Print Friendly, PDF & Email

Increased demand for larger vessels sees tonnage supply dwindle. Additional vessel requirements linked to alliance shuffle adding fuel to the fire, writes Michael Hollmann

Is this just another short-term spike or the beginning of a sustained recovery? Shipowners and brokers have been left[ds_preview] confused by a sudden turn in the charter market since the start of March when period rates began to increase by leaps and bounds for large and very large ships amid a sudden scramble for tonnage. What seemed to begin with positional gains only for highly-efficient wide-beam ships in excess of 7,500TEU, has evolved into a broader upturn. New higher benchmarks are getting set week after week in all classes down to sub-panamax.

Whether it is sustainable or not, the recovery follows the same pattern as in previous market cycles: from the top size classes down to the smaller segments. Rates first pick up for big ships when demand goes up because of the limited »liquidity« in these sectors (fewer ships, fewer charter requirements) in comparison with the feeder/handy size classes. It is a more price-sensitive environment where even single fixtures can send rates trending either way.

According to Alphaliner, the spot supply of tramp ships larger than 7,500TEU had been slashed to just two units by the middle of March, versus 17 in mid-February. The pace of fixing of very large ships seen over the last weeks is believed to be unprecedented. Carriers are forced to fix already now forward positions several months ahead (May/June) to make sure they can match their requirements.

Wide-beam, fuel-efficient 9,000TEU vessels were spearheading the rally with fixing levels jumping by several thousand dollars within a week. During calendar week 10 the fixture of the 2015-built 9,030TEU »Andes« at 17,000 $ per day for 12 months to Hapag-Lloyd raised eye-brows among all the chartering fraternity, only to be eclipsed the following week by the 9,034TEU »Symi« (»UASC Jilfar«) extending with UASC at 20,000 $/day also for 12 months. In the meantime, even older 8,000TEU class ships with a less efficient operating profile are obtaining rates in the high teens, as illustrated by the extension of US owner Seamax’ 8,063TEU »OOCL Long Beach« (built 2003) for transpacific round voyage with OOCL at a reported 17,500 $/day.

The Hong-Kong based line, which teams up with CMA CGM, Cosco and Evergreen in the Ocean Alliance as from 1 April, has been particularly active in the charter market of late, adding at least eight very large charter vessels to its fleet between mid-February and mid-March. The largest among these was a trio of brand-new 11,000TEU vessels from Greek owner Costamare.

OOCL’s »fixing frenzy« certainly helped push the market up, but some of the early fixtures it made look extremely attractive now. It was able to cover two 8,000–8,500TEU positions for flexible periods up to 7 months at rates below 9,000 $/day. Its competitors may have to pay twice as much today to secure the same type of tonnage.

Another very active player over the past fortnight was Hapag-Lloyd whose latest transactions are reported to include a 12 month period on the 11,010TEU newbuilding »Cape Artemissio« at 18,500 $/day and 5–24 month periods at escalating rates from 13,500–20,000 $ on two 10,000TEU Seaspan ships. Hapag-Lloyd is in the lead at »THE Alliance« together with NYK Line, MOL, K Line and Yang Ming.

Seeking capacity

According to brokers, it comes as no surprise that those carriers who are deeply involved in the pending liner alliance shuffle emerge as the busiest charterers. Much of the activity today is driven by new alliance partners »seeking capacity to match their new service patterns«, as one British broker explained. Many operators seem to have temporized chartering requirements over the last six months as service networks were reconfigured among new alliance partners. Now they must bring in the required ships to make sure everything is up and running.

The question – what happens next? Do operators only need more charter vessels for the transition period from old to new alliances – for contingency? Will they start to redeliver vessels again once the new alliance operations are streamlined? The fact that the number of east-west alliances gets reduced from four (2M, Ocean 3, G6, CKYHE) to three in the future (2M, Ocean, THE Alliance) suggests that slot efficiencies will generally be improved and slack capacities cut back.

More efficient use of capacity could mean fewer chartering requirements – provided other things being equal. However, there is evidence that container trade growth is picking up, with cargo throughput growth at China’s top 8 container ports reaching nearly 5% in the first two months of this year. The RWI/ISL global container handling index also gained a considerable 6 points to 124.5 in February, in what »appears to be a solid upward trend«, the institutes concluded. Therefore, liner operators are likely to need additional tonnage to cover the trades – despite all productivity gains. Also, the other factor that helps capacity supply and demand to balance out is slippage of newbuilding deliveries and demolition, with scrapping outpacing fleet additions by some 50,000TEU since the beginning of the year.

Glass half full or half empty?

Optimists find themselves vindicated by the fact that rate improvements are already filtering through to the intermediate size classes. Against all expectations, even panamax ships have seen charter rates almost double from low 4,000’s $ to high 8,000’s over the past weeks. High demolition sales and a rebound in chartering activity resulted in tonnage shortages, mainly in the Atlantic but also in the Asian-pacific region.

The peak rate that has been confirmed so far is 8,750 $/day on a maxi-panamax in the Far East. Brokers even suggest that one baby panamax (4,250TEU) has obtained 9,000 $ flat, but the deal still needs board approval of the charterer.

Positive as it sounds, chartering professionals caution that even with these improvements charter rates are still far from cost-efficient for tonnage providers. Some are in fact frustrated by the slow pace of recovery. As one tramp shipping executive pointed out to HANSA: »We should see increases of several thousands on last done, not of a few hundred dollars!«

Apart from raising their rate ideas, ­owners should make sure that tonnage availability remains limited through further scrapping of older units, brokers are urging. The danger is that idled panamaxes will be mobilized out of cold lay-up too fast, starting to compete for today’s improved rates and possibly undermining them again. »That could spoil it all,« one broker said.

Still it seems that the rate hikes for panamaxes were enough to boost confidence in some of the sectors below. Gearless 2,700/2,800TEU ships were struggling to achieve any meaningful gains for months despite a relatively tight tonnage situation. However, over the last weeks, fixing levels in the Far East gradually improved from high 6,000’s to over 7,000 $. Now it seems owners are shifting up a gear, with reports about a gearless 2,800TEU Wenchong type vessel achieving 8,750 $ for short period with an major Asian charterer.
Michael Hollmann