According to an article published in Freight Waves, Seaspan Corporation, the largest U.S.-listed lessor of container ships, reported strong quarterly profits driven by a one-off charter renegotiation and voiced optimistic commentary on broader market trends.
- Seaspan reported net income of $285.3 million for the first quarter of 2019 compared to $67.7 million in the same period last year.
- The most recent quarter included a $227 million payment from one of Seaspan’s top-five charterers.
- It paid the fee to redeliver seven vessels ahead of schedule.
- Those vessels were then re-chartered to other Seaspan customers.
Positive Developments in Containershipping
On the May 2 conference call with analysts, Seaspan chief commercial officer Peter Curtis reported several positive developments for container-ship lessors – including a tailwind from IMO 2020, the regulation that will cap fuel sulfur content at 0.5 percent as of January 1, 2020.
“In the first quarter, we saw stabilizing rates in the smaller vessel segments and increasing rates in the Post-Panamax size classes,” he explained. “We particularly saw an increase in March in the 8,000-9,500 TEU [twenty-foot equivalent unit] segments, where liners have been fixing vessels for longer periods at increasing rates, and where segment capacity is almost fully occupied.”
Curtis continued, “Leasing by liners with very large scrubber programs has also been very active.”
Opting for Scrubbers
Many vessel owners throughout the global shipping industry are opting to deal with the IMO 2020 regulation by installing ‘scrubbers’ – equipment that will allow them to continue to burn cheaper high-sulfur heavy fuel oil while still reducing their sulfur emissions.
To take advantage of lower fuel bills with scrubbers, ships have to be taken out of the market for installations. However, liner companies must stick to set weekly schedules, meaning that retrofitted ships must be temporarily replaced.
Liners Sticking To Schedules
“The liners have been active at securing larger tonnage for longer periods, securing coverage for a year or two, as larger vessels are taken out of service for scrubber installations,” said Curtis. “This is proving to be a positive factor for charter rates, and has significantly increased charter rates in the 8,500-10,000 TEU segments, where idle capacity is almost nil at this time.”
Curtis also highlighted another positive development for charter markets stemming from port developments. “Several regions, such as Africa, Southeast Asia, India, and Oceania are enjoying improving port infrastructure, opening them up to vessel segments that are larger than the traditional feeder size”.
“This is allowing ‘upsizing’ in these regions,” he explained, referring to the process whereby liner companies cascade larger vessel classes into new markets to obtain economies of scale.
Upsizing offsets markets?
Upsizing has helped offset soft market conditions in the Asia-Europe container trade and “normalized” conditions in the Transpacific trade, he said, adding, “Our view is that with no new buildings [being ordered] in the 4,250-9,000 TEU segments, the upsizing in these trades bodes well for these [vessel] segments.”
The Vessel Supply Situation
Commenting on the overall vessel-supply picture, Curtis said, “The order book-to-existing fleet ratio remains near all-time lows at about 11.7 percent, and orders continue to favor the larger vessels over 18,000 TEU”.
“Given that the order book is baked in until 2021 [because any new orders would deliver after that], and that fleet capacity has increased by just 0.5 percent since the beginning of this year, we see continued improvement in the balance of supply and demand, and a more stable environment developing in the container industry.”
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Source: Freight Waves