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Russbroker Charter Market Commentary

MSC and Maersk shut out CMA CGM

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It was expected to be the biggest vessel-sharing agreement (VSA) in shipping history. Shortly after it was rejected by the Chinese authorities, the two Ms – MSC and Maersk – introduced their Plan B for a VSA, now just between the two mega carriers. 

This leaves CMA CGM looking for new VSA partners, which could eventually be UASC and the two Chinese lines Cosco and CSCL.

In the meantime, uncertainties persist about feeder business in the Caribbean, sourcing from the new groupings, because schedule details have not yet been released for 2M or for any other new VSA.

Long before the rise of 2M, Chiquita and MSC announced a VSA covering the NCSA & ECCA/US Gulf & Florida region, with tonnage provided by MSC and services operated by Chiquita focusing on the volume of reefers provided by Chiquita and combining it with cargoes of MSC on modern 2,500 teu vessels with a high reefer plug capacity which MSC has taken on hire worldwide. This VSA is likely to release Chiquita’s chartered ageing and uneconomic vessels of 868 teu / 434 reefers / geared into an uncertain future.

In the meantime, competition with the Panama Canal is hotting up in Nicaragua. The HKND Group aims to begin construction of the new canal by the end of this year. HKND plans to build container terminals at either end of the canal. According to reports, Maersk intends to support the new canal.

Concern

A huge concern for operators is the preparation to comply with ECA (Emission Control Area) rules starting in 2015. The ECA requirements will come into force in a highly volatile freight market and will involve carriers, shipowners and shippers in significant costs. It remains to be seen how much can actually be recouped from shippers, but the ECA rules will limit the supply of further tonnage to the Caribbean. Instead, owners may ‘pack and go’ to escape ECA. Overall, the final effects of compliance with ECA 2015 are still unknown. Scrubbers are not feasible yet and LNG may be the only fuel of the future.

The exit of tonnage from the Caribbean into other markets (by sale or by charter), reported in March 2014, began to affect rates for extensions and fixtures in June and July. Contrary to what is happening with sea freight rates, the timecharter rates for 1,000 to 1,100 teu geared feederships saw a moderate increase. As a result of service downscaling, some 1,700 teu ships were replaced by 1,300 teu vessels, the latter obtaining a small increase in rate. In June the world was watching the soccer World Cup and thereafter disappeared for summer vacations, leaving behind some 1,700 teu and 2,500 teu vessels struggling; and these are likely to go on struggling in August. High-spec 2,500 teu vessels have been fixed for dedicated high reefer routes.

Based on New ConTex data shown in the graph, covering 2014 only, the general expectation in feeder segments leaves little room for hope, with levels remaining much too low to operate vessels. Performance problems are on the increase. Today it is hard to imagine where the incentives ought to be coming from. Economic revival in Venezuela? Peace in Ukraine and the Near and Middle East? Dropping of sanctions against Iran? Russia so far remains unimpressed by sanctions imposed on her, but counters with her own sanctions on food imports. These issues dampen the world’s free trade volumes and balance. Meanwhile, stagnating growth in China can no longer salve the markets.

Spot market

The multipurpose, general cargo and heavy lift market in the USA and the Caribbean is under pressure owing to lack of available cargoes resulting in a weak spot market. The plunge in the bulk market ex-US Gulf since April led to a fall in rates for multipurpose tonnage as well. In particular, large tweendeck vessels suffered as they competed with ordinary bulk carriers. Small tweendeckers had to take spot parcels at low rates to position to other markets. At the time of writing, a 16,000 dwt multipurpose ship has been fixed at US$9,000/day with redelivery WCSA, which is usually a ballast-back position, and 17,000 dwt multipurpose ships indicating US$6,000 to 7,000 for trips USG/Carib to Cont/Med.

At this time of year, reefer tonnage can ‘go on vacation’ as the fruit season is over. If the fish season ex-West Africa and South Atlantic had not been strong, quite a few more ships would have ended in off-season lay-up. Seatrade surprised the market with the purchase of two super eco-celled containerships of 2,200 teu / 500 reefer plug newbuilding resales.

Sale and purchase transactions in the past months have, on the whole, been driven by banks, which are looking to dispose their loans in default. Standard buyer/seller transactions have almost non-existent. Prices, especially for containerships, remain under pressure as the vessel earnings remain low – too low, even for fortune hunters, to break even. As a result, banks are beginning to shift portfolios or similar structures, discharging their balance sheets, but with options to make a profit later on junior loans granted – senior loans to be provided by others. A bank portfolio of modern 2 x 1,100 teu / 6 x 1,800 teu / 1 x 2,500 teu is rumored to have been sold for US$85 million (unconfirmed).

Saltchuk Resources, of Seattle, which operates the US-flag Sea Star Line to Puerto Rico, has purchased Tropical Shipping, with its fleet of 12 vessels and services, for a reported US$220 million as a second and non-US-flag liner company.

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