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Container ship long-term charter rates climb to record highs amid vessel shortages

Highlights

Average TCE rates increase above 30 months

8500 TEU fixtures eclipse $100,000/d

Slim 2021 to 2022 deliveries to support rates

Container ship operators are paying increasingly high charter rates for longer periods as they seek to capitalize on significantly high rates in the container freight spot market amid unprecedented demand.

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Container ship charter rates sank to multiyear lows in June 2020 as a result of bleak carrier outlook and premature returning of chartered vessels as the coronavirus outbreak presented a major demand risk.

But as community lockdowns and social distancing unexpectedly boosted consumer spending on goods, charter rates rebounded and broke through to fresh all-time highs at the start of August, Harper Petersen & Co. data showed.

Six- to 12-month time-charter rates for a ship with a capacity of 8,500 twenty-foot equivalent units registered $105,000/d Aug. 2, a jump of more than 425% from the year-ago assessment of $20,000/d.

Short-term fixtures, where rates are highest, do not make up the bulk of fixturing activity. Just 5% of 2021's container ship fixtures to date have been for periods of three months or less, London-based shipbroker Braemar ACM said.

"As we reached the end of the [second] quarter [2021], charter periods of 36 months and 60 months were routinely being achieved as liner companies are pushed to guarantee coverage in the medium term," said Jonathon Roach, container market analyst at Braemar ACM.

And tonnage providers have confirmed as much in their earnings statements. Navios Maritime Partners said it saw large increases in fixture earnings and elongated time periods.

"Average time charter duration rose about 7X from 4.3 months in July 2020 to 30.7 months in June 2021," the tonnage provider said July 27 in its Q2 earnings report.

Meteoric freight rates cascade into tonnage market

A surge in global container freight spot rates beginning in the second-quarter 2020 brought new record highs in many key headhaul trades and cascaded into ancillary markets.

The Platts Container Freight Index, a weighted average of Platts' global assessments, was assessed July 30, 2020, at $1,255/forty-foot equivalent unit (FEU), and has steadily increased through Aug. 2, 2021, when it was assessed at $7,360/FEU.

This represents an increase of 487% on the year.

These strong fundamentals have contributed to carrier appetite for additional vessel capacity to meet swelling demand, which is the underlying factor in charter market gains.

Sources expect further increases as carriers desperate for additional capacity attempt to outbid one another on both price and charter length.

"With more tonnage being locked in for longer, combined with extraordinary trade growth through to 2022 and underwhelming fleet growth in 2021, we do not expect a significant downward correction in charter earnings in the short term," Braemar ACM's Roach said.

This is against a backdrop of historically low idle, or unused, ship counts. Only 2.5% of global capacity is idle right now, compared with 10% on the year-ago date, according to container researcher Alphaliner.

Since the year-ago date, fixture rates for the 8,500 TEU ship class have increased on average by 3% weekly but saw a high of 13% July 2.

Meanwhile, the 3,500 TEU Panamax class had the largest year-on-year growth at 688% to $67,000/day. Small "feeder" ships of 700 TEU showed the smallest increase at 311% on year, while the average change across all vessel classes was 545%.

"You know, it's no joke for a vessel to sit for two or three weeks outside of the port, when we're paying anywhere from $30,000 to $100,000 a day," an ocean carrier source said. "We also have costs to cover."

Few near-term vessel deliveries to prop up rates

Relatively few container ships are set to be delivered in 2021 through 2022, with annual fleet growth expected at 3.5%, likely less than annual demand growth, according to Braemar ACM.

"It is not until 2023, when the fleet is expected to expand by 8.5%, that charter earnings are expected to noticeably stabilize," Braemar ACM said.

Coupled with strong projections for demand-side momentum, a tight order book could support freight rates, or ease their decline, until significant capacity increases hit the market.

"We expect our vessels ... to be operating at capacity at least until Lunar New Year next year," ocean carrier Matson said in its Q2 earnings call July 29.

Danish carrier A.P. Møller-Mærsk said Aug. 2 it expects demand growth for full-year 2021 of 6%-8%.