least in the last 20 years, during that time when Hanjin went suddenly — kind of Chapter 7 style liquidation. Right now, we’re curious to see what it’s going to mean for us in terms of impact on our utilization. I think our customers are holding on to containers right now to some extent waiting to see what kind of recovery and how long of downturn we face. I think as John O’Callaghan mentioned, there’s also a lot of operational disruption that our customers are having to deal with because of the way their vessel schedules have been disrupted with the blank sailings and the way containers are piling up in terminals and blocking efficient operations.
And then we hear that cargo movers are hanging onto containers for a while to keep their cargoes in there because warehousing and other distribution is also backed up on the ground in the U.S. and Europe. So we don’t really have a great roadmap. I think when we look at what could the impacts be, we — I think we look to the financial crisis which is where we really saw trade volumes drop precipitously. In that crisis we saw I think three quarters of weak demand before container supply reacted and adjusted down to where our trade volumes were and then we saw a very quick recovery once we got into the latter half of 2009. But again, this is such an unusual time. We’re trying not to give too much of a prediction.
Michael C. Brown — KBW — Analyst
Thank you. That’s very helpful. Just one quick clarification, does the second quarter guidance — does that include any assumption for elevated credit cost again or is that not included there and too early to tell?
Brian Sondey — Chairman and Chief Executive Officer
Yeah. So we don’t anticipate credit losses. Again that’s a — we haven’t seen any other customers other than the one we’ve mentioned showing real signs of stress or cracks. And so, we haven’t forecast credit losses. I think the one thing just from a — say a modeling standpoint, I’d say is that, we did take that almost $4 million charge in the first quarter but from an earnings standpoint it was a little bit offset by — we had some delayed recoveries on prior losses. I don’t think those showed up in our credit line, but they — to some extent offset the credit loss I think by $2 million to $3 million. So the net impact of the sort of one-time-ish kind of events was only a negative $1 million or $2 million.
Michael C. Brown — KBW — Analyst
Okay, great. Thank you for taking my questions.
Brian Sondey — Chairman and Chief Executive Officer
Sure.
Operator
Our next question will come from Larry Solow with CJS Securities. Please go ahead.
Larry Solow — CJS Securities — Analyst
Great. Good morning, guys. Can you give us a little more color on the — given the environment and the uncertainties, what’s the rationale behind the $200 million or $190 million additional investment in new containers? Was that — do you have a place to put those or is that replacing some older ones in your fleet? Can you just — just a little color on that?
Brian Sondey — Chairman and Chief Executive Officer
Sure. So it represents a number of things. One, as John O’Callaghan mentioned the refrigerated container market is not as impacted by typically economic cycles or disruptions as dry containers. So we all want to get our food and so on. And so we’ve done a couple of large refrigerator container deals so far this year. In addition, we also just always watch our inventory. And earlier this year, especially we the possibility back in, I’d say January and February that the trade volumes may increase in 2020 that I think turns out to be an optimistic view at the time and so we are building some containers for inventory in anticipation of that. And then we also are generally talking with customers about trading deals and sale leaseback transactions and those are included in the investments as well.
Larry Solow — CJS Securities — Analyst
Go it, okay. So fair to say perhaps some of that happened as you said earlier in the quarter when there was more optimism before sort of corona got [Speech Overlap].
Brian Sondey — Chairman and Chief Executive Officer
Yes. But I’d say we look at our inventory of factory containers and we’re pretty happy where it is.
Larry Solow — CJS Securities — Analyst
How about on the pricing of containers, obviously, as you mentioned last quarter on the Q4 call too, it’s made a nice move up since the fall even with a little bit of leveling lately read more recently. I know it’s hard to sort of get your crystal ball out, but clearly things have gotten a little bit worse on the economic front. And is there a risk that that price comes down again significantly, maybe it’ll take a little while because that — sounds like COVID is sort of displacing and perhaps artificially inflating or alternate uses of these containers that, say beyond COVID if we’re in like a couple of year type of recession, how do you see things reacting in that type of scenario?
