Ship jams in import ports puts pressure on compliance with itineraries
In recent months, the steep upward trajectory of spot freight rates on the Trans-Pacific trade has come to a halt, partly due to Chinese government intervention. However, as demand has remained strong and shipping lines continue to have the upper hand, gradually increasing surcharges have been added to the base rates. This has prevented freight rates from rising further, but has left shippers with higher costs. As of mid-February, the surcharges to guarantee space and equipment on the main routes are between 1,500 and 2,500 dollars per TEU, reports BIMCO.
But the surge in demand for vessels has not only manifested itself in the spot market, but also in charter rates, which have experienced a steep V-shaped recovery since June 2020, with rates for all vessels considerably higher. to their pre-pandemic levels. Charter rates for contracts of 6 to 12 months currently stand at US$13,700/day for a 1,700 TEU feeder vessel; US$23,000/day for a 3,500 TEU vessel and US$42,000/day for an 8,500 TEU vessel. Even at these rates, shipping lines are “desperate” to snatch up any extra tonnage they can, in many cases to ensure they can meet their announced schedule, as delays at import ports mean many vessels cannot can arrive on time for their next scheduled departure.
The high demand and profit potential of the ships means that demolitions have also reduced considerably in 2020. If the breaking yards had been open and able to operate normally at the height of the crisis, in the second quarter, when the demand for container ships reached its lowest point, the demolition would have gone up without a doubt. However, this was not possible and shipowners had to wait until June before they could dispose of considerable tonnage. What followed were two months of increased recycling, in which 103,436 TEUs left the market, more than half of what was demolished in the entire year.
However, by the end of July, scrapping came to a near halt again, as demand for container ships increased and many shipowners found that even their oldest and least efficient vessels were highly profitable. In the last quarter of 2020, only 7,448 TEUs were withdrawn from the market, all of them from feeder vessels, 70.9% less than in the same period of 2019.
At the same time, as scrapping slowed, construction orders picked up, with 65 new ships being ordered for a total of 751,057 TEUs. In all of 2020, the container shipping fleet grew by 2.9% in 2020, as 857,616 TEUs were added to the market, versus 188,800 TEUs demolished.
“The high profits that shipping lines have made in recent months are not a reflection of improving container shipping market fundamentals, but rather a result of how 2020 has played out. In the long term, this rigidity The artificial market will subside and container shipping will once again have to deal with pre-pandemic overcapacity in the market, exacerbated by new orders placed in recent months,” says Peter Sand, BIMCO Chief Shipping Analyst.
A long term warning
As shipping lines release their full-year results, announcing profits of a magnitude not seen for many years, all eyes are turning to how this year will turn out, and in this regard, it appears that there is more good news in the offing. horizon.
First, and most importantly, there are the long-term contracts for this year, which have either been set in the last few months or are still being negotiated. For all but the largest shippers, for which shipping lines have in many cases renewed last year’s rates, recognizing that these are customers too big to lose.
The current tight supply gives shipping lines an advantage when negotiating these new contracts, and while many shippers have initially been reluctant to sign new contracts, they will inevitably do so in the coming months. This will be done at high rates to the benefit of shipping lines, even if the spot market falls from its current highs.
The same is true of tonnage suppliers, who are insuring their vessels on 6- to 12-month charters at current high rates.
As for the current equipment shortages and disruptions, BIMCO believes it will take at least until mid-year to resolve as there is still a large backlog to clear and equipment to reposition.