Container ship charter rates are in free fall as ocean carriers cut back on hired tonnage amid plunging freight rates, rising overcapacity and sluggish cargo growth on key trade routes.

The market retreat has turned into a rout with the average daily rate for a gearless standard 4,250 20-foot equivalent container unit ship on a two-year charter falling to $14,750 from $16,046 at the end of last week, according to the Hamburg Shipbrokers Association.

This is just half the $28,603 a day this size of ship was earning at the end of March, following a four-month rally driven by carriers seeking extra capacity amid buoyant cargo demand ahead of the peak shipping season. Rates started to retreat in April as the outlook for carriers darkened and the selloff has accelerated following a weak peak shipping season, with Panamax vessels taking the biggest hit.

The average daily rate for a 3,500-TEU gearless ship has dropped to $11,900 from $13,500 in August and $19,000 in June, and is now below the 2010 average of $13,250, according to Clarksons. This is still almost twice the $6,575 average through the 2009 slump but is far adrift from the $29,958 earnings peak in 2007.

Rates are falling across all ship sizes, depressing the HSA’s ConTex index by 20 points in three days to 488 compared with 561 a month ago and 1,000 at its launch Oct. 2, 2007. The average rates mask deals done at much lower levels in recent days as owners accept short-term fixtures rather than lay up their ships.

Mediterranean Shipping, one of the biggest charterers, reportedly fixed three 5,000 TEUs for six months at around $8,500 a day, less than rates for 2,500-3,000 TEU vessels. Five months ago, 5,000 TEU ships were fetching over $30,000.

Rates are expected to drift further downward in the immediate future as carriers have largely fixed their capacity requirements for the fourth quarter, leaving over 20 5,000 TEU charter vessels looking for work. Most ships are still in employment despite deteriorating market conditions, however, with only 2.2 percent of the carrier-owned and charter fleet idled, according to Alphaliner, a container market analyst.

-- Contact Bruce Barnard at brucebarnard47@hotmail.com.