Can Long-term Charters Insulate Carriers from Coronavirus Effect?

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According to a LoadStar article written by Mike Wackett, charters are actually helping shipowners and shielding them from the coronavirus effect.

Take the case of Containership owner Seaspan for example who have announced that they had a good year in 2019, as its fleet of 112 vessels enjoyed improving charter rates and extended time charters with its ocean carrier clients.

Tonnage Shortage Helped?

Seaspan rode on a ‘win-win’ ticket of a shortage of tonnage due to the vast number of ships being dry-docked for scrubber installations, and thus was in the driving seat for charter party negotiations.

The Nature of Trouble

Carriers are now in big trouble due to the coronavirus outbreak that has stymied Chinese production, resulting in a mass of blank sailings and billions of dollars of lost revenue.

During Maersk’s annual report analyst conference yesterday, CEO Soren Skou said that by idling ships they were saving on fuel, canal and port fees.

“But we are still having to pay for the charter hires,” he added.

Long term Charters Insulating

Seaspan says its business model of long-term charters with carriers at fixed rates “insulates it” from the impact of the virus, given that it will receive daily hire payments regardless of whether the ship is employed or not.

The Cost of Anchored Ships Affecting Carriers?

Indeed, whether owned or charter-in, the cost of the anchored ships will severely dent carrier financials in Q1. Much will depend on the length of the disruption and how soon the recovery takes, but many of the lines were not exactly in tip-top financial health in the first place.

In theory, Seaspan is correct and a charter party is regarded in the shipping industry as sacrosanct: but did anybody tell Hanjin Shipping that?

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Source: The LoadStar