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Russbroker Caribbean market review

Increased rate levels are still insufficient

By Jan-H. Heikes

Container

After a slow charter market at the end of 2014 and start of 2015 the Caribbean market picked up pace towards the end of the first quarter. Effectively there was more demand for tonnage than supply, which resulted in raised time charter rates.

Small ships of 500 to 900 teu / geared lost ground in terms of availability and deal flow in the chartering activities of the Caribbean. However, when required and fixed, their rates had been firm. Time charter rates for 900 teu / geared rose by 5.6 per cent to US$ 7,500 in March (compared with December) and CV 1100 / similar increased by 9.5 per cent to US$ 8,000 with some operators still actively looking for tonnage in a tight supply market.

Vessels of 1,300 teu / geared recorded a solid 14 per cent increase in just three months. Some of this tonnage was ‘imported’ and thereby escaping weaker markets such as Mediterranean.

Amazingly, 1,700 teu / geared, in moderate demand, had not been able to play to such strength and effectively levelled UNDER the 1,300s as a result of a worldwide overcapacity in this very fragmented segment. It is interesting to note that some charterers hired their 1,700 teu vessels in the Mediterranean or Far East to cover short supply of such tonnage in the Caribbean. Those positioning from Far East loaded new empty containers. To a similar extend, but for standard Caribbean liner/feeder trades, geared 2,500 teu vessels have been affected by a worldwide oversupply, gaining ‘only’ 13 per cent; however, high specification reeferized 2,500s achieved rates of well over US$ 10,000 per day for periods of up to 24 months.

Strictly looking at the increases on a percentage basis, it looks like a rocking market. Effectively in numbers, though, the rates are still not covering the financial obligations of the charter ship owners.

 

Macroeconomic view on container

The question to ask is whether this market is sustainable. Given the fact that many operators have taken tonnage long-term and at premiums shows that they believe a strong market is here to stay.

Container tonnage does not come to the Caribbean on speculation, as the liquidity and deal flow is not as high as in Asia or in Europe, therefore the supply is limited. The demand is currently supported by several factors, such as new schedules of the alliances leading to new services or rescheduling of existing services and changes in ship size, congestion occupying tonnage, lower fuel prices compared with 2014, GDP growth rates above world average and, last but not least, a robust United States economy.

Analyzing the total carrying capacity of the top five Florida-based liner companies after the consolidation and VSAs entered in 2014, according to Alphaliner, the net carrying capacity year-on-year was slightly reduced from 75,488 teu / 82 vessels in March 2014 to 74,549 teu / 76 vessels in March 2015. This excludes Sealand, which is currently being handed over the Maersk business. Other carriers, predominantly feeder operators in the Caribbean, increased their capacity.

At the same time, Venezuela remains a factor of uncertainty. While congestion in ports has slightly eased, infrastructural issues, a record inflation and a low oil price are increasing the economic problems of the country. The break-even oil price Venezuela would need to achieve a balanced household is in the region of US$ 117 per barrel, according to Deutsche Bank.

Sale & purchase (container)

Second-hand transactions remain bank-driven and those owners who are looking for a free-handed sale are facing prices which are influenced by distress sales. Again, three 500 teu / geared vessels left the Caribbean market because of sale.

One 900 teu gearless vessel was purchased by Caribbean liner interest in a sale ordered by the bank. The newbuilding market almost exclusively looks at large and ultra large container tonnage. Exceptions to the rule are two 1,350 teu gearless / ice class / LNG-driven feeder ships for the Baltic market.

Reefer

For the first time in the reefer history, it was NOT the spot banana requirements driving the market but the Chilean season and the squid catch in the South Atlantic. The supply and demand scenario for the bigger vessels at the beginning of the season during February/March was rather balanced and the bigger tonnage partly enjoyed rates of US$ 1.10/1.25 per cubic foot per 30 days. Such rates have not been seen for the last five years, leaving owners hopeful for finally better returns this year.

The smaller vessels enjoyed a good pre-season, but had a dive during second half January and February when the end of the potato/citrus and Moroccan trade coincided with a break in the fish catches off West Africa. As of mid March positive signs returned: more cargoes, a lack of tonnage consequently increasing rates and waiting for Nigeria to declare its fish quota.


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