News / Box lines slam on the brakes in a charter market feeling the pain

© Chanchai Duangdoosan

Along with pausing recruitment and across-the-board budget tightening, ocean carriers are halting the charter of tonnage.

One carrier contact told The Loadstar today a block on fixing charter ships – along with procuring ad-hoc feeders for relay operations – had “come from the top”.

“Even previously agreed extensions for charters where we don’t have a replacement ship, have to be referred up,” he added.

With the second-quarter reporting season about to get under way, container lines will be recording freight revenues in freefall, in contrast to spiralling operating costs.

Indeed, the scene was set for a depressed set of Q2 results with the release last week of OOCL’s operational update – seen as a reliable bellwether of the health of the liner industry.

Notwithstanding that OOCL’s revenue slumped 63%, compared with Q2 last year, the most important statistic was the 15% quarter-on-quarter decline in the carrier’s average rate per teu.

The data, released by parent Orient Overseas (International), a subsidiary of China state-owned Cosco Shipping, does not reflect operational costs but carriers have been hit by a string of inflation-linked service increases in the past six months which have significantly added to the transport cost per teu.

And with the prospects for a traditional peak season of Asian exports to the US and Europe diminishing by the week, carriers are looking to off-hire as much of their surplus tonnage as possible.

Container lines with the highest exposure to the charter market include Israeli carrier Zim, with 95% of its fleet chartered-in, and Taiwan’s Yang Ming, which has 69% of its operating tonnage leased.

In the case of Zim, some of its long-term chartered vessels have been appearing on the sublet charter market in recent weeks, and the carrier has, no doubt, also been talking to owners about early terminations.

It follows that the containership charter market is now officially in decline, reflecting the soft freight market of the past six months and the bleak outlook for liner trades in the second half of the year.

And containership brokers are starting to call the start of a ‘bear run’.

“When this is happening in a market environment that has already displayed weakness in recent weeks, the knock-on effect is undeniable, as operators re-evaluate their tonnage procurement,” said London-headquartered Braemar in its weekly container market briefing.

It added that the feeder segment of chartered tonnage “continues to see the biggest challenge”, with daily hire rates falling fast.

“The pure pace that rates have decreased within a short time frame is astonishing,” said Braemar. It cited the example of the recent charter of the 1,707 teu 2014-built Green Hope, fixed for four to six months in the Red Sea at $12,300 a day.

“This fixture demonstrated a severe drop on the earnings side, but also highlighted a significant plunge in the period achieved,” said Braemar.