Brian Sondey — Chairman and Chief Executive Officer
Sure. Well, there’s no doubt, if we’re in a prolonged period of weak global economic activity and weak trade volumes that that will have a negative impact on container prices. My personal prediction is I don’t they’ll go down to the same level where they were in 2019 unless we see steel prices fall dramatically. In 2019, we always look at a number of things for container prices, but one of the things I always find most telling is looking at the margin that the manufacturers charge for containers over the cost of the steel input. And in 2019, it was really extraordinarily low levels and our understanding is because of that, that most of the container manufacturers were losing quite a bit of money.
And the main thing that drove prices up this year wasn’t necessarily incredibly bullish views of trade growth. It was more just the manufacturers right-sizing their shift capacity for the amount of production that there is right now or that there had been. And so, that brought the margin back into sort of normal range. But of course, if there’s sort of a prolonged period of weak demand, margins tend to get pushed down to lower levels. But again, my personal prediction is, I don’t think we would see the margins getting back down to where they had been in 2019 just because the manufacturers seem quite determined on — to reduce and kind of right size their shift capacity.
Larry Solow — CJS Securities — Analyst
Got it. Okay, great. Thank you. I appreciate the color.
Operator
[Operator Instructions] Our next question will come from Ken Hoexter with Bank of America Merrill Lynch. Please go ahead.
Ken Hoexter — Bank of America Merrill Lynch — Analyst
Good morning, Brian, John and John.
Brian Sondey — Chairman and Chief Executive Officer
Good morning.
Ken Hoexter — Bank of America Merrill Lynch — Analyst
Brian, any thoughts on the timing of contract expirations? Is there any lumpiness coming up over the next couple of months or quarters?
Brian Sondey — Chairman and Chief Executive Officer
Yeah, so for us fortunately, our lease portfolio is in pretty good shape from an expiration standpoint. We put a chart into the back of the investor presentation on page 16 looking at the — for dry containers and refrigerated containers. The number of containers expiring off of lease that require repricing that are say less than sale age, and both are a pretty small percentages of our portfolio for now and actually the next couple of years. And so, I think one of the reasons why we’ve seen utilization hanging very well, and also we’ve seen average rates holding very well, both this quarter, but as well as last year, is just the fact that we don’t really face a cliff for expirations. I think we’ve talked in the past that one of the things that made the 2015-2016 period so challenging for us in addition to the drop in trade due to the industrial recession was just at that point we did face a big cliff of lease expirations, and in fact they were very expensive leases. Fortunately, we just don’t — we don’t face that situation now.
Ken Hoexter — Bank of America Merrill Lynch — Analyst
So maybe Brian, just taking it a step further, if I look back in 2016, utilization fell to 93%, so not much farther than where you are now in the Great Recession. I think it was in the upper 80%s. What then has to happen to get there? Is that kind of this low activity has to go out for another year before you can see utilization given that — to those levels given your contracts? I mean what kind of — I mean, it seems like you’re still pretty solidly tied up on some of these long-term contracts if there’s no kind of lumpiness in that expiring dates.
Brian Sondey — Chairman and Chief Executive Officer
Yes. So, we’ve done a lot of scenario modeling just to try to understand what would it take to hit different levels of stress. And I’d say it would take a dramatic increase in the level of off-hires — for us to see a utilization decrease, similar to what we saw certainly in the financial crisis and even to get to say the same slope of utilization changed where we were in 2015 and 2016. You’d have to see a very large percentage of containers on expired leases or on short-term leases coming back because again, a lot of them are locked away. And so, I mean, certainly I guess it’s mathematically possible those things happen, but it would take a really sustained effort by our customers and a very negative view, I think, on longer-term expectations to see utilization be on that kind of negative slope. That said, the other thing that we could — that could cause it too would just be some credit challenges. And so obviously, our long-term lease portfolio gives us great protection when customers live by the terms of lease agreements. If we were to see more widespread customer problems where we were — either ourselves taking actions to get the containers back or the customers weren’t paying us and so we took them off hire. That could do it as well, but again we haven’t seen that across the portfolio.
