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Russbroker Caribbean market review

Markets continue to rally in all sectors

By Jan-H. Heikes

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Container market

The charter markets for all segments continued their rallies throughout April, May and June. Compared with March levels, every size category increased its earnings by at least 15 per cent. The star performers were the 1,700 teu and 2,500 teu ships, which managed to elevate their charter rates by over 40 per cent. At the market peak, ships from 1,300 to 2,500 teu all came in at levels around US$ 12,000. Traditional premiums for Caribbean trading were completely eroded due to steep rate rises in Asia and in the Mediterranean. As a consequence, only two or three ships were being positioned to the Caribbean against long-term charter commitments; but, again, several ships have left the area for drydocking in Asia or Europe.

Since the end of June, worldwide charter rates for sub-panamax containerships have been on retreat. For most standard ships, much of this spring’s gains have been eliminated again, with rates dropping by 10 to 20 per cent. With the negative markets, the Caribbean rates, though falling at a slower pace, proved more resilient compared with the rest of the world. Vessels with distinct technical features, such as a high relative reefer intake (for example, 1,300 teu and 2,500 teu high reefer class) especially favored in Caribbean trades, have maintained their relative advantage. After losing considerably in July and early August, the downward trend in all segments seems to have slowed towards the end of the reporting period.

With the expected completion of the new Panama Canal locks in 2016, allowing vessels up to 14,000 teu to transit the canal, a reorganization of Caribbean and USG-USEC services is likely.

Macroeconomics

The current economic figures look rather subdued. The IMF revised GDP growth expectations for the Caribbean in 2015 downward to just 0.5 per cent. Chronically high public debt, limiting investment potential, remains a major problem for many of the region’s nations.

Immediate positive signs are to be found in the low oil price and the present solid economic development in the USA and the EU, the Caribbean’s two largest trading partners.

In the medium term, the perspective is further upbeat. China just announced its China and Latin America and Caribbean Countries Cooperation Plan (2015-2019) that aims to increase trade volumes to US$ 500 billion and investment volumes to US$ 250 billion. This program might help to counter the lack of internal public investment.

Another potentially positive effect could also arise from the improving relations between Cuba and the USA. So far, strong Cuban GDP growth is attributed mainly to increased tourism activity, but potentially bigger trade volumes are also on the horizon.

But while the low oil prices are pleasing the car industry and other consumers, they are, in fact, a heavy burden for the oil-producing countries. Ninety-seven per cent of Venezuela’s exports are oil, now trading at prices as low as in 2009. Consequently, imports are low, leaving store shelves empty.

Sale and purchase (container)

Activity focused on the larger Caribbean-related vessels. CMA CGM introduced three newbuilding 2,100 teu guyanamax ships to its Europe to NCSA trade network. The vessels will replace three out of six units of 1,700 teu ships that had been purpose-built for the same trade in 2007.

Strong demand for high reefer 2,500 teu ships also manifested itself in the sale and purchase market as Maersk Line bought six such vessels, all fitted with 600 plugs. By this move, Maersk made itself a little more independent from the charter market for these high-end vessels.

Reefer

After a promising season for the bigger tonnage, owners experienced a rude awakening in May and had to face freight rates close to or below running costs. The market then turned very quiet during June and July, due mainly to a lack of spot banana requirements. The present ends of the southern citrus and kiwi fruit seasons will probably prolong the dull market. Operators are not ballasting across the Atlantic to Cristóbal in order to avoid having tonnage piling up in the area.

By the end of August chartering had become a bit more active due to a surplus of bananas on the ECCA. A positive upswing, however, is expected to materialize only in the second half of October and early November when the Spanish and Moroccan citrus as well as the European spud seasons will start.

For the small segment, supply and demand are quite balanced. The summer period did cause rate decreases, but not as significantly as for the larger tonnage. The currency restrictions imposed by Nigeria continue to block the fish trade. As a consequence, business has been driven into neighboring ports, resulting in congestion in some ports. In combination with increased cargo requirements, this development has led to an upward momentum in freight rates. Owners and operators remain very confident for this segment.

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