Leasing and finance
operating lease
An operating lease is a lease where the lessor lets the lessee use an asset for a set period, much like a typical rental. W. P. Carey describes it as a more traditional lease arrangement. It is the type of lease that does not meet the tests for a finance lease.
Why it matters
A portable storage company may use an operating lease to add trailers or containers without buying them. The lessor keeps ownership, and the company returns the units at the end or renews. A common mistake is to think an operating lease keeps everything off the books. Under current U.S. lease accounting, most leases of more than 12 months appear on the lessee's balance sheet. Operating leases still differ from finance leases in how expense shows up. The right label depends on contract terms. Operators should ask an accountant to review each lease. This is general information, not accounting advice.
Read: Buying containers wholesale: A buyer's guide for operators
Definition source: wpcarey.com
Related terms
finance lease
A finance lease is a lease that works much like financing the purchase of an asset. W. P. Carey explains that leases are classified as finance when they have characteristics similar to financing a purchase. Under U.S. GAAP the lessee usually records the asset and a liability on its balance sheet.
term lease
A term lease is a lease that runs for a fixed period. In container leasing it is often called a long-term lease. Triton describes long-term leasing as renting containers at a daily rate for a set term, with fleet costs fixed. At the end, the lease can be extended or the units returned.
master lease
A master lease is a framework lease between a container owner and a lessee. Triton says its master lease suits companies that scale a fleet up or down with demand and need flexibility to pick up and drop off units. Exact terms differ by lessor, so each contract needs a careful read.
spot lease
A spot lease is a short-term lease priced to current market conditions. Port Economics says short-term leases are also called spot market leases because the price is strongly influenced by supply and demand. The lessee gets equipment for a short, defined period without a long commitment.
per diem
Per diem is Latin for "per day." In container leasing, it is the daily rate a lessee pays for each day a leased container is on-hire after any included free days. Lessors use it to price short and flexible leases, and it adds up quickly on idle units.
residual value
Residual value is an estimate of what an asset will be worth at a future point, often near the end of a lease or its useful life. Excedr says it depends on condition, age, demand, service history, obsolescence, removal costs and the terms of the agreement.
For the industry
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