Fixture levels for tramp vessels down to 2,500 TEU keep pushing up but momentum
has somewhat waned since mid-April. Effects of alliance restructuring tapering off now.
By Michael Hollmann
Sentiment in the container ship market remained bullish during April, with charter rates for larger vessels pushing up vigorously and[ds_preview] investor demand for second-hand vessels continuing to be strong. The New ConTex was up 11.5% month-on-month (20 April) – a considerable jump, though not as steep as during the previous 4-week period (HANSA 04/17). However, larger types which are hardly reflected in the ConTex apart from gearless 3,500TEU and 4,250TEU baby panamaxes continued to post substantial gains. By contrary, the feeder and handy segments of the index (1,100 and 1,700TEU) kept lagging behind in the current rally, their rate levels moved up only modestly into the mid $6,000`s and low $7,000’s range, respectively.
It is the very large and large sectors, where trading liquidity is naturally more limited, that keep setting the pace for the market’s advance. Modern 6,500-7,000TEU and older 7,500TEU class ships saw rates rise by several thousand dollars again, illustrated by the fixtures of the 2005-built 7,471TEU »Conti Savannah« at just below 20,000 $/day for a medium period to Hapag-Lloyd and the 2013-built high-reefer 6,881TEU »Kristina« for a longer 11–13 month duration in the transpacific trade to Wan Hai.
The number of fixtures has come down but most brokers put this down to a lack of prompt availability after almost two months of brisk fixing activity. Fortnightly idle fleet statistics by researchers Alphaliner confirm that utilization of the cellular fleet kept improving, with the volume of idle tonnage (liner-controlled vessels without service assignment/charter-free tramp vessels) falling to 256 units of 967,260TEU as per early April.
But a lot of this tonnage remains in lay-up and cannot be activated promptly which means that only a minor share of all these ships can be considered available on spot/prompt basis. According to Alphaliner, the number of vessels immediately available as per early April was down to just one unit in the »large« 5,300–7,500TEU segment and to 6 units in the »very large« 7,500-11,000TEU sector. The latter are mainly 10,000TEU class ships, previously owned by bankrupt Hanjin and recently sold to Evangelos Marinakis-led Capital Ship Management. Rumours were popping up that one of these ships may have been committed for short period employment at 30,000$/day but this could not be confirmed so far.
Further fixtures are eagerly awaited to provide clarity over the near-term direction of the market as first doubts are being voiced over the sustainability of the current rally. Yes, market fundamentals have improved due to a stagnation in fleet capacity caused by high demolition levels since mid-2016 and slippage of ULCS newbuilding deliveries this year whereas growth in transportation demand picked up to an estimated 4% in Q1. It is clear, though, that extra tonnage requirements linked to the east-west alliance restructurings play a significant role as well. This factor is harder to ascertain because it very much depends on the liner operators’ network and capacity strategies for this year’s cargo peak season. The basic elements of it are well understood by now: Carriers need extra vessels for contingency and as back-up during the transition from the old to the new alliance schedules to maintain service integrity. Once the port rotations are up and running, they can go back to »normal«, more productive tonnage levels.
Impact on alliance reshuffle remains mystery
Separating the »true« from the »transient« requirements is pretty much guess work, though. Based on an analysis of published schedules by the alliances and vessel nominations to date, Alphaliner suggests that some 20 units between 4,000 and 7,000TEU are going to become redundant »once the transition is done and the current overlaps are resolved«. Will these ships – to the extent that they are chartered-in, not owned – be returned to their owners, or will they be cascaded into north/south trades? The latter remain outside the scope of the east-west alliances, so a plethora of options and combinations seem possible. »It will probably take until June or July until we find out to what extent the increases [in rates] were driven by the new alliance start-ups,« as one Hamburg-based shipbroker points out.
Meanwhile down in the traditional panamax segment charter rates continued to recover lost ground as well. Since end of March, fixing levels for short periods up to 7 months improved from high $8,000’s to well over 10,000$/day as spot supply of charter units dropped to around a handful. Rates for standard tonnage peaked at 11,500$/day basis 2–4 months as illustrated by the fixture of the 4,600TEU »Northern Priority« to Japanese carrier MOL in early April. This level has not been repeated for similar tonnage so far. Only some high-spec panamax-max vessels scored higher: the 5,300TEU »Barbara« and »Blandine« – once developed and launched by Hermann Buss for employment with CSAV on the West Coast South America/Europe route, today controlled by Peter Döhle – set a new benchmark of $13,000 per day for short periods in transatlantic services with Maersk and Cosco, respectively. Smaller 4,250TEU baby-panamax vessels improved to low/mid $10,000’s but seemed to be on a sideways trend by the time HANSA went to press. »Although the market feels busy, we are not noticing further gains this week,« commented one broker during week 16 after Easter.
Expectations remain a bit firmer for sub-panamax type ships between 2,000 and 3,000TEU based on very tight availability both in the geared 2,500TEU and gearless 2,700/2,800TEU sectors. Although some operators are unable to find suitable tonnage for their positions, rates for gearless 2,700TEU ships are taking longer than expected to reach the $10,000 mark. Rates improved to high $8,000’s in the Med and to mid $9,000’s in the Far East. If owners don’t manage to push them further up they are at least looking for longer periods given that durations fixed so far are mainly for 6 or 7 months maximum, brokers say. Some believe that geared 2,500TEU types might overtake their larger sisters in the race to breach the 10,000 $/day from last done levels of 9,300$/day. A high-spec newbuilding, the geared 2,500TEU »Nordamelia«, already achieved $11,400 in a 5-7 month period with Hamburg Süd, it was reported, while a popular gearless unit (2,500TEU Artemis) reportedly obtained 10,000$/day in a longer period with Zim.
By comparison, market activity and rate developments in the feeder classes below 2,000TEU remain uninspiring. Some point out that rate levels have been relatively high anyway over the last year when compared with the bigger classes. Their »unresponsiveness« has been »fully justified by the fact that they were already fully priced in relationship to the larger sizes,« noted Howe Robinson. Short-term indicators were pointing upwards, though, and rate levels for feeder vessels should finally be »dragged up by the general market movement«, the broker forecast. Tonnage demand perked up already in the Med, albeit with limited positive impact on rate levels, while the all-important Asian market remained fairly quiet, especially for 1,000–1,200TEU vessels.
Michael Hollmann
