News / Steam goes out of the charter market as carriers look to off-hire ships

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There are now clear signs that the weak demand for ocean freight is beginning to impact the hitherto insulated containership charter market.

While daily hire rates for larger charter ships remain stable, mainly because of the lack of tonnage coming off hire, brokers are reporting that there is a build-up of open tonnage in the feeder sizes, resulting in a downward pressure on charter rates for smaller vessels.

Ocean carriers were locked into long-term charters by shipowners during the peak of demand last year, and owners’ brokers have also been successful this year in obtaining two-year plus time charters for the larger sizes.

Carriers panicked that they would not have sufficient capacity to accommodate peak season demand and were therefore prepared to agree to owners’ demands for long hire periods.

However, with the prospects of a good peak season this year fading fast, the lines will have a surplus of chartered tonnage that they have no employment for.

Moreover, the supply / demand imbalance will be exacerbated by the delivery of more than 2m teu of newbuild ships this year, mostly in the larger sizes, which will see the incumbent vessels cascaded onto secondary trades.

As a consequence, the disconnect between an ailing sea freight market and a healthy charter market could finally be coming to an end.

Indeed, analysts are now starting to call time on the lengthy containership charter bull market.

“We expect the charter market to weaken, especially from Q4 onwards as the extreme dearth of available vessels will stop being the dominant factor at play, driving charter rates and asset prices further down,” said Maritime Strategies International in its Horizon June report.

Meanwhile, Alphaliner reported this week that there was a “substantial build-up of tonnage” in open charter vessels below 3,000 teu and that “the return of ‘spot’ vessels is beginning to take its toll on charter rates”.

And it recorded a decline in daily hire rates for all sizes below 3,000 teu.

The consultant said that it was “already observing reduced rates and shorter periods for those unemployed vessels sitting idle”.

“Unless demand picks up strongly in the coming weeks, this trend could also hit vessels with a more forward position, especially in Asia,” said Alphaliner.

“Globally the market outlook remains highly uncertain for non-operating containership owners, due to a continuously grim macro-economic environment,” it added.

Notwithstanding the softening in the charter market in the smaller sectors, which tend to be fixed on shorter periods and will therefore be subject to earlier expiring charter party agreements, ocean carriers will be looking to return to owners as much surplus chartered tonnage from their fleets as possible over the coming months.

Moreover, brokers have told The Loadstar that there are a number of ships with unexpired charters coming onto the ‘sub-let’ market.

“If the carrier has no employment for the ship, it is better to find a sub-let offer rather than lay the vessel up, even if the rate is below the daily hire rate that they are paying, in order that they can recoup some of the outlay of the charter,” said one broker contact.