Sam Chambers

With multiple capacity levers deemed insufficient to halt the severe decline in container freight rates, the spectre of ship lay-ups has been raised.

Rates remain elevated in historical terms, but the plunges recorded over the past few months have spooked some in the industry with many smaller operators taking the decision to exit the main east-west trades.

Contract rates remain resilient for the time being. The latest data from the Xeneta Shipping Index reveals global contracted rates fell by only 0.6% this month, following on from September’s 1.1% decline. This disparity in pricing between spot and contract is seeing many shippers play the markets. 

“What we may well see is shippers looking to transfer volumes to the spot market, spooking carriers desperate to tie-in business. The result? Carriers could be forced to lower those coveted contracted rates,” said Xeneta CEO Patrik Berglund today.

According to Sea-Intelligence, spot rates on the transpacific to the west coast of the US are still up 54% compared to the same period of time in pre-pandemic 2019, while prices from Asia to North Europe are up by 146% compared to the same period three years ago.

Nevertheless, Sea-Intelligence, along with many other liner experts, is forecasting a hard landing for container shipping with rates continuing to slide in the coming weeks, potentially going below 2019 levels, before a rebound kicks in.

“If the market continues to deteriorate rapidly in the coming week – and especially if this is driven by a sharp global recession – then the raft of blank sailings we should expect in the coming weeks and months, could in 2023-Q1 turn into carriers not only idling vessels, but temporarily placing them in lay-up, as we also saw in 2009,” Sea-Intelligence suggested in its latest weekly report, published yesterday.

Other analysts have been highlighting how blanked sailings and service suspensions have not been enough to halt freight rate declines, while scrapping, another traditional lever in the liner defensive armoury, may not help out as much as some liner executives are hoping.

HSBC urged carriers last week to blank and suspend more services to stabilise spot freight rates ahead of the upcoming contract negotiations for the Asia-Europe route.

“The blanked sailings have been ineffective in preventing freight rates from sliding on all main trades, with the Middle East the only notable exception,” noted researchers at Linerlytica in their latest weekly reporter.

On the demolition side, Alphaliner data shows there is a total of 655,149 teu of scrappable tonnage of 25 years of age and older, but a much bigger overall 2.5m teu of potential recycling candidates totalling 1,102 vessels which are 20 years of age and older.

“Although the removal of 2.5m teu of capacity aged 20 years and over would be instrumental in helping mitigate the impact of the 5.1m teu newbuild capacity to be delivered within the next two years, this is just not going to happen overnight,” Alphaliner warned in its latest weekly report, highlighting the record orderbook due to deliver soon.

In the event that carriers do decide to lay up ships, Sea-Intelligence has warned shippers to watch out for a rates surge once the markets rebound as carriers would be unable to reactivivate vessels fast enough. The subsequent lag time would cause capacity shortages and a rate surge, similar to 2010, in the rebound after the financial crisis.

“Shippers should therefore pay heed to the carriers’ actions in the coming months. If we begin to see carriers placing vessels in lay-up, then the scene is already set for a rate surge on the backside of the recession,” Sea-Intelligence advised.

September 23, 2022

Jenny Daniel
Global Correspondent – Container News

While container freight rates across trades out of India have cooled over the past few months, new data obtained by Container News from local forwarder sources now point to a more precipitous slide in intra-Asia connections.

Rate levels from India to Central/North China, Singapore and Hong Kong have slid between 30% and 50% this month from the levels reported at the end of August.

Average contract rates offered by major carriers to regular clients for bookings from West India (Nhava Sheva/JNPT or Mundra) to Shanghai/Tianjin, for example, now stand at US$350 per 20-foot container and at US$450 per 40-foot box, down from US$505 and US$810, respectively, a month earlier.

Pricing on the West India-Singapore route has also seen a similar trend, with contract rates plunging to US$250/20-foot container and US$400/40-foot box, from US$500 and US$800 as of end-August.

For Indian shipments to Hong Kong, average rates are hovering at US$300/20-foot container, versus US$ 505, and US$400/40-foot container, compared with US$810, the analysis shows.

Contract rate levels on the return leg have also fallen significantly month on month, with the slide averaging between 40% and 50%.

Industry sources attributed the sharp rate corrections to weakening demand and noted that carrier pricing power could further erode in the coming weeks.

The intra-Asia market saw a strong rebound after Covid lockdowns/restrictions in China, particularly Shanghai, had ended.

