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Market conditions in the shipping industry are brutal right now. Muted trade growth is weighing down demand for shipping containers, which is having a noticeable impact on Textainer Group Holdings Limited's (NYSE:TGH) operations. That was evident by the comments CEO Phil Brewer made on the company's second-quarter conference call.

1. Textainer's results reflect the challenging market

For evidence of just how tough things are for Textainer Group Holdings, we just need to look at its second-quarter financial results. While revenue only slumped 7.6% to $127.4 million, adjusted earnings crashed 88% to a mere $3 million, or $0.05 per share. Those results, according to Brewer, are "a reflection of the challenging market conditions we face, driven in large part by the low prices for new and used containers." In addition to weak container pricing, incremental storage costs as a result of lower utilization and a high level of asset impairments also weighed on its results.

The poor market conditions were not just a problem for Textainer. Rival Triton International's (NYSE:TRTN) revenue slumped 9.2% year over year to $299.6 million, while its net income plunged 93.3% to $4.2 million due to similar issues.

2. The company is concerned about the credit quality of the shipping sector

That said, as challenging as the market is for container leasing companies, it poses an even greater challenge for shipping lines. Several are in financial distress right now, which is leading to consolidation and restructuring in the sector. The industry's financial stress led Brewer to warn:

The credit quality of certain of our shipping line customers is a major concern. While consolidation has strengthened some lines, credit risk overall has increased. Freight rates are at historically low levels due to excess vessel capacity and are not expected to improve materially in the near term, due to vessel capacity growing at a faster rate than trade.

This is a risk that Triton International is monitoring closely as well. Its CEO, Brian Sondey, said, "Several of our customers are in active financial restructuring negotiations. While our collections performance generally has been strong, credit risks will remain elevated until freight rates and the financial performance of the container shipping lines improve."

The concern for Textainer and Triton is twofold. First, Textainer noted that one of its larger customers is only paying part of its outstanding payables, while it is monitoring some smaller customers due to similar concerns. This could lead to an increase in bad debt expenses in the future. Furthermore, a shipper that is currently in restructuring discussions with its creditors asked lessors for lease concessions, which could cause it to get a rate reduction on previously signed agreements.

3. Textainer is holding on to cash to take advantage of opportunities

Because of the credit stress in the industry, Brewer believes that "preserving cash during these challenging times helps ensure that we have the resources to take advantage of opportunities that today's market conditions may produce." As a result, the company slashed its dividend for the second time in a year.

That said, Textainer is using its excess cash flow to take advantage of the currently weak container market to make acquisitions. So far this year, it has invested $423 million to purchase additional containers. It was a move that made financial sense, according to Brewer:

These containers were leased out at terms which were better than those generated by containers leased earlier this year or during the last half of last year. Not only are these containers less risky due to their low purchase prices, but they also can be expected to perform very well over their useful lives as they depreciate.

Textainer is taking a methodical approach to snap up containers at the low point of the market. It is quite the opposite approach of Triton International, which recently merged with a rival to vault to the top of the container leasing sector. Brewer expects the consolidation trend to continue. He said, "I have to believe there will be additional consolidation in our industry...if you ask me, is our industry going to look different a year, year and a half from now, I would certainly think it will." While Brewer did not hint whether Textainer would be part of the consolidation trend, it seems as though the company would be open if the right transaction came around.

Investor takeaway

Conditions are clearly very rough in the shipping sector, and that's trickling down into Textainer's financial results. Unfortunately, things could worsen given the financial stress at some of the major shipping lines. That said, as often happens during challenging times, opportunities have the potential to arise that would not have been available otherwise. That is why Textainer is preserving cash right now: because it wants to be in the position to pounce.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.