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There has been little revival in charter demand after summer, instead the insolvency of a major operator hurls much more tonnage back on the market.
While the unexpected demise of Hanjin Shipping at the end of August prompted a surge in container freight rates amid[ds_preview] panic and space concerns among shippers, there are no such positive (short-term) implications for the vessel charter market. Generally, the failure of an operator does not much affect the global balance of transport demand and fleet capacity in the container sector, as most of the affected ships should be re-distributed among the remaining carriers through sales and charter contracts after a transitory period. However, dozens of ships will need to be re-marketed first, adding to the existing spot/prompt charter tonnage lists and making competition for employment even tougher. Three weeks into the largest container line insolvency in history, it is clear that the short term boost in tonnage demand and hire rates, that owners were initially hoping for, is not coming true. Yes, a few panamaxes and sub-panamaxes disappeared from the market, joining other operators including former consortia partners of Hanjin as they scrambled to plug capacity shortfalls. By and large, the market has not really seen any benefits in terms of additional demand for tonnage, though. »The ‘additional’ cargo has been absorbed by the available capacity of other operators with only a few exceptions,« as one major chartering broker pointed out. Some 60 tramp ships, controlled by 27 different owners, are expected to be chasing fresh employment over the coming weeks and months following a court order for Hanjin to redeliver all its vessels as quickly as possible. According to latest data by market researcher Alphaliner, 19 Hanjin-chartered vessels have already been returned to their owners or given notice of redelivery upon discharging of cargoes. The timing of the redeliveries could not be worse, brokers have warned, as they coincide with a seasonal slowdown in chartering activity and increase in idle capacity after the global cargo peak season which ends around October. Already over the past month, average container ship rates tracked by the New ConTex slid by another circa 2.0% to levels last seen during the dark days of spring 2010 in the immediate aftermath of the global recession. The increased level of uncertainty following the Hanjin collapse is weighing down on sentiment and expectations of a mid-term recovery in the container charter market. Even in case there is no direct link to Hanjin’s operations, it is no surprise to see more insolvencies and debt restucturings in the tramp shipping sector suddenly crop up. Sure enough, the events have done little to calm the nerves of financiers and convince them to extend cash lifelines to beleaguered shipowners.

According to the recent idle fleet survey by Alphaliner, 965,709 TEU of container ship capacity was without work (charter-free or without service assignment in case of liner tonnage) as per 5 September (4.8% of the total fleet). But this figure is likely to have crept up further by the end of the month.

Very large ships rates stalling at 9,000

Spot supply in the largest segment of 7,500 TEU and over continued to be relatively limited at only a handful of units following a fixing spree by Chinese major Cosco covering four 8,500 TEU vessels for 12-18 months at rates just below 9,000 $/day for transpacific trading. However, another vessel in this size class is rumoured to have been fixed and failed at the same level with Maersk, illustrating the challenge in lifting rates further. In fact, the market for very large tonnage was expected to advance much further by now and with the cargo low season about to kick in, further improvements are looking less and less likely.

Activity in the traditional 5,500-7,500 TEU post-panamax classes was picking up again, with a couple of fixtures reported week after week. Still availability has not decreased enough to put charter market rates on a firmer path and the majority of ships continue to get fixed at levels in the low $6,000’s. Latest transactions include a 2-6 month employment for the insolvent German tramp vessel ‘HS Paris’ (6,552 TEU) at 6,250 $/day with Singapore’s Pacific International Lines in the Far East. Also in Asia, Israeli carrier Zim took the 6,078 TEU ‘Chicago’ for the same duration at 5,950 $/day. In the Atlantic, Cosco reportedly fixed the 5,762 TEU ‘E.R. India’ for a single transatlantic trip (23-33 days) at 6,450 $/day while Hapag-Lloyd extened two 5,500 TEU class vessels at 6,000 $/day for flexible minimum periods of 5 and 6 months – one for the US Gulf/East Coast South America trade and one for its Europe-Australia/New Zealand service.

The depression in the classic ›panamax‹ sector (4,000-5,100 TEU) showed no signs of easing amid record tonnage availability of over 80 units. »Planned redeliveries in the coming weeks will inflate further the pool of spot ships,« Alphaliner warned. While Maersk reportedly extended of fixed up to six panamaxes in the Atlantic for flexible 2-10 month periods at 5,000 $/day, fixing levels in Asia, where the bulk of excess supply is concentrated, dropped to only around 4,500 $/day in some cases.

Meanwhile oversupply in the gearless subpanamax segment looks far more manageable with 11 gearless 2,700/2,800 TEU ships spot or coming open during the next two weeks in their Asian market, according to one estimate. Frustratingly for owners, charter rates did not increase above established levels in the low 6,000’s $/day for the preferred Aker CS 2700 types. For geared 2,500 TEU units, the supply situation has remained more worrying with nearly two dozen ships looking for employment alone in the Atlantic. The Contex 12 month period assessment for this type deteriorated by another 1,9% to 5,755 $/day over the past month.

Feeder market confusion

The picture in the feeder and handy ship sizes below 2,000 TEU deteriorated even faster, with the Contex 12 month assessments for geared 1,100 TEU and 1,700 TEU units down 2.4% and 2.9%, respectively, since end of August. All major feeder and intra-regional markets (Asia, Europe/Med, Caribbean) have been rather subdued lately, causing headwinds for the universal geared 1,700 TEU’s as well as more specialised geared and gearless types below 1,000 TEU in their niche markets. A change of feedering policy by CMA CGM resulted in a surge of vessel redeliveries, particularly in the Continent/Baltic/Mediterranean markets. The French line is closing down many of its own feeder operations to place the business with common feeder operators or dedicated third party operators in the future. Within the space of six weeks CMA CGM’s fleet of 600-1,750 TEU vessels shrank by 38 units already and many more vessels are expected to be returned to owners. Oddly, there has not been a corresponding increase in chartering activity by feeder operators who are tipped to gain the business from CMA CGM.