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Holidays across the northern hemisphere and weak trade fundamentals squeeze charter market rates for tramp container tonnage lower again. Mini rally for very large ships is over.
The structural imbalance of supply and demand in the container ship market has caused another slight deterioration[ds_preview] in hire rate levels, with the New ConTex down down around 2% month-on-month as per 18 August. Whatever size class you look at, the picture remains extremely dull from an owner’s point of view: Recent signs of hope in the very large vessels segment in excess of 7,500TEU fading again, panamax spot availability hitting new high, pressure up on geared sub-panamaxes, feeder markets in Asia and Europe slipping. The list of negative bullet points summarizing the situation goes on and on. The tone in the market has turned more sombre also regarding post-fixtures/operations, with growing concerns being voiced about lack of maintenance and performance problems by tramp owners. Of course, this is not surprising after a fairly long period of very sharp hire rates barely covering operating costs. It is quite common for the market to lose some ground during the summer holiday period as requirements and fixing volumes decrease. It is alarming, though, to see further »seasonal« falls when spot charter earnings have already been scraping along rock bottom levels for so long.

Overall supply/demand fundamentals in container shipping have not improved one bit over the past weeks. Latest trade growth projections vary a bit, with Alphaliner expecting only 0.3% port throughput growth worldwide for 2016 while large freight forwarders were talking about increases in the low one-digit range (around 2%) in full container load bookings so far this year. The fact is that even the most positive scenario would see transport demand lag fleet capacity growth (estimated at around 6%) by quite a margin. It was therefore well within expectations to see the idle container ships fleet expand again at the start of August, to 1.01mill. TEU (296 vessels), according to Alphaliner. The burden of overcapacity largely lies with tramp owners who account for well over 90% of the idle capacity in the traditional, most liquid charter class segments from smallest feeder up to conventional panamax. While the fundamental situation has never been any different since last year, some of the detail in the idle fleet analysis should give rise to concern. Of note, the number of idle very large vessels above 7,500 TEU increased to 18 again which goes to underline the weakness of the current cargo peak seasons – capacity utilization in this segment should be improving not deteriorating at this time. Further, the excess situation in the traditional panamax segment has gone from bad to worse to devastating. 98 units between 3,000 and 5,100TEU are now counted as idle (up from 85 in July) which includes around 80 tramp-owned container ships searching for charter employment. The consensus is that recent demolition activity in the panamax sector must be maintained in order to restore some kind of market balance, but only in the medium term not in short term perspective. The problem, though, is that non-operating owners cannot resolve the issue themselves because the lion’s share of the panamax fleet aged 16 years or older is owned and operated by the lines not by the tramp sector. But scrapping efforts by the lines have been lagging.

Back to 9,000 $ for very large ships

After fixing levels surged to around 12,000$ for 8,800TEU class tonnage in the Atlantic, momentum in this segment apparently slowed down again. Latest fixtures of ships with slot intakes of 8,000-8,500TEU were reportedly concluded at levels around 9,000$ in Asia, active charterers including Maersk and Chinese giant Cosco. »This is a tick below last done,« as one broker explained, »but it seems owners are eager on securing decent period coverage.« As per early August, four charter ships larger than 7,500TEU were believed to be in spot/prompt position.

The panamax sector continue to lick its wounds from the opening of the new Panama Canal locks and the consequent displacement of many units with 32.8m beam by large and very large tonnage in excess of 5,500TEU. Fixing activity came off a bit but the charter transactions that get reported are still mostly concluded at circa 5,000$ per day, with Maersk, CMA CGM and Zim among the accounts frequently named in fixture reports. In a sign of worsening expectations, the 12 month period assessment by the ConTex panel for the 4,250TEU type slipped below 5,000$ in the last weeks. Some ships were accepting levels slightly below 5,000$ but it will take some resolve and probably some lay-up action by shipowners to make sure that this remains the exception. In another sign of the market’s stress, wide-beam over-panamax vessels of circa 4,800 TEU capacity seem to have entirely lost their competitive edge for now. Half a dozen units are seeking employment in Asia today, according to one broker, while premiums versus standard panamaxes have dwindled to only around 2,000$ (or a rate of 7,000$ in total).

There is little to write home about from the 2,500–2,800TEU sectors. Rate levels are pretty much flat, gearless units currently assessed at flat or low 6,000’s despite a more favourable supply/demand situation while geared 2,500TEU’s generate no more than 6,000$ per day in latest fixtures irrespective of region amid a more severe tonnage imbalance. Of note, some high-reefer 2,500TEU vessels reportedly achieved premium rates of 11,000$/day in 12-months-extensions with fruit trader and reefer operator Del Monte. In the feeder/handy classes, the tone has turned softer as well and gone are the days when the geared 1,100 and 1,700TEU types were bucking the general trend. Spot/very prompt supply in the geared 1,700TEU segment crept up to around 20 vessels worldwide which explains why rate levels eased off to around 6,750$ for Wenchon types in Asia while levels in the Med came down to about 7,000$. Under 1,000TEU, charterers are now in the driving seat as well amid growing supply of 700TEU vessels in Asia and increased availability also in North Europe. Ernst Russ Shipbroker revised its feeder rate index for the continent (North Sea/Baltic Sea) down by 3% in July. Activity was low and the pressure on rates was exacerbated by some operators attempting to sublet feeder tonnage, it was reported.
Michael Hollmann