The largest ships capable of transiting the Panama Canal are poised to achieve something container shipping hasn’t seen in years: balanced vessel supply and demand.
Rising trade volume, a lull in shipbuilding and size limitations imposed by the canal’s existing locks will bring supply and demand of Panamax container ships — those with up to about 5,500 TEUs of capacity — into equilibrium within two years, according to a report by Germany’s DVB Bank’s shipping research division.
Tight supply will strengthen the already strong hand of shipowners with Panamax vessels to charter. Rates for 4,250-TEU Panamax ships have nearly doubled in four months.
Shippers may not see much difference. All-water rates from Asia to the East Coast have doubled in the last year, said Philip Damas, division director at Drewry Supply Chain Consultants in London. He expects further increases to be constrained by competition from other routes using larger vessels.
When all-water rates from Asia to the East Coast exceed port-to-port rates from Asia to the West Coast by more than about $1,200 per 40-foot container, “shippers will switch the route for their U.S. Northeast discretionary cargoes from one coast to the other,” Damas said. Additional competition comes from Suez Canal routes already seeing increased U.S.-bound traffic.
Panamax charter rates are catching up fast with rising freight rates. London ship broker Clarksons said daily charter rates for a 3,500-TEU Panamax without shipboard cranes were $16,500 for the week ending July 9. That was up from $9,500 in April and an average of $6,757 last year. Rates for these ships peaked at $29,958 a day in 2007.
DVB Bank said time-charter rates and asset values “will still be largely determined by the overall market conditions,” but the largest Panamax ships — vessels with capacities of 4,000 to 5,500 TEUs — will enjoy stronger demand than other vessel sizes.
Since APL’s 1986 introduction of the first container ships too wide for the canal’s existing 110-foot-wide locks, post-Panamax ships have become dominant on high-volume routes linking Asia with Europe and the west coast of North America.
These super-sized vessels have bumped many Panamax vessels to north-south and secondary east-west routes. Of the 908 Panamax ships with capacities of at least 3,000 TEUs, about half are deployed on these routes. They account for 42 percent of the routes’ capacity.
The number of 4,000-TEU-plus container ships in north-south and secondary east-west trade lanes rose from 128 with 573,000 TEUs of capacity in November 2008 to 242 ships with 1.1 million TEUs in March 2010, DVB said.
Most Panamax ships still operating on primary east-west routes are in protected niches — at least until Panama’s larger locks open the canal to vessels of 12,500-TEU capacity or more.
Of the 216 Panamax ships on trans-Pacific routes, some 160 are used on all-water services from Asia to the East Coast via Panama. The canal’s lock sizes protect these vessels from being displaced by larger ships, the DVB report said.
Panamax ships supply three-fourths of the capacity on the trans-Atlantic but are unlikely to be replaced soon by larger vessels, the report said. Trans-Atlantic volumes are insufficient for larger ships, and most of them couldn’t fit under the Bayonne Bridge at the Port of New York and New Jersey.
The Panamax fleet grew only 7.5 percent last year, when 91 Panamax ships totaling 390,000 TEUs entered service and 31 ships, all but six with capacities under 4,000 TEUs, were scrapped. Scheduled deliveries last year of another 59 ships totaling 237,000 TEUs were delayed, and 11 orders were canceled. The current Panamax order book totals 125 ships, with 520,000 TEUs representing 14 percent of current fleet capacity. Of those vessels, 73 are in the 4,000- to 4,500-TEU range.
Contact Joseph Bonney at email@example.com.