MSC Containership

Drewry: Ascent of the Charter Market Is Over

The rapid growth of charter rates in the container shipping market is likely to be over as ocean carriers release some ships back to the open market in order to curb the impact of weak profitability.

Illustration. Image Courtesy: Pixabay under CC0 Creative Commons license

However, shipping consultancy Drewry expects rates to remain close to their current levels over the remainder of the year.

Suspension of a number of services by carriers over the past few weeks as they scramble to fight off the red ink has seen rates drop slightly, reversing their 50 pct growth recorded in the first half of 2018.

“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,” Drewry said.

“We suspect that charter rates have peaked for the time being, but with the overall supply-demand balance slowly improving, which in turn will lead to higher freight rates and improved carrier income statements, the motivation for carriers to off-hire ships should lessen.”

As explained, the charter market is more heavily weighted towards smaller and intermediate size ships, hence the oversupply of bigger units is more isolated to trades where owned ships dominate. However, the introduction of new mega-ships during the first half does still pose a threat to the charter market as it intensifies the cascading process.

“One factor that could protect charter rates from declining too sharply is the fact that trading conditions are currently more favourable in trades where chartered tonnage is most prevalent.

“For example, container shipments in the southbound Asia-Oceania trade, where approximately two-thirds of the 4,000 TEU average units are chartered, increased by 6.5% year-on-year in the first quarter. In contrast, in the westbound Asia-North Europe trade, home to the Ultra Large Container Vessels (ULCV) and in which about the same ratio are owned units, demand decreased by 1% in the first quarter,” Drewry added.

The shipping consultancy said that as of last week there were approximately 2,450 ships owned by non-operating owners, which with a combined capacity of 9.6 million TEU accounts for some 44 pct of the world fleet.

MSC currently has the largest pool of chartered ships with nearly 400 units aggregating 1.8 million TEU, representing approximately 57% of its total operated fleet. In contrast, PIL only charters seven units, or 6% of its fleet. Zim (72%) and Yang Ming (64%) have the highest chartered ratio of the leading carriers, Drewry’s data shows.