Carriers may trim hire fleet if profits fall, but demand could grow with more slow steaming, says Drewry.
A rapid rise in the cost of chartering containerships is “probably over” but is expected “to remain close to their current levels over the remainder of the year,” according to the London-based consulting firm Drewry.
Drewry said it believed the container shipping industry “will only break even at best in 2018,” having previously expected carriers to turn in a collective operating profit of approximately $7 billion.
“Response by carriers to weak profitability will be pivotal to future charter market direction,” said Drewry in the most recent edition of its Container Insight Weekly.
Harper Petersen, a shipbroker based in Hamburg, Germany, tracks the cost of chartering a mix of nine different containerships ranging in size from 700 TEUs to 8,500 TEUs.
Using those figures it has developed a weekly containership chartering index it calls the “Harpex” that began a two-year rise from a low of 314 in mid-2016, fluctuated between about 435 and 535 in 2017, then took off early this year to reach a high of 678 in June.
In recent weeks, the daily rate for chartering containerships has fallen slightly, with the Harpex pegged at 652 on July 13. That reflects daily containership charter rates ranging from $5,400 per day for a 700-TEU ship to $19,000 per day for an 8,500-TEU ship.
Drewry said the recent decline came as “carriers reacted to the red ink by suspending a number of services, releasing some ships back to the open market.”
Still, Drewry noted charter rates remain significantly higher than a year ago — they were about 50 percent higher in the first quarter of this year than in 2017 and continued to rise in the second quarter of this year.
Drewry has cautioned that “financial losses being incurred by ocean carriers should be a concern to independent owners. The risk of default on a charter contract rises when your customers are in the red. While we do not envision a repeat of Hanjin Shipping’s bankruptcy, prolonged losses do raise the chances of carriers off-hiring chartered ships upon contract expiry.”
Those words of caution come even as investors have been pouring money into the business of owning containerships and chartering them to liner companies.
• Earlier this year, Fairfax Financial Holdings Ltd. in two announcement said it had agreed to invest $1 billion in Seaspan Corp. Fairfax CEO Prem Watsa, whose financial acumen has caused some to dub him a “Canadian Warren Buffett,” said in May that as “the global containership industry continues to consolidate, we believe owner-operators like Seaspan, with financially sound balance sheets, will have excellent growth prospects.”
• MPC Containerships, which focuses on feeder containerships, was formed in April 2017 and has assembled a fleet of 68 feeder containerships between 1,000 TEUs and 3,000 TEUs.
• The Navios group of companies, based in Monaco, last year created a separate public company, Navios Maritime Containers, that specializes in containership chartering. In June it announced the acquisition of five additional ships and an option on four more, which will grow its fleet to 30 ships.
• Costamare Inc., an Athens, Greece-based independent containership owner, last week announced it had ordered five new 12,690-TEU containerships that will be chartered to Yang Ming. The ships will be built by Jiangsu Yangzijiang Shipbuilding Group in China and delivered between the second quarter of 2020 and second quarter of 2021. Yang Ming is also chartering five 11,000-TEU ships from Shoei Kisen Kaisha, the shipowning arm of Japan’s Imabari Shipbuilding.
Drewry said that as of last week there were approximately 2,450 ships owned by non-operating owners. That amounts to 9.6 million TEU capacity or about 44 percent of the world containership fleet.
It noted that carriers vary widely in how much of their fleet they charter. MSC, for example, charters nearly 400 ships with 1.8 million TEU capacity, or about 57 percent of its capacity. Zim charters 72 percent of its capacity and Yang Ming 64 percent of its capacity. In contrast, PIL charters seven ships or 6 percent of its fleet.
“Having a large charter composition is not necessarily a bad thing,” said Drewry. “Some carriers simply prefer the flexibility to dip in and out of trades when it suits them, whilst also avoiding the initial capital outlay of purchasing ships. However, having a greater dependency on hired ships to operate services does mean that those lines are more exposed when charter rates increase, depending on the rates and fixture periods agreed.
“In our view, the future direction of the charter market is heavily tied to carriers’ response to being unprofitable,” said Drewry. “While service suspensions are a clear risk to future charter rates as carriers, particularly those with a higher proportion of chartered units, they will inevitably jettison hired tonnage first, another potential response in the form of slow steaming, as proposed by MSC, could elevate charter prices. Slowing ships will help to reduce fuel consumption, but it will require additional units to be added to services to maintain weekly frequencies and will therefore increase demand for chartered tonnage.”
Containership charter rates may have peaked
