CENTRO INTERNAZIONALE STUDI CONTAINERS
ANNO XXXVIII - Numero LUGLIO 2020
SKY-HIGH OCEAN SHIPPING RATES MAY HAVE FINALLY PEAKED
Ocean container rates remain exceptionally high but may have
finally hit their ceiling. Spot rates have not only stopped rising,
they've pulled back by single digits. Is this a new plateau or the
start of a longer-term reversal as liner alliances bring more
capacity back online?
The share of idle containership tonnage is declining. The number
of box ships being chartered by carriers is increasing. Charter
rates are on the rise. All of this implies there will be more slots
available for containers, a headwind for freight rates.
Spot rates halt their ascent
"As carriers restore capacity, ocean rates dipped
slightly," said Freightos Chief Marketing Officer Eytan Buchman
in the company's weekly report.
The Freightos Baltic Daily Index tracks the price to ship a
forty-foot equivalent unit (FEU) container in various trades. Rates
peaked on July 8 on the China-West Coast route (SONAR: FBXD.CNAW)
and on July 7 on the China-East Coast route (SONAR: FBXD.CNAE).
China-West Coast rates hit a high of $2,855 per FEU before falling
4% to $2,753 per FEU on Wednesday - still more than 65% above rates
in the past two years.
Demand in flux
"Volumes and capacity are still not at equilibrium, keeping
rates up, with reports of some carriers even requesting premiums on
top of these rates to prevent rolled shipments," noted Buchman.
The COVID-19 crisis could push importers to bring even more
cargo in quickly, he continued. "As infections rates, closures
and restrictions grow in the U.S., these extreme freight rates may
point to the urgency importers are feeling to ship as soon as
possible, as the pandemic has made it impossible to know how long
consumers will still be buying."
On one hand, this could lead to more orders in the coming weeks.
On the other hand, importer urgency could have already brought
orders forward, implying demand weakness ahead.
U.K.-based consultancy MSI warned in a new report: "There
is some need for caution, since the recent rebound in volumes is
potentially being driven by one-off inventory restocking dynamics.
There are signs that the U.S. economic recovery in particular is
slowing," it said. This raises the question of "how
durable current volume rebounds will prove."
Demand could be either positive or negative for rates. Given
COVID-19, demand is a wildcard. Supply appears more one-sided, in
favor of rates declining. An unprecedented amount of capacity was
artificially removed from service by carriers to support rates in
the wake of coronavirus-stricken demand declines. That capacity is
Carriers "blanked" (canceled) sailings to calibrate
supply to demand. According to the data updated on Thursday from
eeSea.com, carriers blanked 14.7% of their sailings from Asia to
North America arriving in the second quarter, but have only blanked
4.7% of third-quarter arrivals.
The data also shows that carriers are much more optimistic about
North American consumer demand than European demand. In the second
quarter, 21% of Asia-Europe sailings were blanked, with 15.3%
blanked in the third.
This implies that carriers are as pessimistic about European
imports in the current quarter as they were about U.S. imports in
the previous quarter.
Inactive fleet on the decline
The fewer blank sailings, the fewer ships are idled. Data on
idled ships tracked by Alphaliner is pointing to a major change.
Alphaliner reported that the inactive containership fleet fell
to 1,847,871 twenty-foot equivalent units (TEUs) as of July 6, down
20% from the previous count in late June.
"The inactive fleet capacity level has dropped below the
2-million-TEU mark for the first time since mid-February, indicating
improving market conditions," said Alphaliner.
NOO: Non-owner operated ships. SR: ships undergoing scrubber
retrofits (Charts: Alphaliner)
Charter rates rebounding
Carrier fleets are composed of owned tonnage and chartered
vessels. This mix provides the flexibility to manage costs. Carriers
renew fewer expiring charter contracts in weak markets. This
increases the number of ships available for hire and decreases
Those charter rates plunged in the wake of the coronavirus. Now,
they're coming back.
According to MSI, "Recent weeks have been encouraging, at
least for mid-size and larger benchmarks, as a chartering spree has
greatly reduced the number of spot units and placed upward pressure
on time-charter earnings."
Charter rates for 8,500-TEU ships are up to $18,000 per day from
a low of $11,000 per day. "The specific driver was chartering
by MSC [Mediterranean Shipping Co.], which fixed essentially the
entire market in the space of a week," reported MSI.
Will carrier willpower break down?
Ocean carriers have been surprisingly adept at averting a price
war during the pandemic - so much so that the word "profiteering"
has been voiced.
But the real test of carrier willpower will come when vessel
supply returns to the market. In other words, now.
More services, fewer blanked sailings and more chartered-in
ships equate to more container slots that need to be filled. If
carriers don't maintain price discipline, a mid-single-digit drop in
spot rates could snowball into something more substantial.
As Simon Sundboell, founder of eeSea.com, previously told
FreightWaves, "Now that things are starting to open back up,
it'll be interesting to see how well carriers manage not just the
shutdown but the reopening. It's way too early to claim that
carriers have gotten the upper hand in the perpetual
supply/demand-balance game." Click for more
FreightWaves/American Shipper articles by Greg Miller
MORE ON BLANK SAILINGS: For an in-depth Q&A on blank
sailings with Sea-Intelligence CEO Alan Murphy, see story here. For
extensive data on blank sailings from eeSea.com, see story here. For
a comparison of second and third-quarter blank sailings to U.S.
ports, see story here.
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