Container Charter Market Faces Challenges Amid Falling Demand

Container Charter Market Shows Resilience Amidst Challenges
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In the ever-evolving world of container chartering, the past fortnight has seen a notable decline in activity, with most vessel sizes experiencing fewer fixtures than usual. This downturn in activity can largely be attributed to weaker demand across the board, which, for some segments, has been exacerbated by a persistent shortage of available ships, particularly those with capacities exceeding 3,000 twenty-foot equivalent units (TEU). This supply squeeze in the larger vessel sizes, coupled with a few sublets in the market, has acted as a safeguard against a significant charter rate meltdown, preventing rates for larger units from plummeting drastically, according to Alphaliner.

However, a different scenario unfolds in the smaller vessel categories, those under 3,000 TEU. Here, the supply of available tonnage is far more abundant, notably in the 1,500-1,900 TEU range and between 500 and 1,250 TEU, where ship availability has surged in recent times. The consequences of this abundance have been felt in charter rates, and this trend is expected to persist as current demand struggles to absorb the excess capacity on offer.

Owners, particularly those in the 1,500-1,900 TEU segment, have witnessed a glimmer of hope as overcapacity slowly eases in this category, with a substantial number of new vessels securing their first charter employments, albeit at relatively low rates. Nevertheless, the overhang of tonnage remains substantial, particularly in Asia.

Looking ahead, the container charter market’s prospects remain shrouded in uncertainty. On the cargo side, rates continue to stagnate at unsatisfactory levels on many routes, even during the peak season, and there are no signs of durable improvement. Temporary rate increases are short-lived due to an oversupply of vessels, further exacerbated by the continuous influx of newly built ships of all sizes. Carriers have made efforts to address these challenges through service closures, fleet downsizing, slow steaming, and blank sailings. However, these measures alone may not be sufficient. A substantial increase in cargo demand, which seems unlikely in the face of persistent global inflationary pressures, or a significant reduction in the current fleet, are necessary to brighten the industry’s outlook.

VLCS 

The Very Large Container Ship (VLCS) segment, encompassing vessels with capacities ranging from 7,500 to 13,000 TEU, experienced a notable absence of new fixtures in the past fortnight. This situation is the result of a combination of weakened demand and a persistent shortage of prompt tonnage. Uncertainty looms over the return of the 9,403 TEU vessel, JOSEPH SCHULTE, which had been stranded in Ukraine. Given the current subdued trading environment, it remains doubtful whether previous rate benchmarks of USD 54,000 for 13,000 TEU tonnage and USD 34,000 for 8,400 TEU vessels, both for three-year employments, are still achievable.

LCS 

In the segment covering vessels with capacities ranging from 5,300 to 7,499 TEU, there were no fresh fixtures confirmed in the past fortnight. Rumors suggest that a 6,000 TEU vessel was chartered for 12 months at a rate below USD 30,000, marking further rate erosion in this category. While spot/prompt ships remain in high demand, the segment is expected to see additional vessels come up for charter in the next couple of months, including two vessels in the 6,500-7,000 TEU range and one wide-beam unit of 5,000 TEU.

Panamaxes

The “classic panamax” segment, comprising vessels with capacities ranging from 4,000 to 5,299 TEU, witnessed reduced fixing activity in the last two weeks, with only two newly confirmed fixtures, down from four in the previous fortnight. Charter rates are gradually decreasing, with one 4,253 TEU vessel reported to have secured a one-year charter at a rate just below the previous benchmark of USD 20,000. Short-term charters of two months are being concluded at around USD 18,000 per day. The supply of available ships remains limited but has become somewhat unpredictable, with relets and Chinese-controlled vessels entering the market at irregular intervals.

3,000-3,800 TEU Segment

In the 3,000-3,800 TEU segment, no fresh fixtures were reported in the past fortnight. The rate benchmark for standard 3,500 TEU tonnage has been USD 18,000 per day for 12-month employments. Despite the segment being sold out for spot/prompt ships, there are five units expected to become available for employment by the end of October, potentially exerting downward pressure on rates.

2,700-2,900 TEU Segment

The 2,700-2,900 TEU segment experienced reduced activity in the past two weeks, with only two fixtures concluded. As supply increases, with one vessel currently in a spot position and five units becoming available by the end of October, charter rates continue to slowly decline. According to Alphaliner estimates, a standard 2,800 TEU vessel is currently valued slightly below the previous benchmark of USD 16,000 per day for 12-month employments, with the final rate depending on the ship’s deployment region.

2,000-2,699 TEU Segment 

In the 2,000-2,699 TEU segment, Alphaliner recorded only one fixture in the past fortnight, down from four during the previous two weeks. Demand is waning, with one vessel in a spot position and five more expected to become available for employment by the end of October. Despite weaker fundamentals, charter rates remain relatively stable for now, with standard 2,500 TEU units securing charters averaging USD 15,000 per day for 12-month periods, depending on the trading area.

1,500-1,900 TEU Segment

The oversupply of tonnage that has plagued the 1,500-1,900 TEU segment, particularly in Asia, is gradually easing. Around 15 vessels are expected to become available for employment by the end of October, a decrease from the 20 ships reported in the last review two weeks ago. Several “Bangkokmax type” newbuildings in the 1,700-1,900 TEU range secured period charters of up to six months at rates ranging from low to mid-USD 12,000 per day, contributing to the reduction in supply. While Asia remains oversupplied, the market west of Suez faces an undersupply, allowing owners in that region to secure more attractive rates. For instance, Maersk extended the charter of the 1,841 TEU SAN ALBERTO for 12 months at USD 14,500 per day in the Americas.

1,250-1,499 TEU Vessels

Vessels with capacities of 1,250-1,499 TEU continue to experience declining rates in Asia, despite ongoing demand, while rates remain relatively resilient in the tonnage-tight Atlantic market. In Asia, the 1,440 TEU Hegemann 1400′ type can now be chartered at rates in the low-USD 10,000s per day. In the Atlantic, the 1,341 TEU ‘MRC 1100’ type is still achieving rates in the high-USD 12,000s per day, and slightly over USD 13,000 in the Americas. Supply is not insignificant, with five ships (four in Asia) expected to become available by the end of September.

1,000-1,249 TEU Segment

In the 1,000-1,249 TEU segment, oversupply is growing rapidly in both Asia and the Atlantic due to weakening demand. Approximately 20 vessels are expected to become available for employment by the end of September, up from 15 units in the previous review. This surge in supply is anticipated to exert downward pressure on charter rates, which have remained fairly resilient thus far. For instance, an 868 TEU ‘Sietas 168 type’ vessel was chartered in the Atlantic at EUR 10,500 per day, which, while slightly below the peak of EUR 11,500 in April, still represents a respectable rate for owners.

In conclusion, the container charter market continues to face challenges stemming from a complex interplay of factors, including demand fluctuations, oversupply of tonnage, and economic uncertainties. The future remains uncertain, and the industry’s prospects hinge on a potential surge in cargo demand or a significant reduction in the existing fleet, neither of which appears imminent in the current landscape.

Source: Alphaliner

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