The inherent weakness in the container market is such that it seemed appropriate this month tocompare the market to the travails of a bungee jumper. We hope that the rebound - when it comes - will be swift and snappy. At the moment, however, we continue to plunge. As with the bungee jumper, the farther the plunge, the sharper and more pronounced the rebound becomes.
Please understand, dear reader, we take no joy in negative prognostications. It is just that as hard as we look, we cannot find any fundamental reason to change our short-term market views.We are not alone. A valid indicator of the health of the market is the activity on the sale and purchase front. To this end, the market continues to be moribund. A few vessels are changing hands but two things are apparent.
First, most of the buyers are either getting big tax incentives or are end-users. There is a real dearth of third-party tramp owners who are buyers.
Second, it appears to take significant charter coverage to induce buyers into the marketplace. The recent sale of the Quadrant Express - a 4-year-old geared vessel capable of carrying 1,700 20-foot container units - with a three-year charter-back arrangement at $13,500 is typical.
The charter price is about double the market rate. If one discounts the charter back to ''market'' rates it puts the vessel price at just over $18 million - about 28 percent below the reported sale price. The spread between offered price and buying price appears to be widening rather than narrowing.
So, how does anyone make a profit these days? Well, some carriers have it figured out - raise freight rates. The Japan-United States Eastbound Freight conference (JUEFC) aims to raise rates $900 to around $2,900 per 40-foot container from Japan to ports on the U.S. West Coast.
In addition, a $300-per-box premium is planned for the six-month period from June 1 to Nov. 30, the traditional peak season. Empty containers still dominate the westbound leg but this rate increase, the fourth in less than a year, might restore some profitability to the much-battered conference members.
But we digress. This report focuses on the charter markets and the developments that drive and affect these markets. So it would be more appropriate to note two events of significance in the last 30 days.
The first involves the significant changes in the U.S.-South American trade lanes. While we will not go into the details of all the realignments that have taken place, suffice it to say that, as this newspaper has reported, these trade lanes are seeing a significant reduction in vessel capacity - in some cases as much as 50 percent.
CUTTING BACK CAN CREATE GAINS IN THE LONG RUN
By forming various alliances, the lines are able to offer service frequency that changes very little. But by cutting back on available slots, there may be an opportunity to stabilize freight rates. (Hello, JUEFC, can you here us?).
Second, Maersk Line's move to acquire the liner division of Safmarine, while not totally unexpected, is another example of the continuing consolidation within the industry and the pressure that puts on charterers. Owners will first integrate the ships they own into new operations, then reduce the number of vessels they charter in the name of rationalization.
Maersk has pledged that Safmarine will continue to operate as it has. Time will tell on that one.
Keeping a close watch on fixture volume and period activity might serve as a benchmark and a prognosticator of future trends. This past month saw the 12-month period fixtures climb by two points to represent about 11 percent of the 80 or so reported fixtures. The fixtures over six months climbed to about 34 percent of those reported. These levels are far below the numbers in stable and prosperous times but they may provide a glimmer of light for the upcoming months.
Having said that, however, we are reminded of the warning that appears in many side mirrors of American cars - ''Objects may be closer than they appear.'' In this case, ''fixtures may be lower than actually reported.''
The impact of new ships of over 1,000 TEUs entering the market is beginning to have the most serious effect in terms of waiting time. We are estimating that the average waiting time for an owner of a new ship to find a charter in today's market is about 45 days. Ballast not included.
What is scary to witness is the plunge in rates for some of the larger geared vessels. Indeed, the decline rates for the 1,500-and 1,600-TEU vessels has made a significant impact on our index this month. The index being comprised of a basket of six rates is weighted heavily toward the large vessels.
Just last month, 1,700-TEU vessels were able to fix around $7,500 daily - close to a 12-year low. Well, the benchmark rate now has plunged below $6,000. To provide a fair sense of reporting, not every fixture is at such low levels. Maersk extended the Cape Norman - a 22,800-deadweight-ton geared vessel capable of carrying 1,504 TEUs and reaching speeds of 21 knots - at $7,500 daily for a short four- to six-month period. That was one of the higher charters reported, with others being far lower.
Mediterranean Shipping Co. locked up the Hansa Carrier - 26,000 dwt., geared, 1,799 TEUs and 19 knots - for 12 months at $5,600 a day. Pacific International Lines extended the similarly-sized, gearless Buxcrown for seven months at $5,800 daily. The Sofia Russ - 22,900 dwt., 1,730 TEUs, 19 knots - was chartered for nine months at $5,800, while the similarly-sized Elizabeth Rickmers garnered $5,500 for a trip from the Far East to the West Coast of South America.
SMALL SHIPS FARE BETTER AS PRESSURE INCREASES
These rates are clearly a reflection of the large number of new ships in this class coming into service. But, while every sector is under pressure, the smaller ones were not hit as hard last month.
The $6,000 barrier is continually breached but many vessels have been able to maintain respectable levels. The Hansa Coral - 13,000 dwt., 1,022 TEUs, 17 knots - fixed for a year at $5,500 daily, while Del Monte took the similarly-sized Doria for three months with further options at $5,800 a day.
Faster ships continued to fare better and extract premium rates. South Seas Steamship Co. fixed the Libra J - 14,150 dwt., 1,116 TEUs, 19 knots - for six months to operate between New Zealand and the U.S. West Coast at a steady $6,500 a day. Sea-Land Service Inc. extended the Jade Trader - 14,700 dwt. 1,122 TEUs, 19 knots - for six months in the Caribbean at $5,950 a day.
As we reported last month, sustained interest in 800-TEU vessels is keeping rates in this size range somewhat steadier. Hyundai Merchant Marine chartered the Cape Canaveral - 11,400 dwt., 834 TEUs, gearless - for a year at $5,800 daily.
Maersk paid $6,300 to extend the Soochow - 19,750 dwt., 841 TEUs, 17.5 knots - for three months in the Middle East. The John Wulff - 9,150 dwt., 754 TEUs, 16 knots, geared - was one of several ships chartered by Unicorn Lines of South Africa this past month. The John Wulff went for $5,200, well below the $7,250 it attracted at this time last year.
Smaller sizes continue to come under pressure, but not as significantly. The speed differential still comes into play, exemplified by the comparison of the Anna Lina - 6,800 dwt., 603 TEUs, 18 knots - fixed for three months at $5,600 daily, and the 15.5-knot Padma - 7,100 dwt., 600-TEUs - which went for a short period at $5,000 daily.
The drop in cargo volumes in both the Far East and more lately Latin American markets appears to be giving renewed life to this size vessel, although such life should be read more in terms of survival rather than prosperity. Rates are still some $1,000 to $1,500 below those of 12 months ago but the fact is that these vessels seem to be gaining employment and not having to sit idle for as long as their bigger counterparts.
We are afraid the big ships might have to sit around a while and watch the others dance. The night is long and the band is still playing!