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Russbroker Caribbean Market Review

Container market

Small beats large

This spring, the container charter market was not very active because many charterers fixed their ships, especially in the 1,000 teu segment, for 12 months or longer in the course of autumn last year.

Charter rates for standard 1,100 teu ships have moved sideways for the past few months in a corridor of mid to high US$ 7 thousands. Very economical 1,100 teu designs were able to earn a premium of about US$ 1,000 to US$ 1,500 on top of the rate paid for the standard 1,100 teu ship.

The 1,300 teu segment has felt the pressure of several spot ships in Asia. Owing to the low bunker price, positioning of ships to the Caribbean was a good argument and consequently rates dropped by about 10 per cent to levels in the low / mid US$ 8 thousands.

Russbroker Caribbean Market Review

On a positive note for the owners, it can be registered that charter periods are fairly outright and have so far escaped the extremely flexible durations now common for ships fixed in Asia. Ships in the 1,700 teu category were able to achieve similar to or slightly below the earnings of the 1,300 teu vessels. Their levels thus have been stable since the end of 2015.

Oversupply

Standard 2,500 teu vessels in Caribbean and South American Coast liner trades suffered dramatically from the global tonnage oversupply in this segment, resulting in rates in the US$ 6 thousands and thereby lower than for 1,100 to 1,700 teu vessels. In mid March, worldwide over 60 ships of the 2,500 to 2,800 teu segment had been in spot positions. With this in mind, the Caribbean trade did no longer pay any premium over other trading areas. Better earnings could only be achieved for the ambitious high reefer trade, which, however, also took a hit from its heights last year and benchmarked in the high 8 thousands to low 9 thousands in the first quarter of 2016.

The situation in the charter market currently reflects the carriers’ fleet deployment strategies. According to Alphaliner, the total employed fleet related to Latin America trades fell in teu values by about four per cent from December 2015 to March 2016; the number of ships, however, increased by over four per cent. Vessels in the 4,000 teu to 8,000 teu range experienced the largest cuts, whereas 13 ships between 1,000 teu and 3,000 teu are in service.

Despite the overall mixed economic signals, food exports from the Americas continue firmly. On the back of that development, reefer operator StreamLines started its first containership service from Central America to Northern Europe. Now being operated with charter tonnage, StreamLines plans to replace those ships in the future with its own very high reefer container newbuildings. Maersk, in cooperation with Fyffes, also initiated a new string to Europe with 2,500 teu ships, serving the previously reefership-only port of Turbo, Colombia. Lastly, CMA CGM organized a new feeder service connecting Turbo to Kingston.

Sale and purchase of container tonnage

The vessel pool below 1,000 teu continues to shrink as a further two ships have been sold to owners operating in other trading areas. Two 1,100 teu ships were also sold, but are likely to stay in the Caribbean.

Macroeconomics

The overall economic development remains uncertain. Low commodity prices continue to pressure many Caribbean countries depending on raw material exports. The first positive signs were, however, detectable during February and March, when metal prices appreciated by about 15 per cent and the price of oil rebounded from a low of US$ 30 to just over US$ 40 per barrel. Despite the negative impact of the Zika virus on the tourist sector, most Caribbean countries expect increasing visitor numbers in 2016.

In summary, the Caribbean Development Bank is cautiously positive, expecting Caribbean GDP growth of 1.7 per cent in 2016, a slight increase compared with 1.4 per cent in 2015.

Hardest hit is still Venezuela, where inflation rates continue to grow and imports are shrinking. Also in trouble is Brazil, where after an economic contraction of over four per cent last year another year of negative growth is expected for 2016. A positive sign for trade, though, is that, regardless of the Brazilian recession, exports and imports are forecast to grow this year.

Colombia, another important country for the Central American region, will also be affected by the global trend of capital outflows from emerging markets. As a consequence, the mining industry is projected to fare worse than last year and consumer outlook has turned negative. Positive for containerized trade should be the prediction that Colombian manufacturing will be much better in 2016.

After stagnating for several months, the diplomatic approach between the United States and Cuba gained new momentum with president Obama’s historic visit to the island in March. The American public is now in favor of abandoning the trade embargo and tourist numbers have already increased substantially.

Shipping has so far only benefited from the lifting of some bureaucratic measures. Should the trade become fully liberalized in the future, overall containership capacity demand could fall in the short term as some products could then be sourced from the much closer United States instead of from Europe, China or Brazil. Currently, 20 ships with a total capacity of 28,000 teu are trading to and from Cuba and an end of the embargo could create a chance for small ships of between 500 teu and 1,100 teu to the disadvantage of 1,700 teu tonnage. Short distances and quick turnaround times would favor the small-size category most. In the mid to long term, however, stronger Cuban growth opportunities should support also the larger vessel segments.

Whether the expanded Panama Canal will have an effect on intra-Caribbean trade remains to be seen as the official opening date has been postponed from April to June and some industry players are voicing concerns about whether the canal will be completed in 2016 at all. And the building of the Nicaragua Canal is supposed start by August 2016.

Reefer

The year has started in much the same uneventful way as 2015 ended.

The COA and liner operators are fully employed. Nevertheless, with exports of Chilean table grapes divided between Seatrade and Cool Carriers, no sign of squid in the South Atlantic and only limited demand from Argentina, there are few alternatives for those operators that do not have contract coverage. The chartering activity is light, the Ecuadorian exit price remains too high for speculative voyages into the Med and the Chile volumes are affected by unseasonal rainfall. Therefore, it seems more likely that 2016 will turn out to be a disappointing year for the specialized reefer business.

The situation for small ships is also rather gloomy. The Nigerian import quota, currency restrictions, the Russian import ban, fishing off Mauretania below expectations and a lack of squid in the South Atlantic led to drastic drops in rates. Although ‘peak’ season should be close, there is sufficient tonnage available in all areas.container-fixtures