While the global container freight markets run red hot, dry tonnage pools are prompting ocean liners to pay increasingly high prices for any available charters.
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After sinking to multi-year lows in June 2020, a result of bleak carrier outlook and premature returning of chartered vessels in the face of demand destruction brought on by the coronavirus pandemic, containership charter rates have broken through to fresh all-time highs, Harper Petersen & Co data showed.
Time-charter rates for a ship with a capacity of 8,500 twenty-foot equivalent units registered at $65,000/d June 4, a jump of more than 330% from the year-ago assessment of $15,000/day.
A similar story has unfolded on the freight rates side. Biweekly general rate increases resulted in global rates trending upward before strong fundamentals cascaded into the tonnage market. The Platts Container Freight Index, a weighted average of Platts' global assessments, was assessed June 5, 2020, at $1,141/FEU, and has since seen near weekly increases.
On June 4, 2021, the index was assessed at $5,559/FEU, an increase just shy of 387%.
And sources expect further increases as carriers desperate for additional capacity attempt to outbid one another on both price and charter length.
"It is difficult to see anything changing in the weeks ahead, as the pool of charter free tonnage reduces further and anything that does come to market results in a significant jump in pricing," London shipbroker Braemar ACM said May 25.
The lowest assessment for the 8,500 TEU band of vessels was $12,500/d on June 12, 2020, as a ballooning charter market put pressure on rates. But as global demand for containerized goods began to surge in the second half of the year, chartering activity quickly picked up with carriers seeking to meet demand.
Since the June 12, 2020 low, charter rates for 8,500 TEU ships have seen average growth of about 3.4% a week but reached as high as 14.3% week-on-week growth during late June.
Tonnage providers call strong market through 2021
"The low number of available ships coupled with carriers' desperation to secure tonnage, means the latter has proven willing to accept tonnage providers' ever more onerous demands," said shipping group BIMCO June 2.
And many charter agreements have been extended far past the historical norm of six- to 12-month agreements, with many most now being fixed on a multi-year basis. Lengthening durations in charter contracts could indicate a shift in favor of ocean liners, as high freight rates are likely to be maintained to offset chartering costs.
"The strong container market momentum, which commenced in the second half of 2020, has shown no sign of slowing down, but has instead constantly strengthened further in 2021," said Constantin Baack, CEO of MPC Containerships, a Norway based tonnage provider. "Charter rates are at historically high levels [while] charter periods are getting longer and longer . . . so far, in 2021 we have concluded 26 multi-year charters."
Large order book, but few 2021-2022 deliveries
A flurry of new build orders in the first half of 2021 has pushed the order book to highs not seen since 2014.
"During [first-quarter] 2021, we estimate that 180 ships with a total capacity of 1.9 million TEU have been ordered. The biggest quarterly ordering tally of all time in terms of capacity contracted," said Braemar ACM in the company's Q1 briefing.
However, 2021 to 2022 deliveries are expected to provide only marginal growth to global fleet capacity, leaving shippers with poor sentiment regarding softening freight rates.
"With the majority of the newly ordered tonnage set for delivery in 2023, fleet growth should slow next year before coming back strongly in 2023 when we already expect delivery of 1.5 [million] TEU," said BIMCO.
As new-build orders continue, delivery dates are being pushed further into the future as Asian shipbuilders reach capacity. Ships ordered Q2 2021 have been heard coming online as late as 2025, sources say.
According to Braemar ACM, 36 Ultra Large Container Ships are slated for 2021 delivery, representing a capacity of 653,600 TEU. In 2022, 39 ULCS are set to come online, with a combined capacity of 675,354 TEU. This jumps to 75 ULCS deliveries expected in 2023, showing over 1.33 million TEU carrying capacity.
In 2023, the global containership fleet is expected to grow by 6-7%, an eight-year high.