News / Charter and freight rate gap may see rationality sacrificed for market share

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Ocean carriers could be entering a phase in which “rationality takes a back seat to competition”, as rates tell two different stories.  

The Loadstar recently reported that, despite a slight rise last week, global container freight rates have been on a downward spiral for 11 consecutive weeks, according to Drewry’s World Container Index. 

But at the same time, according to market analyst Braemar, the charter market has remained “strong”, and shows no sign of changing any time soon.  

“The Time Charter Index remains at very high levels, and fixtures are still being concluded across many sizes, as operators prefer to secure tonnage rather than risk being caught short and weakening their services,” explained Braemar. 

“Newbuilding demand is also firm across the board, and there is strong activity on the sale and purchase side,” it added.

It added that this contrast raised a big question. 

“Despite falling freight rates, are operators optimistic about the future, or are we again entering a phase where rationality takes a back seat to competition, market share battles and long-term positioning in container shipping?” 

Chartered shipbroker and owner of MJW Consulting Mike Wackett told The Loadstar ocean carriers often had a “blinkered approach” to costs when sitting on healthy balance sheets. 

“Their strategy is driven by a commercial approach, ie, securing and or obtaining market share from competitors rather than listening to the bean-counters,” he explained. 

And Braemar warned of the certainty that “higher environmental costs” would be coming. 

“The fleet in some sizes is ageing rapidly; without the right ships in place, operators risk falling behind competitors with more efficient tonnage. In addition, very healthy balance sheets are in play, which may make decisions easier than in the past.” 

Mr Wackett predicted that the disconnect between freight rates and charter rates would likely continue until carriers record a loss-making quarter. When that happens, he said, “shareholders will pile on the pressure to reduce costs and thus curtail new charters, and [they will] off-hire ships as soon as their charters expire.”