Ken Hoexter — Bank of America Merrill Lynch — Analyst
Maybe just help me understand that update given the past two downturns, is that because you’re better structured post the Triton merger? Is it [Speech Overlap]?
Brian Sondey — Chairman and Chief Executive Officer
Yeah, it’s a couple of different things. So, going back into the financial crisis, I think both companies, both TAL and Triton, 10 years ago, had larger percentages of short-term leases that was more the nature of the business. And I don’t remember exactly what’s happening with the lease portfolio at that time, but I think it was just a — it was a higher turnover kind of business in terms of containers coming off and going back higher. In 2015 and 2016 it was just really unfortunate timing that the market [Indecipherable] back from the financial crisis in 2010, 2011 and we at both TAL and Triton did a tremendous amount of business in 2010 and 2011 at very high container prices, very high lease rates. And just most of the container leases done at that time were five-year deals.
And so, just by the rhythm of the calendar they expired in 2015 and 2016. And we were subject to a lot of return pressure and a lot of repricing pressure. I’d like to think we learned some lessons in life. And so in the very strong markets we had in 2017 and 2018, well fortunately, they’re not five years yet. But we also, during those two years took a lot of time to put a lot of emphasis on staggering the lease expirations and a lot of deals we did were not just five years, but also a lot of seven years and eight years even some 10-year deals. At the same time we’ve made an emphasis in our existing portfolio when we’re renewing leases or putting older containers on hire, to focus on lifecycle leases that keep the containers on hire till the end of their typical use for life. And so, I think all those things together have just meant that we — I think not just now, but likely at future periods as well, aren’t going to have the same portion of our portfolio at risk.
Ken Hoexter — Bank of America Merrill Lynch — Analyst
That’s really helpful understanding. That really shows a great maturity on the business. If the container prices are up now, what are your thoughts on pricing returns? Let me just phrase that for a second. It sounds like you thought that because of the, I guess congestion in the system you’ve got more box leases and I guess more on the dry side than refrigerated. So, if the supply chain then starts to move do you see the reverse and where — when you would normally then start signing up you may see some returns increasing when the economy accelerates?
Brian Sondey — Chairman and Chief Executive Officer
Yeah, so definitely, operational disruption can move around demand relative to underlying cargo and so in periods of disruption and this can be periods like now where the shipping lines are just having a hard time moving containers because the unusual vessel schedule and terminal inefficiencies. We’ve also seen things like that around port strikes or other things like that. That can create its own container demand and then when the disruptions get released, that can bring supply back to the market outside of say production. And so, it’s something we keep our eye on. Typically, it takes a while I’d say to clear operational inefficiencies especially during periods like now where vessel capacity is coming down and sailings are being missed.
And so, our general thought and I guess we’ll have to see if this is right is that, if we see a reasonably near-term rebound in activity in both economic and trade activity that they’re likely to be additive. That some of the disruptions are going to be difficult to clear. And we’ll see sort of an increased demand to bring containers into the systems of our customers. But at some point as the disruptions are cleared, yes there would be sort of a kind of a negative factor on demand. But at least our thinking is initially it would probably be a double positive if we see a recovery in the second half.
Ken Hoexter — Bank of America Merrill Lynch — Analyst
Great stuff. Thanks. Appreciate it, Brian.
Brian Sondey — Chairman and Chief Executive Officer
Yeah. Thanks, Ken.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Brian Sondey, CEO, for any closing remarks.
Brian Sondey — Chairman and Chief Executive Officer
I just like to thank everyone for your continued support for Triton International and we look forward to talking with you soon and certainly hope everyone stays safe and healthy. Thank you very much.
Operator
[Operator Closing Remarks]