“The contraction in global trade is also visible from the sharp decline in the freight rates, which have reduced by about 50% on major trade routes,” said the Federation of Indian Export Organisations (FIEO) in a statement. “With inflation plaguing all economies, inventories are very high globally in all economies as the purchasing power has dwindled which has affected the offtake and thus the demand is slowing.”

FIEO went on to add, “The demand for liquidity has gone up as buyers are delaying the payments and asking exporters to withhold further shipments or release small quantities of such shipments.”

Forwarders have also voiced similar concerns over slowing export demand.

“The country saw a fall in the various export sectors, including chemicals and engineering,” Sanjay Bhatia, co-founder and CEO of Mumbai-based Freightwalla, told Container News.

He went on to explain, “This has impacted the container movement to and from India as the demand for the same is declining. Container volumes at the top ports across India and global ports are dropping.”

Bhatia also noted, “As we understand, there was a 4% decline in the volume witnessed at ports. We see that demand was not as high as expected in the first quarter regarding growth, and the same was seen for the most part in the second quarter.”

September 30, 2022

Container freight rates on trades out of India continue to taper off amid falling demand, according to a new market analysis by Container News.

On the westbound India-Europe trade, contract prices from West India [Jawaharlal Nehru Port (JNPT)/Nhava Sheva or Mundra Port] to Felixstowe/London Gateway (UK) or Rotterdam (the Netherlands) have slipped to US$4,400/20-foot container and US$4,800/40-foot container, down from US$4,650 and US$5,200, respectively, last month.

For West India-Genoa (the West Mediterranean) cargo, carriers are accepting bookings at US$4,900/20-foot box and US$5,100/40-foot box, compared with the August levels of US$5,000 and US$5,300.

Eastbound cargo rates have declined by double-digit percentages – now hovering at US$1,525/20-foot container and US$1,700/40-foot container, versus US$1,725 and US$1,900 for shipments from Felixstowe/Rotterdam or Rotterdam to West India (Nhava Sheva/Mundra).

Short-term contract prices offered by major carriers for Indian cargo to the US East/West coasts have further moderated from the August levels – averaging at US$7,137 per 20-foot box, from US$7,937, and US$9,015 per 40-foot box, from US$10,015, for bookings to USEC (New York), and at US$7,032/20-foot container, from US$8,357, and US$8,913/40-foot box, from US$10,569, for loads to USWC (Los Angeles).

For the West India-US Gulf Coast trade, rates have decreased to US$9,257 per 20-foot and US$11,615 per 40-foot container, versus US$10,527 and US$12,925, respectively, in August.

On the return leg, average rate levels have remained steady with the rates maintained by major operators last month – at US$1,075/20-foot box and US$1,434/40-foot box from USEC; at US$2,484/20-foot box and US$3,193/40-foot box from USWC; and at US$1,770/20-foot and US$1,843/40-foot box from the Gulf Coast, into West India (Nhava Sheva/Mundra).

Intra-Asia trades out of India have seen the sharpest month-on-month slide, after hitting new highs following the end of Covid lockdowns in and around Shanghai.

Contract prices from India to Central/North China, Singapore and Hong Kong have dropped between 25% and 50% this month from the levels reported at the end of August.

Average contract rates offered by major carriers to regular clients for bookings from West India (Nhava Sheva/JNPT or Mundra) to Shanghai/Tianjin are now at US$350 per 20-foot container and at US$450 per 40-foot box, down from US$505 and US$810, respectively, during August.

Rates on the West India-Singapore movement have also seen a similar trend, with contract rates slipping to US$250/20-foot container and US$400/40-foot box, from US$500 and US$800 last month.

For Indian shipments to Hong Kong, average rates are hovering at US$300/20-foot container, versus US$505, and US$400/40-foot container, compared with US$810, the analysis shows.

Contract rate levels on the return leg have also fallen significantly month on month, with the slide averaging between 40% and 50%.

Local freight forwarder sources attributed the steep pricing corrections to weakening demand and noted that rate levels could come under further pressure in the coming weeks.

“The contraction in global trade is also visible from the sharp decline in the freight rates, which have reduced by about 50% on major trade routes,” said the Federation of Indian Export Organisations (FIEO) in a statement. “With inflation plaguing all economies, inventories are very high globally in all economies as the purchasing power has dwindled which has affected the offtake and thus the demand is slowing.”

FIEO added, “The demand for liquidity has gone up as buyers are delaying the payments and asking exporters to withhold further shipments or release small quantities of such shipments.”

The premier association also noted that inflationary pressures are clearly sapping consumer demand across major sourcing markets. “With inflation plaguing all economies, inventories are very high globally in all economies as the purchasing power has dwindled, which has affected the offtake and thus the demand is slowing. However, the demand for low value [Indian] products is increasing by leaps and bounds,” it said.

