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Tuesday, December 02, 2008

New lows for charter rates

Tuesday, 02 December 2008

Container ship charter rates have fallen to new lows as demand by carriers for tonnage evaporates amid stagnant or declining cargo volumes on key routes. Charter rates, which have retreated by as much as 35 percent for some ship sizes in the past three months, likely will fall even further in the coming weeks with ocean carriers set to return an increasing number of vessels to their owners as they come off hire.
The market’s decline to levels not seen since the depths of the 2002 slump has prompted reports that prominent charter owners are seeking to cancel or defer deliveries of container ships ordered speculatively without charters.                   
The daily charter rate for a 2,500-TEU vessel is just over $10,000 compared with $12,868 a month ago and around $25,000 in May, according to the Hamburg Shipowners Association. The group's Contex index, which tracks earnings of ships of 1,100-, 1,700- and 2,500 TEUs, has plunged from 974 at the beginning of May to 416 for the week ending Nov. 28.
Rates for bigger ships are also retreating, with a 3,500-TEU gearless Panamax earning $17,500 a day, down from $26,000 in August and a 2007 average of $29,958, according to Clarkson, the London shipbroker.?
Around 70 chartered container ships have already been laid up and more will be idled in the coming weeks as carriers eliminate or reduce services, according to AXS Alphaliner, the Paris-based consultant. Successive rounds of service cuts have reduced capacity on the Asia-Europe route by nearly 25 percent since early summer.
In all, 115 vessels with a combined capacity of 270,000 TEUs, or 2.2 percent of the world fleet, are idle, up from 150,000 TEUs a month ago, AXS Alphaliner estimates.
With further services being shuttered in December the figure will “continue to rise progressively” in the coming weeks as ships will be put at anchor or in semi lay-up as they terminate their rotations, AXS said. The volume of idled vessel might rise to 400,000 TEUs by the end of January, or 3.2 percent of the world fleet, the same share as in depth of the 2002 slump.
The few vessels finding employment are being chartered at rates that barely cover operating costs as carriers take advantage of a buyers’ market. Many of the charters are for very short periods, between a month and six months, compared with 24- and 36-month deals common at the beginning of the year.
Market sentiment is being impacted by talk of owners trying to scrap orders for vessels that were ordered during the boom two or three years ago. Leading Hamburg owner Rickmers reportedly sought to cancel a contract for four 8,500-TEU vessels due for delivery in 2010, and some 7,000-TEU ships.
But brokers caution there is no firm evidence owners are pulling out of deals. "Whilst there is a lot of chatter about widespread cancellations, very little has actually been confirmed so far,” Clarkson cautioned.
Owners are now waiting to see how many vessels will be returned by carriers are they come off charter through 2009. CMA CGM has said it can align capacity with demand by letting go some of the 130 vessels whose charters expire next year. Zim, the Israeli carrier, also plans to return vessels as they come off hire as part of a downsizing program.
As adapted from Journal of Commerce