But charter rates surge as availability of open tonnage shinks, analysis reveals.
Box shipping lines are adding to downward pressures on spot prices by continuing to introduce more capacity onto the market while charter rates are moving in the opposite direction as the availability of open tonnage shrinks, according to the latest market analysis.
The World Container Index (WCI) assessed by Drewry showed that that spot rates on most routes from Asia declined this week. The composite index is now 18.2% lower than a year ago, and Shanghai-Rotterdam spot freight rates are down 23% year-on-year.
Despite bearish spot rates, however, lines continue to add capacity. The idle containership fleet of vessels over 500 TEU in size fell to 96 units totalling 427,865 TEU of capacity on April 2, with demand for tonnage surging ahead of the peak container shipping season this summer.
“The idle fleet now stands at 2.0% of the total cellular fleet, compared to 2.9% just a fortnight earlier,” said a report from Alphaliner. “With most services returning to full sailings after the Lunar New Year holidays in late February, together with a slate of new service launches beginning in late March and early April, the idle fleet has fallen accordingly.”
The analyst predicted demand would remain strong until June and said additional tonnage was required to fill up all the sailing slots on new services that had been launched or were slated for launch.
But it said carriers were already starting to feel the pressure from higher charter rates as the availability of open tonnage shrank, while the collective failure to hold back from capacity additions did not bode well for freight rates.
“Alphaliner’s charter rate index has risen to a three-year high and is currently 40% higher compared to a year ago and 82% higher than the low recorded in December 2016,” said the report.
“The carriers’ failure to curb the over-enthusiastic introduction of fresh tonnage could back-fire. While charter rates are moving up, freight rates are moving in the opposite direction as both the SCFI and CCFI have fallen by 26% and 11% respectively from their peaks this year and are currently 19% and 4% lower than the same period last year.”
Alphaliner said the weak freight market had already prompted several carriers to announce void sailings in the coming weeks. “The OCEAN Alliance, for example, will blank two Asia-Med sailings in May but the impact on vessel demand is expected to be limited as the number of void sailings planned currently are still relatively few,” it said.
Although the market outlook remains good in the short term on the back of sustained cargo volumes, longer term prospects appear more uncertain, according to the analyst.
“On the orderbook front, the number of large newbuilding container vessels due for delivery this year remains sizeable with over 50 ships of 10,000 TEU due to hit the water, of which eight units of 20,000 TEU,” the report noted.
“This influx of capacity is stoking fears of renewed overcapacity, despite bullish cargo volume expectations for 2018. On the cargo front, rates have been on an alarming descending curve recently, having lost close to 30% of their value since early February on several major East-West and North-South routes.
“This obviously is not good news for the charter market where demand for tonnage, especially for the larger units, will inevitably be impacted at some point by both the cargo rate meltdown and the pressure exercised by the newbuilding deliveries.”