FIEO explained, “Therefore, while we expect volumes to remain intact, the value may take a hit.”

Forwarders have also expressed concerns about slowing export order flows. “The country saw a fall in the various export sectors, including chemicals and engineering,” Sanjay Bhatia, co-founder and CEO of Mumbai-based Freightwalla, told CN.

He went on to explain, “This has impacted the container movement to and from India as the demand for the same is declining. Container volumes at the top ports across India and global ports are dropping.”

Bhatia also noted, “As we understand, there was a 4% decline in the volume witnessed at ports. We see that demand was not as high as expected in the first quarter regarding growth, and the same was seen for the most part in the second quarter.”

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Jenny Daniel
Global Correspondent – Container News

Martina Li
Asia Correspondent – Container News

Vasi Star, a 1,728 TEU feeder container ship owned by Singaporean operator Vasi Shipping, collided with a barge on the morning of 11 October.

Vasi Star, which was deployed to a Thailand-Malaysia-Bangladesh-India service, was on its way to Bangkok port from Kattupalli, India, when it collided with a tug and barges along the Chao Phraya River, at around 7.10 am local time.

The tug, Wimonwan 8, was towing four barges loaded with steel cargoes from Kohsichang to Bangkok. One of the barges, Maha Nakhon 2, sank, but no one was hurt. Thai media reported that visibility in the area was limited at the time of the accident.

Vasi Star continued navigating and arrived at Bangkok’s Sahathai Terminal at 10.30 am the same day.

Vasi was established in 2012 and its container shipping services focus in the area between Thailand and Bangladesh, using Vasi Star, its sole owned ship, and two chartered vessels.

Container News requested Vasi for comment but there was no reply.

However, vessel-tracking data shows that Vasi Star’s status has been updated to “In Casualty or Repairing” as of 11 October

Jenny Daniel
Global Correspondent – Container News

Indian exporters – now relieved to see some moderation in sky-high freight rate levels amid slowing volumes – have a new cost burden to deal with: a government tax levy.

The setback follows the end of previously-granted federal exemptions from the applicability of Goods and Service Tax (GST) on export freight.

GST, a unified national tax system, was introduced in 2017, intended to make a one-market environment.

As a result, from 1 October, exporters must meet a tax slab of 5% on ocean freight and 18% on air freight charges.

“GST on export freight rates will put further pressure on the already-tight liquidity position of the exporting community,” a Mumbai-based shipper told Container News.

“In the current situation, the focus should be on providing liquidity at a competitive cost to the export sector,” said A. Sakthivel, president of the Federation of Indian Export Organisations (FIEO), in a statement.

Sakthivel added, “The government should look into the request of the export sector for continuing with IGST [Integrated Goods and Services Tax) exemption on freight for exports, which lapsed on 30 September, particularly as the freight rates are still at much elevated levels and GST on such freight will affect the liquidity of the exporters, though refundable later.”

Major shipping lines operating to/from India have already issued customer advisories that they would apply GST on international outbound freight charges from 1 October.

“Subsequent to expiry of the validity of the said notification and with no further extension, every export transaction would be taxable under GST,” Maersk Line said in a trade notice.

Reflecting weakening demand trends, Indian merchandise exports in September slipped 3.5% year-over-year, according to the latest government data.

“The slowdown in exports is a reflection of the toughening conditions of the global trade facing demand slowdown on account of high inventories, rising inflation, economies entering recession, high volatility in currencies and geopolitical tensions,” FIEO added.

Sanjay Bhatia, CEO and co-founder of digital forwarder Freightwalla, has also noted that Indian export growth is facing challenges.

“Global trade is on the verge of noticing a slowdown,” Bhatia said. “The US and Europe caught a rise in inflation that has hit the consumption, leading to lower offtake of goods. Plummeting freight demands hint towards low export, implicating a decrease in the long-term contract rates.”

He went on to explain, “We noticed demand was not as high as expected in the first quarter regarding growth, and the same was seen for the most part in the second quarter.”

 Sam Chambers October 11, 2022

With Yangzijiang Shipbuilding recently confirming Mediterranean Shipping Co (MSC) has ordered a dozen LNG dual-fuelled 16,000 teu ships, the orderbook at the world’s largest carrier now stands just shy of 2m teu, a figure so large that analysts are struggling to find the right scale of charts to highlight this extraordinary expansion.

