Box charters test new highs

Box charters test new highs

LONDON -- Containership charter rates are testing new record highs as liner shipping companies compete fiercely for a dwindling supply of vessels to transport surging cargo volumes on long haul, regional and feeder trade routes.

Liner operators are now facing difficulties in locating tonnage with which to operate long-planned new services, according to Clarkson, the leading London shipbroker.

"Throughout the global liner network carriers are modifying operations to reduce the number and/or the size of ships required, while in some trades services have even been terminated because more profitable uses have been found for ships deployed therein," Clarkson says.

The shortage of tonnage is driving charter rates to new highs with smaller vessels deployed on regional and feeder routes setting the pace. The daily rate for the benchmark 1,700-TEU geared ship has reached $22,500, compared with $20,500 in March and an average of $13,817 in 2003, according to Clarkson. Rates for larger vessels have stalled during the past three months as a shortage of tonnage reduces the number of fixtures, but they are well above year-earlier levels. A 3,500-TEU gearless Panamax ship is fetching $33,200 a day against an average of $25,667 in 2003 and $14,275 in 2002.

Rates in the broader market are marking time during the seasonal summer lull but brokers expect activity will soon revive as capacity continues to lag far behind the growth of global trade. London-based Drewry Shipping Consultants forecasts capacity of the world container fleet will increase 9.5 percent in 2004 while cargo demand will rise 12.3 percent.

Chartership owners are exploiting the shortage of tonnage by cajoling carriers to accept longer hire periods, with fixtures of between three and five years for larger vessels becoming the norm compared with 12- to 18-month deals that were common a year ago. Carriers also are signing charters for ships that won't be delivered until 2006 or 2007 to complement vessels ordered on their own account.

Liner freight rates also are rising, especially on Europe-Asia and trans-Pacific routes, enabling carriers to absorb higher charter costs. Drewry says liner operators boosted gross revenues by 28 percent to $32 billion in the first quarter, driven by an average 15 percent rise in freight rates.

While brokers agree the rally will continue for the rest of the year, they are divided about whether the market will peak in 2005 or 2006, due to uncertainty over the growth of world trade in the next two years and the impact of China's efforts to temper its economic boom.