Container Ship Charter Rates Rise With Demand

Container ship charter rates are rising after two years of steep declines as ocean carriers seek extra tonnage in response to higher cargo volume on key liner trade routes.

The market for medium-sized vessels has bottomed out with charter rates flat over the past three months and set to increase as carriers become more confident traffic will continue to grow, particularly on the Asia-Europe and Asia-North America trades, through 2010.

A gearless Panamax vessel with capacity for 3,500 20-foot equivalent units is earning $5,450 a day, just $50 less than in October, according to London shipbroker Clarkson. The market for a 2,750-TEU ship is softer, with the daily rate down $650 from October at $4,500.

The surge in liner freight rates in recent weeks, driven by a capacity shortage coupled with a cargo rush in the run up to the Chinese New Year holiday season, is also feeding through to the charter market.

“Furthermore, extra slow steaming is absorbing excess capacity quicker than anticipated, especially for the larger vessel sizes,” according to Alphaliner, the Paris-based consultant.

Smaller sized ships are benefiting too, with a typical 2002-built 1,100-TEU vessel earning $4,065 a day on a 12-month charter compared with $3,963 at the beginning of December, according to the Hamburg Shipbrokers Association. A 1995-built 1,700-TEU Handy ship is getting $4,259 against $4,104 two months ago.

This has pushed the Association’s ConTex index up to 254 from a 2009 low of 237 in early December.

Carriers, which were haggling over hire rates and fixture periods three months ago, are now much more willing to meet owners’ demands to obtain ships to plug capacity shortages. The owner of an 8,500-TEU vessel on a 12 month charter can expect up to $14,000 a day compared with just $10,000 a year ago.

Owners are not covering their operating or financing costs at current charter rates, however, and many who ordered ships at the height of the container shipping bull market, are reported to be close to bankruptcy.

Despite the recent rise in rates, the market remains at all time lows. The daily earnings of a 3,500-TEU ship plunged to an average $6,575 in 2009 from $26,125 in 2008 and $29,958 in 2007, according to Clarkson.