Charter Rates Collapse, Leveling Out With Freight Rates

According to Alphaliner, the extraordinary trading conditions that non-operating owners (NOOs), liner operators and freight forwarders enjoyed in 2021 thanks to the unprecedented bonanza in demand related to the Covid-19 pandemic continued into the first half of 2022. Now, charter rates eventually collapse and fall in line with freight rates.

With a normalization of cargo flows, the return of capacity previously squeezed by congestion, skyrocketing energy prices generated by the war in Ukraine, and runaway inflation affecting consumers’ purchasing power, dramatically reversed the fate of shipping market stakeholders in the second half of the year, reports Alphaliner.

Reduced freight demand on many key routes has resulted in a rapid drop in freight rates, with charter rates following suit in the last quarter of 2022.

Alphaliner reports that, as in 2021, the two Shanghai Shipping Exchange (SSE) freight indices covering box rates outside of China, the Shanghai Containerized Freight Index (SCFI) and the Container Ships from China (CCFI), and the Alphaliner Charter Rate Index (ACI) which deals with container ship charter rates, evolved in 2022 in a synchronous but not similar manner.

The container and charter rates grew at high speeds and subsequently collapsed in 2022, although the charter rate adjusted for the market decline with a longer lag, the analyst says.

“While the SCFI peaked at 5,109 points on January 7 and the CCFI at 3,587 points on February 11, the ACI reached an all-time high a little later in March at 563 points.” Alphaliner reported.

However, the SCFI and CCFI indices began to fall until June, when they recovered gently again. However, this was to be a short-lived rally as the indices resumed their decline in July. From that moment on, they would fall at an uninterrupted and much faster rate, in particular the SCFI that in September had plummeted to 2,800 points, just over half of its maximum value in January, adds Alphaliner.

Charter rates plummet, albeit with a time lag

While cargo rates, especially for spot freight, lost up to around 45% of their value in the January-September 2022 period, charter rates only eased moderately during this time, remaining fairly resilient over the years. which was already a clear market crash. It was only in September that charter rates suddenly fell off a cliff, catching up with the cargo rate collapse, albeit with a time lag, Alphaliner claims.

It also adds that since then, charter rates have consistently declined, with ACI falling to just 144 points in December, a decline of close to 75% from its March peak. Despite this drop, the ACI is still almost double what it was at the start of the Covid pandemic.

It’s also much higher than it was during the pre-Covid decade: the last time the ACI hit 144 was in July 2008. In the meantime, charter rates have bottomed out and remain decent for various ship sizes for now. , but further weakness is expected in 2023, and excess capacity is expected to return, he concludes in his article.

Ripple effect of new shipbuilding

Alphaliner expects the second half of the year to be particularly challenging, as the ripple effect of mass newbuild deliveries, especially (but not only) in the larger sizes, will start to be felt more acutely across the rest of the market.

It also ensures that meanwhile, at 1,107 points and 1,307 points as of December 23, the SCFI and CCFI indices, despite a spectacular drop from their January-February peak, are still slightly above their pre-index levels. Covid-19 of December 2019 of 904 and 854 points respectively.

Despite a much slower decline in the last four weeks of 2022, indices are expected to fall further in the coming weeks, with the Christmas holidays, an early Chinese New Year in January, and high inventories in Europe and the US. The U.S. is helping to keep freight forwarding cargo movements slow, adds Alphaliner.

Finally, attempts by carriers to stop freight rate declines with service closures, slow shipping, Cape of Good Hope routes and blank voyages continue to have limited positive impact.

Source: Alphaliner