Box charter rates are expected to make slow progress in the coming months, despite the ushering in of seasonal demand. The market continues to be held back by a supply overhang.
THE box charter market has made a modest, yet steady, start to 2019.
Although fixture activity has been nothing to get too excited about, the alarm bells are not ringing either.
Approaching the end of the first quarter, there is also the typical sense of quiet optimism, with the traditional seasonal downturn that began in the second half of last year beginning to bottom out. In short, the worst is over.
However, upward momentum in charter rates continues to be hindered by a supply overhang, particularly in the feeder sector.
The Hamburg Shipbrokers Association New ConTex, a weighted average of vessels in the 1,100 teu-4,250 teu size bracket, remained relatively unmoved in mid-March against its month-ago level climbing from 386 to 388 points.
Nevertheless, analysts expect rates to make slow progress over the coming months. The acid test for the charter market will be its ability to absorb some of the idle ships.
“It will take some time for the time charter market to reduce the overhang of idle units in smaller fleet segments and this will act as a drag on upward momentum,” said London-based analysts Maritime Strategies International.
So far this year, it is the post-panamax segment, or vessels above a capacity of 5,100 teu, that has kept the market in check with readily available tonnage of larger ships low and fixture activity brisk.
Time charter equivalents since the turn of the year have regularly achieved daily rates comfortably above the $20,000 benchmark.
For example, Taiwanese carrier Evergreen signed off on the 8,528 teu Navarino for a daily rate of $21,900 for an 11-month period, while Mediterranean Shipping Co fixed the 8,533 teu Seamax Stratford on a 12-month charter for $22,000 per day. Both ships will be deployed in the Far East, according to brokers.
Although larger spot tonnage is sparse, there are worrying signs that demand is weakening.
Analysts Alphaliner highlighted in a recent commentary that demand for larger ships had suffered by the high number of blanked sailings on long haul routes, a trend that began in February and continued into March.
“Weak demand, especially on the transpacific and Middle East routes, is largely to blame,” it said. “This could however be a temporary effect, as carriers prepare for the start of the summer peak shipping season with most of the idle ships already securing forward assignments.”
Softening demand in the larger sectors led to a slight rise in the idle container ship at the start of March against its mid-February level.
Alphaliner noted that the number of idle units above 5,100 teu had risen to a two-year high of 48 ships, which had seen the unemployed box fleet jump to more than 900,000 teu of capacity.
But it is not all doom and gloom.
Whereas the post-panamax sector suffered a setback there have been gains in the smaller sectors to lift market sentiment.
While the overall idle fleet had risen, the total of unemployed ships in the 500 teu-5,100 teu class fell during the same period, down to 177 units in early March against 213 ships a few weeks prior.
According to Alphaliner, the smaller sizes have begun to enjoy a “long-awaited revival in demand”.
Moreover, the employment situation has been aided in the sector by a recent surge in vessel scrapping.
“Of the 31 ships that have been sold for scrap so far this year, 29 were smaller than 5,100 teu,” it said.
Even with these deletions, however, idle numbers remained high, which was preventing charter rates from making any significant gains, according to Alphaliner.
However, rates are expected to improve across the board as seasonal container demand begins to pick up.
In its latest market forecast, MSI said it expected vessels in the 1,100 teu sector to recover slightly in the second quarter of 2019, with daily rates rising from a current level of around $6,300 to closer to $6,800 per day.
Similarly, 1,700 teu vessel types were anticipated to jump to $7,900 per day from $7,100.
MSI also expects rates to climb in the larger feeder sectors but identified definite downside risk for the long-suffering panamax sector, where plenty of tonnage is available for hire.
Alphaliner said that at the start if March as many as 39 units remained in the spot pool, predominately in Asia, adding that if the problem persisted, owners would have to consider their options if unwilling to wait for a demand upturn.
Brokers though, are not optimistic.
“Demand has picked up a little in the classic panamax sizes… but realistically there needs to be a sea-change for this market to turn around,” said one London-based brokerage.
With the sulphur cap edging closer, owners of non-economical tonnage may see now as the opportune moment to send ships for recycling. With scrapping prices also not too shabby, this could also help sway decisions.
Despite the numerous blanked sailings on mainline routes MSI, meanwhile, has upgraded its ratings forecast for the post-panamax sector.
It did though highlight that the “structural volatility” of this fleet segment must also be considered, and as such could scupper rate progress.
“While not yet a major factor we do believe short-term charters to cover vessels put into dry dock for scrubber installation will help buoy earnings as the year progresses,” said MSI.
Furthermore, it said that in a relatively illiquid segment this would likely shore up earnings. “We expect these to remain generally in the high teens to early $20,000 per day.”