News / Reverse cascading by carriers could benefit owners of smaller containerships

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Owners of smaller container vessels, below 8,000 teu, could begin to benefit from a reversal in carrier strategy to deploy the ‘biggest ship for the trade’, according to the latest Shipping Market Review from Danish Ship Finance (DSF).

The ship financer said there were isolated instances of carriers deploying “leaner and smaller vessels” and replacing bigger ships on certain routes, and while it was “too early to call it a trend”, it suggested this reverse cascading was encouraging for the smaller sectors.

Indeed, with a shrinking fleet, due to aggressive scrapping and a dearth of smaller newbuilds, the fact that some carriers are rethinking their capacity needs will give the tonnage providers some renewed optimism.

However, in the larger sizes, DSF cautions that the oversupply of these vessels in the liner industry “could persist, unless a significant part of the current fleet is taken out”.

It expects that over the next year, many larger chartered-in ships to be returned to owners as the alliance partners optimise their networks and cut out slack in a quest to balance supply with demand.

DSF noted that, although ocean carriers – aided and abetted by the alliance networks – generally have the upper hand over tonnage providers in utilising their own fleet and returning surplus ships to owners, the container lines could find themselves “stuck with large inflexible (owned) vessels less suited to their future needs”.

And this is compounded by the fact that DSF believes second-hand ultra large container vessels (ULCVs) are currently overvalued.

“Many of the larger vessels are currently being valued in accordance with the newbuilding prices of similar vessels, although few would expect these vessels to be able to achieve sufficient earnings in the short to medium term to justify these prices in today’s market.”

Meanwhile, Alphaliner’s fortnightly charter market review says hire rates for the 7,500-10,000 teu segment have “continued to weaken”, despite robust demand.

It says: “The segment has seen sustained activity in the past two weeks, but this has not been reflected in charter rates, which continued to recede.”

Market rates for an 8,500 teu ship have fallen to around $11,500 a day from some $14,500 a month ago, with, for example, Zim recently fixing the 2006-built 8,533 teu Sino Parsifal for three-to-seven months at a reported $11,000 a day.

Alphaliner summarised the containership charter market as remaining “weak”, despite the start of the traditionally “strong summer peak season”.

It reports an increase of ships in hot and cold lay-up of 20,000 teu in the past two weeks, to 538,273 teu, which represents 2.6% of the global cellular fleet.

It said: “With about a dozen newbuildings still seeking employment and waiting at various Asian yards, the immediate prospects for the idle fleet is expected to remain challenging in the absence of fresh demand.”