News / Box lines being forced into costlier, longer-duration vessel charters

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Containership owners are playing hard ball with liner operators desperate to plug holes in their networks as a result of the Red Sea crisis, demanding increased daily hire rates and insisting on longer charter periods.

However, ocean carriers risk committing to charter parties well beyond the duration of the current network disruptions, as that will exacerbate the oversupply challenges they already face as a consequence of their excessive ordering of new ships.

In the wake of the Suez Canal omissions and diversions around the coast of Africa, the number of commercially idle containerships has been reduced significantly, and the first wave of newbuild tonnage – some 300,000 teu of capacity that arrived in January – has been easily absorbed into networks that require additional ships to maintain weekly sailings.

“Owners have become more bullish with every fixture concluded,” reported MB Shipbrokers.

Indeed, according to The Loadstar’s broker contacts, while owners are instructing minimum one-year periods for open tonnage, they are pushing for two-year charters on their younger, more eco-friendly ships.

The terms are causing a slight stand-off in some negotiations, especially in the popular panamax, circa-4,000 teu, sizes.

“We note a distinct reluctance to commit for longer than 12 months,” said MB. “Most liner operators seem unwilling to commit for two years on standard types, while the premium being asked for 12 months is hard to accept.”

Nevertheless, even committing to one-year charters could prove a drag on liner profitability, depending on how long the temporary schedules routing ships around the Cape are in place. In fact, Maersk CEO Vincent Clerc said last week that the structural overcapacity issues that existed before the Red Sea crisis were not going away, only being deferred until the crisis ended.

“In Q1, we will over-recover, compared to the straight cost of the transport…but over time, inflation in the costs will take some time to work out of the system,” said Mr Clerc.

He was responding to suggestions that carriers had ‘over-egged’ their diversion surcharges, which saw an extreme range – an extra $150 being charged by one carrier, to a huge $2,700 per container  by another line – after they had declared force majeure on their existing contracts.

“However long this takes, I think it is very ambiguous today to say that the revenues we re-coup will be enough to shoulder the cost we are signing up for, for a longer duration,” said Mr Clerc.

Evidencing his words is a recent extension, made by the Danish carrier, of the 5,071 teu 2014-built Seadream. According to Vesselsvalue data, Maersk has the post-panamax ship on a six-month time-charter expiring in April, paying a daily hire rate of $19,500.

The carrier has now negotiated to extend the charter for another 22 to 25 months, at a rate of $25,000 a day.