Do the CEOs of container lines feel that the historic freight boom will come to an end any time soon? If the ship charter market is any indication, it certainly does not appear to be the case.
Liner firms are continuing to pay record-breaking sums to rent container ships for periods of up to five years, despite the fact that the Russia-Ukraine conflict is limiting rate gains.
The Harpex index, which gauges container-ship charter prices, has been stable at its highest level in three weeks, according to the index’s latest report. Earlier this month, Alphaliner reported that charter rates have reached “record highs” and have reached a plateau “after weeks of continued increases.”
The conflict has not yet resulted in a decrease in interest rates. According to container ship owners who spoke at the Capital Link International Shipping Forum on Tuesday, the government has put a halt to new charter deals and has temporarily halted rates from rising much more.
Prior to reapplying the gas pedal, it is necessary to ‘wait and see’.
“The Ukraine war has added to the previously predicted inflation,” said George Youroukos, chairman of Global Ship Lease (NYSE: GSL), speaking at the Capital Link summit. “With that in mind, we see several liner firms taking a wait-and-see posture [on ship charters].”
“With regard to the fundamentals, nothing has changed. Although they are anxious to see how this will be addressed psychologically, they are reluctant to press the gas pedal again.”
If you asked me [about the market] before the conflict, I would have responded in a very positive manner,” says Aristides Pittas, chairman of Euroseas (NASDAQ: ESEA). Now, I’m hearing rumblings of a possible recession in the background.
Aristides Pittas plays for Euroseas (Photo: Marine Money)
We should have a lot clearer picture in a month or two,” says the author. As a result, we anticipate that the market will be quieter until then. There is a brief halt in the action right now.”
“Consumer desire has a great deal to do with psychology,” Youroukos continued. People are concerned at the moment. If this issue is resolved and there is no longer a question mark in people’s thoughts, it is possible that the effects of a bottleneck will manifest themselves. It’s possible that consumers will cease ordering and then decide that the [danger] has passed, resulting in a spike in demand again, especially if the hiatus is only for a couple of months.”
The market for long-term charters
Ship lessors did not appear to be bothered by a lull in the chartering industry’s activities. After all, they’re in the midst of the most significant economic expansion in their history. Danaos (NYSE: DAC) shares have increased by 1,017 percent from Jan. 1, 2020, prior to the implementation of COVID. Euroseas shares have increased by 616 percent, while GSL shares have increased by 235 percent. In the first week of this month, Danaos reached a new all-time high.
“What we’re seeing now is a windfall of sorts. “The concern is, what are we going to do with all of this cash that’s collecting,” Pittas explained.
“These are quite favorable rates,” said Evangelos Chatzis, Danaos’ chief financial officer. In addition, we are repairing [smaller] feeder ships that are 25 years old at a cost of $30,000 per day, which is a colossal sum that we have never seen before.” Chatzis stated that midsized ships in the Panamax class can be rented for $50,000-$60,000 per day for up to five years at a rate of $50,000-$60,000 per day.
It was stated by Alphaliner that ocean carrier ONE recently chartered two 8,000 twenty-foot equivalent unit ships, the Conti Annapurna and the Conti Conquest, for three years at a rate of $65,000 per day for each ship.
Youroukos went on to say that ship sales are causing disturbances in the market, which is leading to greater chartering in the long-term market.
“There are charterers there who are interested in taking the ships for three to five years,” says the captain. A large number of liner firms have purchased ships recently, which has resulted in tensions between the liner businesses themselves. Normal would have been for [a liner to prolong] [an existing charter that was about to expire], but the ship has been purchased by a competitor. Consequently, [the original charterer] will lose a ship and will require a replacement ship.”
The charter market for short-term flights
In the short term, according to Pittas, the most significant impact of the war-induced hiatus is being felt in the market for day rates, where liners have been paying exceptionally expensive day rates for periods of many months.
“I believe that everyone thinks that the long-term prospects continue to be favorable… “However, the short-term charters have virtually evaporated in recent years as a result of these risks,” Pittas explained.
Assuming that’s the case, it’s a relatively recent phenomenon, as Alphaliner reported exceptionally high short-term rates just a week before the Capital Link conference.
Alphaliner stated that BAL Container Line has agreed to a “staggering” fee of $235,000 per day for the 4,892-TEU Zhong Gu Jiang Su for a period of three to four months for the vessel.
According to the report, BAL chartered the smaller 3,834-TEU Zhong Gu Liao Ning, which was 25 years old at the time, for a “mind-blowing” $200,000 per day, which the company described as “the highest cost ever paid for a ship of this size and age.”
Congestion encourages the use of charter planes.
Port congestion is a significant factor in the determination of shipping rates and prices. The more congestion there is, the lower the effective ship supply and the greater the value of vessels in the freight, charter, and secondhand markets will be in the long run. “The supply side is quite bullish [in terms of interest rates],” Pittas stated. “The demand side is the unknown,” says the author.
The CEO of MPC Container Ships (Oslo: MPCC) estimates that approximately 25-30 percent of the container shipping supply is currently snarled up in congestion.
Baack feels that the most closely followed congestion point – the queue for Los Angeles/Long Beach — has only been momentarily alleviated for the time being. “I anticipate that traffic congestion in Los Angeles and Long Beach will worsen over the next few months.”
Increasing delays and congestion are also being experienced on the East Coast, according to Baack, who also pointed to increasing congestion at Chinese ports as a result of COVID lockdowns and at European ports as a result of the conflict as causes.
In his words, “the Clarksons worldwide port congestion index is very near to an all-time high, and the Kuehne + Nagel index is also saying the same thing.”
As stated by Chatzis of Danaos, it is not just the ships and ports that are at fault, but rather, the entire supply chain. It will take some time for these issues to be rectified on their own. In my opinion, it is not going to become more typical overnight. “I don’t think this will be resolved anytime soon.”
