February Brings Flickers of Improvement for Boxships
Image Courtesy: Prince Rupert PortThere have been some ‘flickers of improvement’ in February in the container shipping industry after an opening to the year which saw 1.3m teu of capacity idle, freight rates struggling and the charter market on its knees, Maritime Strategies International reports.
Having suffered a torrid end to 2015, liner companies finally managed to produce some upwards movement in freight rates, albeit as a result of the slower erosion of the massive General Rate Increase imposed on January 1.
As of mid-February freight rates on the China-North Europe route were assessed at USD 431/TEU by the Shanghai Shipping Exchange, a level suggesting little positive momentum. However, since the period immediately after Lunar New Year is normally challenging for the freight markets, MSI cautioned that how the freight markets develop over the first weeks of March will provide a better indicator as to the likely tone of 2016.
In the vessel charter market, post-Panamax vessels felt the full force of vessel oversupply, with this vessel type still accounting for over half the capacity currently idle. As a result, rates for 6,600 teu vessels are being assessed below geared vessels almost a quarter of their size.
First weeks of March likely to set the tone of 2016
Improvements will depend on the extent to which forecasts of improving trade growth come to pass, according to MSI Senior Analyst James Frew.
“There is no doubt this remains one of the most challenging markets in living memory. The majority of indicators in January pointed to exceptionally weak container shipping capacity demand, while the build-up of idle tonnage took its toll on charter earnings. The erosion of idle capacity and thus an improvement in freight rate earnings is heavily reliant on resurgent trade growth.”
December trade data has already provided some relief, with the Asia-Europe trade finally showing some positive growth after 10 months of year-on-year declines. MSI’s expectations for Asian exports - with the exception of the Transpacific - sit on the more optimistic side of consensus for most trades.
The speed with which the burden of idle capacity is eroded will prove a key variable in assessing the trajectory of vessel earnings but MSI remains relatively bullish on the outlook for charter rates, providing trade growth improvements as expected. MSI anticipates that by April smaller Post-Panamax vessel earnings will be close to USD 9,000/day before breaking the USD 10,000/day barrier during the summer before falling back by year end.
