Ocean Charter Rates Hit New Lows

Containership charter rates are testing fresh lows, and hire periods are shrinking rapidly as ocean carriers rein in leased box capacity in a bid to narrow the huge supply/demand gap.

The market is "deeply depressed" with conditions worse than in the previous downturns in the mid-1980s and in 2002, according to Clarkson, the leading London shipbroker.

"Today's rates are at a new low with around a 15 percent surplus and future (ship) deliveries that could swell the fleet by 30 percent," Clarkson said. “With this in prospect there are real signs of stress, including distressed asset prices."

The chartering business remains relatively active, however, with carriers taking on tonnage despite weak market conditions, according to Alphaliner, a Paris-based consultant.

But charter periods have shortened to an average of four and a half months, as carriers take a more cautious position while owners are reluctant to fix their ships for long periods at current depressed rates.

Of 1,820 charters tracked by Alphaliner since the beginning of 2009, around 535 are for periods of two months or less.

Apart from two charters of 3-4 years, only a dozen deals were concluded or extended for two years, while 180 charters were fixed or prolonged for around 12 months.

Before the container market slumped, charters of one to three years were common across the industry.

Charter rates, meanwhile, have tumbled to new lows, and brokers are reluctant to call the bottom of the market despite signs cargo volumes are picking up on key routes, led by the Asia-Europe trades.

Daily earnings for a gearless Panamax vessel of 3,500 20-foot equivalent unit capacity have slumped to $5,700 from $6,500 in June and $9,500 in February and are less than a quarter of the 2008 average of $26,125, according to Clarkson.

Ships of 4,250 TEUs that were commanding well over $30,000 a day before the market turned are now getting only around $6,500 for 12 month charters.

Market sentiment has been further depressed by the recent decision by Israeli ocean carrier Zim to unilaterally cut payments to leading charter ship-owners by 35 percent, following a deal by Chile's CSAV to offer equity shares to ship-owners in exchange for average rate cuts of 30 percent.

Contact Bruce Barnard at brucebarnard47@hotmail.com.