An improving demand outlook has helped the charter market but the torrent of ultra large tonnage will keep a cap on freight rates, writes Daniel Richards from Maritime Strategies International
After several months of dislocation, activity in the container market has begun to move more closer in line with fundamentals. In its latest monthly Container Forecaster, Maritime Strategies International points to a stronger demand outlook and a busy peak season.
Robust macroeconomic fundamentals have seen headhaul mainlane volumes increase 5-7% in the year to date with early signs indicating that the major trade lanes will maintain this pace of growth over the coming months.
North-South growth rates are also strong when compared to poor 2016 volumes, which has allowed the lines to increase service offerings and re-deploy cascaded and idle tonnage onto these routes. Volumes to and within the Far East have slowed somewhat compared to 2016 and the start of this year, as the effects of China’s stimulus programme begin to fade.
While July’s charter market remained weak for vessels smaller than 8,000 t0 9,000 teu, activity in August has seen a recovery in mid-size rates and a more ‘normal’ relationship between vessel benchmarks.
We have argued over recent forecasts that strong peak season volumes would lead liners to charter in extra tonnage, and this seems to be playing out. Below the headline-grabbing mid-size segment, most feeder benchmarks have ticked upward in recent data, and we expect fundamentals will support a gradual strengthening of the market moving forward.
However, on the supply-side there remains a gulf between delivery and deletion volumes that is very unlikely to close for the foreseeable future. Monthly deliveries are currently running at above 100,000 teu per month (125,000 teu in July) and given that at least one 19,000 to 21,000 teu newbuilding will hit the water every two to three weeks, this pace of expansion is set to continue.
The key dynamic will be how the resultant mainlane capacity injections – and their interaction with trade volumes – affect the cascade. In MSI’s view a slowdown in trade volumes (for example, even to around 2% year-on-year) would place significant pressure on vessels smaller than 12,000 teu.
The pace of the current rebound is faster than we expected, but in our view short-term volatility in the 3,900 to 12,000 teu fleet segment is going to be an increasing fixture of the market as these vessels become ‘swing’ providers of tonnage. We expect some further gains for mid-size vessels over peak season, before a falling off after October.