Rate levels in container and dry cargo shipping have been lent another boost during May as seasonal tailwinds start blowing. By Michael Hollmann
Unbelievable but true: the container ship charter market has breached its all-time record of June 2005. Market indices today and back then are a bit different due to changes in the fleet, meaning that rates for feeder vessels still have to catch up a bit while those for big ships are already ahead. However, this may only take a few weeks given the intense upward trend.[ds_preview]
Up until this year, no one thought it possible. But the consumer goods-driven recovery from the pandemic-induced recession in combination with efficiency losses due to safety and hygiene provisions saw shipping capacity dry up faster than ever before. 70,000 $/day was reported already for a standard panamax for very short charter period and rumours say that the next vessel even fetched 100,000 $ for 100 days. These are astronomic levels. Can it go much higher?
The last couple of weeks saw confidence in the market strengthen further as container freight rates surged to new highs after a softening in the first quarter. Many forecasts and projections have recently been lifted: The IMF now expects world GDP growth to be considerably higher than it did at the start of the year; freight forwarders expect the capacity tightness to last longer, possibly into 2022; and liner operators expect their profits to be even bigger.
Although trade patterns are likely to normalise later this year as societies open up again, with import demand growth slowing and demand for services coming back, container shipping will probably not face a »hard landing«. First of all, the backlog of cargoes that are left behind these days will keep carriers busy for some time even if fresh demand wanes.
Secondly and more importantly, fleet growth still looks manageable despite the flurry of newbuilding activity lately – at least this year and next year. Based on delivery schedules, fleet capacity is expected to grow by 4-5 % this year and by 2-3 % next year. Container trade growth on the other hand is forecast to be higher – something between 5 % and 8 % this year. Therefore a sudden shift in the supply/demand balance seems unlikely which explains why liner operators are brave enough to charter ships for delivery dates as far as ahead as 2022.
Pacific boosts bulker market
In the dry cargo sector, tonnage demand has picked up especially in the Pacific, driven by ongoing rampant growth in China’s steel sector and demand for iron ore. The Baltic Dry Index climbed as high as 3,254 points in the second week of May, its highest level since 2010, before edging down to 2800. As HANSA went to press, the market was starting to firm up again. Month-on-month, the BDI was still up 3 %. The time charter average for 180,000 dwt ships peaked at 45,000 $/day, then it dropped to 31,400 $/day within a week.
The smaller geared bulkers remained unshaken, pressing ahead with considerable increases that took earnings back to the 10-year-highs of early March. Supramaxes and handies are benefiting as well from the strength in China’s steel sector.
Brokers also report good volumes of other minor bulk cargoes including nickel ore ex Philippines and cement/clinker ex Vietnam. In fact, southeast Asia has emerged as the strongest region for handysize bulkers, with the index rate for round trips rising to over 28,000 $. Even over 30,000 $/day was reportedly fixed on rounds for ships off favourable positions near Singapore. Ton mile demand across all vessel classes gets further boosted by the recent shift in coal sourcing in China from Australia to producers in Indonesia, Russia, South Africa and North America. ■