MSC has taken its orderbook to a record of 1.96m teu, equivalent to 43% of its current fleet, according to Linerlytica.

Putting MSC’s giant orderbook in perspective, it is larger than the entire extant fleet of Germany’s largest liner, Hapag-Lloyd, which is the world’s fifth biggest containerline. Adding perspective, MSC’s orderbook is larger than the combined orderbooks of Maersk, CMA CGM and COSCO, the world’s second, third and fourth largest liners, respectively. By Splash estimates, MSC’s orderbook now stands at above 25% of all boxships on order in terms of teu slots. So large and extreme is the Geneva-based carrier’s order tally that it no longer fits in the standard lay-out on Alphaliner’s popular top 100 rankings site.

Alphaliner officially recorded MSC surpassing Maersk at the top of the liner rankings at the start of the year. While Maersk has continually stated it does not intend to have a fleet larger than 4.3m teu, MSC has very quickly widened its lead over its Danish alliance partner, the gap today between gold and silver on the Alphaliner podium standing at some 225,000 slots.

With record deliveries coming in 2023 and 2024 for MSC and the global liner industry, speculation is growing that many orders will be deferred. Today’s global orderbook, for which MSC accounts for approximately 27%, stands at around 7.2m teu, significantly higher than the previous 6.6m teu record set in 2008.

The number of secondhand container vessels bought by MSC has also made plenty of headlines in the 26 months since the carrier embarked on an unprecedented ship buying spree in August 2020. In the space of just over two years, the carrier has bought around 240 secondhand ships according to Alphaliner, the latest being the 8,814 teu Northern Jasper, one of three secondhand ships MSC was listed buying last week in multiple broking reports.

“Seeing a large liner company transact does help reinforce some confidence that perhaps we are closer to the S&P market finding its feet, but there remains a significant adjustment on prices still to come if the charter market does not soon find some stability,” brokers Braemar noted on MSC’s latest secondhand buying spree.

While historically MSC, whose roots date back to 1970, has had a strong focus on chartering in ships, this has changed during liner shipping’s record earnings period of the last couple of years. Since the start of 2020, MSC’s share of owned ships increased to 69% from 51%, according to Linerlytica.

MSC’s actions as the market turns will help dictate market conditions. Not only will other carriers be hoping it defers delivery of many of its newbuilds in the coming couple of years, a massive clear-out of older tonnage for recycling is on the cards for MSC in 2023 and 2024, with many analysts expecting liner scrapping to hit historic high levels soon.

Martina Li – Container News

China United Lines (CULines) and Antong Holdings, parent of Quanzhou Ansheng Shipping, have signed a pact to jointly invest in shipping and logistics.

The agreement includes the joint deployment of four 1,900 TEU ships that CULines ordered at CSSC Huangpu Wenchong Shipbuilding in February 2021 and are being gradually delivered currently.

The pact, signed on 22 September, extends a relationship which already saw CULines charter a dozen  4,100 – 4,700 TEU ships from Antong for the East-West trades in 2021. CULines is also understood to have taken two smaller ships of 600 TEU from Antong for the intra-Asia trade.

CULines said that given Antong’s higher proportion of owned tonnage, the arrangement has allowed it to reduce its has enabled it to reduce the ratio of its chartered fleet to 20%, at a time of high charter costs.

The strategy also helped CULines to move up the liner operator ranks from 95^th place in 2020 to 20^th spot today, without substantial newbuilding orders.

CULines expanded into the transpacific and Asia-Europe in 2021, while last November, it appointed Lars Christiansen, former director of Hapag-Lloyd, as co-CEO alongside Raymond Chen.

 Sam Chambers October 10, 2022

Assessing where the rates floor is in the consolidated container shipping market is keeping experts busy as multiple indices continue to report steep declines.

UK consultants Drewry last week lowered its demand outlook for 2022 to 1.5%, and to 1.9% for 2023 on the back of heavily downgraded GDP predictions.

“Carriers will have accepted that prices and profits were unsustainable,” Drewry suggested, going on to state that carriers would start cutting back when rates sink close to a level that would be acceptable in the long run. “Recent news of more East-West service suspensions, including a 2M Transpacific loop, indicates that time is now,” Drewry stated, predicting that the next course of defensive action would be to offload older, gas-guzzling ships with 2023 likely to see near-record volumes of boxship demolitions, while a number of the huge swathe of newbuilds ordered will be deferred.

What level of profitability will the carriers balk at lowering their sales revenues?

