The container ship charter business is reeling from a series of debilitating blows — chronic overcapacity, a wider Panama Canal, Hanjin Shipping’s collapse and insufficient demand — factors that are driving carriers to dispose of surplus tonnage.
This bid to ease the supply-demand imbalance is swamping ship charterers with unemployed vessels and has sent charter rates tumbling to historical lows.
A steady stream of mega container ships into the market continues to cascade larger vessels from Asia-Europe into the other trades, and with the classic Panamax fleet now obsolete, carriers are returning these and other unwanted vessels to non-operating owners.
“Low charter rates means better discipline or no demand, especially for those Panamax or similar size vessels,” said Bronson Hsieh, Yang Ming Line chairman.
According to Alphaliner, those exposed to the classic panamax market (4,000-5,100 TEU) were the most distressed, and Hanjin Shipping’s collapse flooded an already gloomy charter market with modern units of 4,200 to 13,100 TEU that were up until then locked in long term charters or in financial leases.
While rock bottom freight rates on most long haul trades have severely impacted the bottom line of carriers, the analyst said non-operating owners (companies that hire their vessels to the carriers) were themselves not spared, with record unemployment levels pushing charter rates down to operating expense levels for medium sized ships of 2,000-9,000 TEU.
A carrier executive who declined to be named as he was unauthorised to comment on behalf of the line said low charter rates were a sign of a surplus of vessels in a spot market position where overall demand for tonnage was less than the supply.
“Many of these ships are supplied by non-operating owners, but as carriers receive their newbuildings, ships that are not owned are being released to the charter market as fast as possible as the carriers try to better match their capacity to demand,” he said.
“Furthermore, many of the idle ships are now obsolete as they were built for the older Panama Canal locks that were expanded and opened in mid-2016. In many cases these ships have been replaced by larger vessels.”
Stephen Ng, OOCL director of trades, said a host of factors were usually at play and how chartered capacity was dealt with depended on each liner’s individual business objectives and needs.
“Over the last few years, the industry has indeed been keeping a very close eye on issues related to oversupply in the market and making necessary capacity changes where such adjustments may not necessarily be confined to managing chartered tonnage,” he said.
The value of second-hand panamax container ships has plunged, coinciding with their surging unemployment level as larger vessels can now transit the widened Panama Canal. The value of a 4,250 TEU panamax ship built in 2009 dropped by just more than 45 percent in September, while a 2011-built ship’s price was down 39 percent, according to vesselsvalue.com, an online ship valuation analyst.
Larger post-panamax ships have seen the greatest softening in 10 years with the price of a 7,000 TEU 2005-built vessel falling by just more than 50 percent in September and a 2016 built ship dropping by more than 19 percent.
Another area that was being impacted by the state of the business was time charter periods. Ng said OOCL’s time charter periods were generally shorter compared to than those from a few years ago.
A consideration that is applied in time charter contracts is the fuel efficiency of a vessel, “and ships that were efficient were likely to get longer deployment, said the carrier executive who did not wish to be named.”
“Long term charters tend to be on more sustainable levels for the owners. Overall, carriers are in a stronger negotiation position for now and will fix vessels based upon their demand and with a close eye on their own order book,” he said.
Did you subscribe for our daily newsletter?
It’s Free! Click here to Subscribe!
Source: JOC
