Spot container freight indexes are still falling. Cargo shippers are signing annual contracts at sharply lower rates than last year. Import demand continues to be crippled by high inventories. A massive wave of new container ships is now hitting the market in full force. And yet, the container shipping industry does not appear to be battening down the hatches for a looming storm.
Charter Rates Rise
Even as liner companies “blank” (cancel) sailings in the face of weak transport demand, they continue to lease more vessels — and they’re doing so at rising charter rates. The Harpex index, which measures global charter rates, has been inching back upward since early March. According to Maritime Strategies International (MSI), spot freight rates are still eroding, while “in contrast, charter markets not only found a floor but also recorded slight upticks across different vessel size categories.” MSI said the “disconnect between the spot freight and the charter markets continued to widen in recent weeks.” During the 17th Annual Capital Link International Shipping Forum, held on March 20 in New York, George Youroukos, chairman of Global Ship Lease (NYSE: GSL), said, “If you forget about the last two supercycle years and go back to pre-COVID, charter rates are at very high levels today compared to normal territory.”
Commercially Idle Capacity Falls Back
Analysts expect the onslaught of newbuildings together with continued weak transit demand will lead to more commercially inactive ships as owners and operators temporarily idle their tonnage. According to Alphaliner data, the percentage of inactive ships sank to historically low levels of 1.8% at the height of the boom in late January 2022. It rose thereafter, peaking at 6.4% in late February, following the predicted script. However, inactive tonnage has actually decreased since then. As of late March, it was down to 5.5%.
Newbuilding Offers Keep Coming
Lower-than-expected scrapping is coinciding with the debuts of newbuildings ordered during the boom. In recent months, the container ship orderbook reached an all-time high in terms of TEUs scheduled for delivery. The new ships began hitting the water in earnest last month. According to Alphaliner, 24 container vessels with aggregate capacity of 188,000 TEUs were delivered in March, making it “among the strongest delivery months of all time.” The newbuilding market — as with the charter and S&P markets — is defying expectations and not following the script. It was widely assumed that fresh orders would cease in the wake of plunging freight rates. But liner companies are still ordering, driven by demand for dual-fuel vessels. “Contracting picked up pace again in February, with 312,000 TEUs of new orders, most for methanol-powered vessels and the rest for LNG-powered units,” said MSI.
Huge Cash Cushions
Both carriers and NOOs have gone into the cyclical downturn with huge cash reserves amassed during the boom, which will cushion the fallout from excess ship capacity. Zim (NYSE: ZIM) had $4.6 billion in cash as of the end of last year. Hapag-Lloyd had liquidity of $17 billion, up from $1.2 billion at the end of 2019. Maersk’s liquidity was $28 billion at the end of 2022. Jefferies analyst Omar Nokta told the Capital Link forum, “It’s very easy for us to look at the orderbook and think, ‘Wow, this sector is gone for a long time,’ but this is one of the very rare times in history when a downturn has come and people have foreseen it coming.
Did you subscribe to our newsletter?
It’s free! Click here to subscribe!
Source: Freightwaves