Despite these measures, Drewry reckons they will be insufficient to fully bridge the supply-demand gap next year, with an estimated net increase in effective capacity of 11.3%, way above the projected demand growth of 1.9%. Adding in missed sailings will get them closer and should be enough to keep freight rates and profits above 2019 levels, Drewry is forecasting.

“The question should not be what is the new normal for the rates, but at what level of profitability will the carriers balk at lowering their sales revenues?” argued Kris Kosmala in conversation with Splash today.

Kosmala, a regular Splash columnist, said that carriers have got better at aligning capacity with demand at a more granular level than they were able to do in the past, a dividend of their investments in better analytics technology.

“Historically, during the ‘steady as she goes’ periods, the average profitability for the industry was about 10%,” Kosmala observed, going on to forecast: “Let’s assume this is the comfort level the shipping carriers are willing to live with. That’s a very long descent path from the 70+% results seen today, but that means the rates will be allowed to drop for some time yet. When you see the industry start reporting profitability between 10 to 20%, the rates we will see at that time will become the new normal”.

Parash Jain, HSBC’s global head of shipping and ports research, has repeatedly maintained that liner shipping now has a stronger bargaining position thanks to consolidation.

“Going forward, we argue that after years of consolidation and the formation of mega shipping alliances, the shipping lines have learnt the capacity discipline and while there might still be volatility in freight rates, the rock-bottom level of freight rates seen in the past decade might no longer persist in the future,” Jain told Splash in a report published earlier this year.

The consolidated nature of global liner shipping, where the top liners control more than 85% of capacity, was also brought up by shipping analysts at Jefferies in a recent report, who argued that their ability to move in a far more bigger fashion gives them the chance to make quick supply responses. This was most visible in 2020 when liners idled as much as 13% of vessel capacity, which supported freight rates and allowed for profitable earnings despite the significant slowdown in market activity during the first few months of the pandemic.

The swiftness and severity of the container drop in fortunes has also been analysed by Clarksons Research.

Faced with significant macroeconomic headwinds and surging inflation for consumers, container trade has faltered, down by 1.6% year-on-year from January to August, whilst since July container port congestion has reduced according to Clarksons, from close to 38% of capacity at port to around 34% today, freeing some of the tied-up tonnage.

“Sentiment has weakened at a rapid rate, amplified by increased uncertainty for consumers and businesses,” Clarksons noted in a recent market report, stressing that today’s rates still remain well above pre-covid levels. Freight is twice as high as the 2019 average, charter rates are still two and a half times higher, while the the Shanghai Containerised Freight Index (SCFI) is 100% above the 2010 to 2019 average and Clarksons’ charter rate index is only 20% off the 2005 peaks in the previous boom.

“In a ‘base case’ rate levels might not fall back as far as previous lows, but watch closely for incoming fleet growth (6-8% p.a. in 2023-24, though slippage may impact), ongoing trade headwinds and the development of port congestion (will recent easing persist?) which will determine how far and fast the softening goes from now,” analysts at Clarksons advised.

Container Trade Statistics (CTS) has released the new global demand data for August 2022, which has turned out to be the weakest month since early 2020.

Global demand measured in teu declined by 4.2% year-on-year whereas demand measured in teu*miles declined by 5.5%. Compared to pre-pandemic August 2019, global demand in teu has grown 1.3% whereas demand in teu*miles has now declined 2% compared to August 2019.

Looking at the CTS figures, Lars Jensen, CEO of consultancy Vespucci Maritime, suggested via LinkedIn that from a fundamental global supply/demand perspective, there is no longer a fleet capacity shortage and the balance is poised to worsen further.

“This means there is no fundamental support to revert back to the high rates of the last two years, but also that there is no structural support to halt the current rate decline,” Jensen wrote.

“Global demand is clearly weakening and weakening quite rapidly. We should expect continuing declines in spot rates – and associated spill-over into the contract markets. And we should also expect a ramp-up in not only blank sailings, but also the complete closure of a range of services, on especially the Transpacific trade,” Sea-Intelligence warned in its latest weekly report.

Drewry’s World Container Index (WCI), a global spot rate reference, plunged below $4,000 per feu last week for the first time since December 2020, with most container indices – whether spot, long-term, or charter, on the slide in recent months. The WCI dropped another 8% last week to close on $3,688.75, still more than twice as high as the historical average, but a far cry from the $9,408.81 per feu registered at the start of this year.

Multiple chartering indices have continued to report steep drops in recent days.

“The temperature is dropping fast, not only in Northern Europe but also in the container chartering market and consequently the New ConTex Indices are all bathed in red,” the latest report from Hamburg’s New ConTex stated.