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2017 starts on a very weak footing in the container markets. Owners still hope for seasonal gains in charter rates, especially for smaller container ship types, writes Michael Hollmann
No doubt, if tramp ship owners were sole masters of their own fate, they wouldn’t be so stuck between a[ds_preview] rock and a hard place. The tramp side cannot be blamed for ordering an awful lot of vessels in recent years. Yet the newbuilding orderbook for cellular tonnage amounts to the equivalent of 16% of the existing fleet – thanks to large-scale ordering by liner operators or investors backed by them. The situation is a paradox considering the structural slot oversupply in the global container trades. However, carriers were convinced they need more and bigger ships, bent on bringing down transport unit costs even if they pay for it with sus­tained pressure on freight rates. Tramp owners on their part helped contain the pressure from the orderbook in 2016 by sending record amounts of ships to the demolition yards.

Net fleet growth is thus estimated to have dropped to below 300,000 TEU last year, according to London shipbroker Howe Robinson, the lowest since the early 1990s! Still there was a hardly positive impact on charter hire rates as liner operators did their utmost to make efficient use of their own capacity.

Given the delivery profile of the orderbook, the indications are that 2017 may turn out to be equally challenging for charter shipowners. Ultra-large ships and the tonnage cascading and displacing they cause, are set to intensify, it is feared. As things stand, deliveries of neo-panamax and ultra-large units are about to reach a climax, with almost 90 units between 10,000 and 21,000 TEU slated for completion and commissioning. It takes no genius to identify the resulting employment risks for existing vessels both in the traditional post- and super-postpanamax sectors of 5,500, 6,500 and 7,500-8,000 TEU and in the very large 13,000-14,000 TEU sector.

The question is how far the knock-on effects of the cascade will go: will it stop somewhere in the panamax range or will it also cause a major reshuffle and »redundancies« of ships deployed in smaller trades with typical service capacities below 4,000 TEU? Are there any safe hiding places or not?

Unfortunately, trade volume growth is unlikely to breach a path out of the impasse. 2015 (and perhaps 2016 as well) saw loaded container traffic growth plunge even below headline world GDP growth. Yes, cargo volumes appear to have picked up somewhat in the closing months of 2016, with the RWI/ISL container handling index staging its strongest increase in many months – from 120 index points in September and October to 122.1 in November.

But present forecasts for trade growth on headhaul routes, that ultimately determine demand for tonnage, are still just around 3.0% for the next years. Paris-based Alphaliner – the liner research arm of shipbroker Barry Rogliano Salles – puts port throughput growth at the centre of its supply/demand forecast.

The result is only more frustrating: Estimated throughput growth of just 1.6% meets fleet supply growth of 4.8% – a gap of more than 3%! »There are few out there who could be described as optimistic about 2017,« as one major chartering broker points out, adding that it takes massive action in terms of tonnage scrapping and/or lay-ups to bring about any improvement in the charter market.

Reshuffling of liner operations

Another significant factor – most probably to the detriment tramp shipowners – is the reshuffling of liner operators into three major consortia (THE Alliance, Ocean Alliance, 2M) effective April and pending integration of recent mergers & acquisitions (Hapag/UASC etc.). There is no doubt, that concentration among liner operators has reached an unprecedented scale. 

Procurement and chartering are among the business areas to be shaken up. If tramp owners felt they had every reason to complain about an imbalance of power between them and the carriers/charterers in the past, they are going to see their bargaining position suffer a lot more in the near to medium-term future. »It will be another hurdle for them (tramp owners) when the charter market recovers, that there’ll be fewer players with whom to do business,« one broker warned its principals last month. 

Already, some in Hamburg’s chartering sector argue that the market is skewed and that rate levels are 15-20% lower than they should be based on pure tonnage demand and supply – all because of increased market concentration among charterers …

Still there should be opportunities for charter rate improvements in 2017 when the fixing peak season kicks in during the second quarter. Brokers kept highlighting a growing shortage of gear­less 2,700/2,800 TEU vessels, with only 2-3 spot or near prompt positions circulated in the market. Operators are said to be keeping a close eye on every vessel coming open in the segment. »It’s only a matter of time until this segment sees rates increase,« one Hamburg-based broker declared.

A large share of vessels in this class is deployed on intra-Asia connections. Seeing that this trade is still developing very dynamically, the prospects for extra tonnage demand in this sector look favourable. Other market segments that performed above average last year include the North Sea/Baltic Sea and the Mediterranean feeder markets for gearless and geared types of 1,100 TEU and smaller.

Two factors inside the shipping market might offer support for the smallest ships, some have argued. First of all, an increase in transhipment volumes driven by growing deployments of ultra-large ships could spur demand for feedering while the inflation in bunker prices should serve to ­limit supply in the region. Fuel prices (IFO 380 Singapore) have climbed rapidly in recent weeks, rendering repositioning or ballast trips from Asia to the Mediterranean market much more expensive than throughout most of 2016.
Michael Hollmann