NEW YORK — Despite a “bad” 2012, ocean container lines managed to get freight rates up enough to generate positive cash flows that are bringing them close to break-even. But even when they do start earning a profit again, they are unlikely to order many new ships. That was the consensus of a panel of container ship owners and shipping lines at the March 21 Capital Link Shipping Forum in New York.
“We generally sleep well,” said Aristides Pittas, CEO of Euroseas, a Greek shipowning company that charters out its nine container ships. “The picture has changed because carriers have cut costs and are managing capacity,” he said.
Pittas said global container growth will remain flat in 2013 but that charter prices will improve in the second half of 2014, when he expects a decided pickup in demand.
This outlook was echoed by Evangelos Chatzis, chief financial officer of Danaos, another Greek charterer with a fleet of 59 container ships. “The conditions will be there in the second half of next year to absorb that capacity,” he said. “We are cautiously optimistic that in 2014 we will get better (charter) prices.”
The growth of global vessel capacity means liner companies are still under a lot of pressure, said Hermann Klein, CEO of E.R. Schiffahrt, a German shipowner with 109 container ships on charter. “The liner companies are trying to manage supply down by slow-steaming, idling ships and by returning ships to their owners,” he said.
The large carriers are also managing capacity by combining more services in alliances such as the G6 Alliance between the Grand Alliance and New World Alliance. This has enabled them to preserve their market shares, while smaller carriers are losing market share, Klein said.
The opening of the Panama Canal’s large new locks in 2015 will generate more demand for new post-Panamax vessels, said Michael Kasti, director of treasury and finance for Hapag-Lloyd. “We will move up to larger ships and a total new structure of service networks of ships with 6,000 20-foot-equivalent units and up. We are already arranging charters,” he said.
Although the price of new more fuel-efficient container ships has fallen to a point that is very attractive to shipowners, Klein said they are not placing new orders because many are retrofitting existing ships with fuel-saving modification that make them more efficient. “The market is not ready to absorb more ships,” he said.
The price of secondhand ships has fallen to about 40 percent of historical prices, but perhaps surprisingly, there are not a lot of secondhand ships on the market, Pittas said. “People don’t want to sell ships because they know the prices are too low,” he said. Many of the secondhand ships that were built and chartered out by German KG companies have been repossessed by the banks that financed them, but “the banks are not flooding the market,” he said. In addition, European banks are not extending loans for the purchase of secondhand ships.
European banks, which were badly burned by defaults of ship loans to KG companies during the Great Recession, are also not financing many new ship orders unless those ships have commitments from liner companies to take them on long-term charters, Pittas said. Instead new-ship financing is being provided by Chinese and Korean export banks.
In addition to the scarcity of bank loans for new ships, the lack of equity finance is also curtailing ship orders. “The KG system is down to nothing, so there is no equity available there, and you need 40 percent equity financing,” Klein said. “So I don’t think we will see many newbuild orders.”