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Russbroker Caribbean Market Review

Tough times in chartering sector

Container market

Compared with last year, chartering activity did not pick up during the second quarter. In general the very small sub 900 teu and the larger 1,700 teu plus feeder vessels underperformed the 1,100 to 1,300 teu segments.

The small market for 600 to 700 teu ships showed some surplus vessels during the last months. This imbalance, however, did not cause charter to fall, as ships were fixed for US$ 6,000 to US$ 7,000; but periods shortened significantly. Period charters of about 12 months, common a year ago, disappeared; short and flexible was the new norm.

The 1,100 teu sector’s supply and demand was at equilibrium over the last couple of months. Stable demand and little ballasting activity led charter rates to stay in the high US$ 7 thousands. Talking on absolute levels, the 1,300 teu ships were once again the best performers. Charter rates remained at around US$ 8,000 since the available tonnage in the Caribbean stayed constant.

 About equal numbers of vessels left for drydocking to other areas as were positioned from Asia to the better-paying Americas. Vessels of 1,700 teu did not fare as well. In July and August especially, rates came under pressure and fell by over 10 per cent due to the fact that several vessels had run into spot positions. With earnings levels at about US$ 7,000 those ships were substantially below the smaller sizes, but port limitations and reefer capacity did not allow operators to utilize bigger, cheaper vessels.

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Standard 2,500 teu tonnage was in even stronger trouble. Charter rates fell by about five per cent to US$ 6,000. The traditional rate premium for trading in the Caribbean had thus been completely eroded, as this vessel category earned about US$ 6,000 in all trading areas worldwide. Ships with a high reefer capacity of at least 500 plugs continued to earn significantly more, with individual rates ranging from the high US$ 8 thousands up to US$ 11,000 depending on duration and specific trade demands.

An interesting development over the last couple of months has been the trend to employ a higher share of gearless containerships. Since the start of this year seven small containerships of between 300 and 700 teu have been positioned from Europe or Asia to the Caribbean / Central American trading area. Out of those seven only two are geared. A similar situation showed for some of the largest feeder vessels. This year, six out of 10 containerships ranging from 2,500 to 3,400 teu that have been positioned to the Caribbean are gearless.

No clear trend in the vessel size of feeder services could be observed in the last four months. Where some operators combined their schedules and upsized from 2,500 to 3,400 teu, others split their joint service and went back from 2,500 to 1,100 / 1,300 teu tonnage.

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Sale and purchase of container tonnage in Caribbean

Several smaller containerships of between 500 and 1,100 teu changed hands in the last couple of months. Operators continued to be active buyers, as about half of the vessels sold went to end users. Most sales, however, were not from ‘willing sellers’ but bank driven. Sales prices consequently remained rather low.

Macroeconomics

The International Monetary Fund forecasts an economic contraction of 0.4 per cent for Latin America and the Caribbean. This figure, however, is strongly influenced by the second dismal year for the Brazilian economy, which is expected to shrink by over three per cent this year.

Signals from the United States, one of the most important trading partners, were mixed. Industrial investments were down, but consumption grew on the back of cheap gas prices, low interest rates and better job market numbers.

Venezuela continued to be a drag on the region’s development. An expected GDP fall of 10 per cent and extreme inflation of several hundred per cent exerted ever stronger hardship on the population. Severe food shortages were the result of falling imports, while manufacturing across the country was limited by an insufficient supply of electricity. Over the last three years container throughput has halved from 1.4 million to 0.7 million teu and industry sources say the situation has deteriorated further in 2016. At the end of August, 12 services employing 18 cellular containerships of between 700 and 2,500 teu continue to call Venezuelan ports.

Venezuela’s declining oil production capacities also hurt the Cuban economy. An ‘oil for doctors’ trade deal between the two countries accounts for an estimated 20 per cent of Cuban GDP and Venezuela delivered 40 per cent less oil in first quarter 2016 than a year ago.

Optimism about Cuba-US relations from the beginning of the year died down in the second quarter. The general trade embargo and the 180-day rule both remain in place and forecasts are that nothing will happen until after the US presidential elections and the planned resignation of Raul Castro in early 2018. The abolishment of the 180-day rule, which prohibits a vessel from calling an American port for 180 days after calling Cuba, could hurt US ports and feeder operators. Without this limitation, cargo for Cuba being carried on a mainline Far East to US East Coast service could be discharged directly at Mariel without being transshipped first.

Reefer

Chartering activity for larger vessels did not get better in the last four months. The COA and liner operators continued to be employed; but the remaining independent owners faced a terrible season and an even stronger declining summer period. No squid, no surplus of bananas, nothing! Only citrus out of Argentina turned out to be more active; but as the business had been covered by operators on a COA basis, this had no real influence on the spot market. Signs are that 2016 is going to be one of the worst years for conventional reefer owners.

The small section suffered, too, and freight rates partly fell by 50 per cent and more in some of the fish trades. Rather unusually, some fish owners decided to put tonnage into lay-up. As the catching got better and the restrictions on Nigeria eased during June, freight rates again improved somewhat. Compared with the previous two excellent years, owners of the smaller section will certainly also be facing depressing results.