Cautiously positive forward prospects for freight rates, vessel earnings and trade growth are small comfort to a market in distress
London, February 23, 2016. The latest Container Shipping Forecaster from Maritime Strategies International reports ‘flickers of improvement’ in February after an opening to the year which saw 1.3m teu of capacity idle, freight rates struggling and the charter market on its knees.
Having suffered a torrid end to 2015, liner companies finally managed to produce some upwards movement in freight rates, albeit as a result of the slower erosion of the massive General Rate Increase imposed on January 1.
As of mid-February freight rates on the China-North Europe route were assessed at $431/TEU by the Shanghai Shipping Exchange, a level suggesting little positive momentum. However, since the period immediately after Lunar New Year is normally challenging for the freight markets, MSI cautions that how the freight markets develop over the first weeks of March will provide a better indicator as to the likely tone of 2016.
In the vessel charter market, post-Panamax vessels felt the full force of vessel oversupply, with this vessel type still accounting for over half the capacity currently idle. As a result, rates for 6,600 teu vessels are being assessed below geared vessels almost a quarter of their size.
Improvements will depend on the extent to which forecasts of improving trade growth come to pass, according to MSI Senior Analyst James Frew.
“There is no doubt this remains one of the most challenging markets in living memory. The majority of indicators in January pointed to exceptionally weak container shipping capacity demand, while the build-up of idle tonnage took its toll on charter earnings. The erosion of idle capacity and thus an improvement in freight rate earnings is heavily reliant on resurgent trade growth.”
December trade data has already provided some relief, with the Asia-Europe trade finally showing some positive growth after 10 months of year-on-year declines. MSI’s expectations for Asian exports – with the exception of the Transpacific – sit on the more optimistic side of consensus for most trades.
The speed with which the burden of idle capacity is eroded will prove a key variable in assessing the trajectory of vessel earnings but MSI remains relatively bullish on the outlook for charter rates, providing trade growth improves as expected. MSI anticipates that by April smaller Post-Panamax vessel earnings will be close to $9,000/day before breaking the $10,000/day barrier during the summer before falling back by year end.
About Maritime Strategies International
Since its inception in 1986, Maritime Strategies International (MSI) has established itself as one of the shipping industry’s foremost independent research and consultancy firms. Our success is built on a strong focus on maritime economics and econometric modelling. We provide a comprehensive range of advisory services, including forward valuations market forecasts, reports and commercial consultancy services for all shipping sectors. MSI asset price forecasts are used by ship finance providers holding 40% of all shipping bank debt and we provide analytical and methodological support to give the context and credence to our results. www.msiltd.com
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