The impact of large-scale lockdowns on the container trades intensifies, with tonnage overcapacity surging and employment prospects dwindling.
Although the freeze of western economies is gradually thawing thanks to cautious lifting of quarantine measures, the immediate prospects for[ds_preview] shipping continue to worsen. Up until April, cargo flows in the container sector appeared to be holding up relatively well.
A lot of merchandise, ordered and produced before the pandemic, still had to be shipped. Now the grace period is over, cargo volumes are disappearing at an alarming rate. By how much trade volumes are going to be slashed this year is everyone’s guess. Shipping analysts have come up with estimates of -7% to -10% for global loaded container traffic.
However, these can be considered no more than »spur of the moment« projections given that the global economic implications of the pandemic are still hard to grasp. The situation is so volatile that even multinational agencies are making large caveats to their forecasts.
The World Trade Organisation (WTO) expects world trade to drop anywhere between 13% and 32% this year, the International Monetary Fund (IMF) ventures a more modest -11% contraction for trade. The short-term impact is far more severe, with purchasing manager indices for Europe and the US – the biggest import markets for container shipping – dropping like a stone in April.
Freight rates still up year-on-year
Container lines are blanking more sailings by the week. The tally of withdrawn sailing capacity has reached 30% in the Far East/Europe trade for the coming weeks. As freight forwarders currently report tight space availability for cargo bookings, the fall in actual trade volumes might well be around the level of the blanked capacity.
The carriers’ efforts have been reasonably successful in maintaining freight rates, with the World Container Index (WCI) by Drewry assessing average spot rates in the east/west trades almost unchanged month-on-month as per end of April, but up 11% year-on-year. To prevent a collapse in revenue, it is absolutely essential for container lines to efficiently manage their capacity and maximise freight rates.
Much of the burden of overcapacity will be passed on to non-operating owners. After a prolonged period of resilience, the charter market for container ships came under intense pressure during April. Redeliveries of charter ships gathered momentum as carriers prioritise their own vessels.
In line with another surge in idle fleet capacity, the pool of unemployed spot ships expanded rapidly. As per 20 April, Alphaliner counted 183 container ships available on spot basis, against only 115 four weeks prior. Panamaxes, gearless 2,700/2,800 TEU, midsize 1,600-1,800 TEU and the smallest feeder vessels below 1,000 TEU recorded the steepest increases in spot tonnage.
Consequently, charter rates began to slip more quickly, with the New ConTex showing a 6% drop month-on-month for »normal« periods. Fixing levels for shorter and flexible periods which are the order of the day, are dropping even faster.
Big ships – big falls
Notably, large gearless vessels of post-panamax dimensions are coming under heavy pressure now. The latest reported fixture was the 7,241 TEU »Adrian Schulte« at 18,000 $/day for 4-6 months to Global Feeder Shipping – down 30% on market levels during February. Further, another modern 6,900 TEU ship reportedly accepted upper 17,000’s $/day for 2-3 months which was 10,000 $ less than a sister had fixed in late February.
London broker Howe Robinson saw charter rates for post-panamax ships drop by a staggering 7.5-9.1% within just one week. MSI predicts rate levels for 8,500 TEU and 6,500 TEU ships to fall to 12,500 $/day and 11,400 $/day by August – half of what they were back in February. Pressure on rates for these big vessels is likely being compounded as carriers offer their own ships as relets and as more units return from scrubber installations at shipyards, brokers warn.
For most of the classes below 5,000 TEU, the downward trend has not been quite as sharp. Baby panamax container ships of 4,250 TEU capacity suffered a deterioration from high 11,000’s $/ay to around 10,000 $/day in Asia over the past month. Owners of gearless 2,700/2,800 TEU ships – described by brokers as the most active segment despite a rise in tonnage availability – managed to limit losses to around 500 $. Aker/Thyssen types were still achieving around 9,000 $/day in Asia, Hyundai Mipo types around 8,500 $/day – all still comfortably above opex.
For the smaller handy types below 2,000 TEU, market conditions are deteriorating rapidly now driven by tonnage redeliveries in the Atlantic as well as in Asia. Owners of modern economic 1,700 TEU ships like the Topaz type are forced to back-pedal, with fixing levels sliding below 10,000 $/day in Asia just after having recovered to 10,500 $/day.
Michael Hollmann
