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Russbroker Caribbean Market Review

No respite for container charter ships

Container Market
The container charter market has continued its lackluster performance for the last four months with a general downward trend throughout all feeder and intra-Americas vessel sizes.

The 1,100 teu sector experienced a decline of about 10 per cent in late summer. Since October a couple of smaller steps have brought rates down to mid-high US$ 6,000 levels. The decline happened without significant oversupply in the Caribbean, but some owners might have been scared by the large number of readily available vessels in the Mediterranean. As usual, the 1,300 teu category proved the most resilient in a weak market. Despite the occasional open candidate, charter rates remained in the high US$ 7,000 region.

Tonnage oversupply in the 1,700 teu segment disappeared towards the end of the year. The global supply overcapacity, however, caused rates to fall to around US$ 6,500.

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Ships of 2,500 teu once again faced the greatest difficulties. Up to five spot vessels in the Caribbean, which made up over 15 per cent of all 2,500 teu charter tonnage involved in intra-Americas trades, forced earnings to new lows of US$ 5,500.

The development to employ more gearless ships in the Caribbean continued as one operator positioned one 1,200 teu and one 1,700 teu vessel from the Mediterranean to be employed in services traditionally run with self-sustained tonnage.

Sale and purchase of container tonnage in Caribbean
Buying activity focused on the smaller segments as one 600 teu ship was sold at auction and a very keen Greek buyer continued to pick up tonnage in the 1,100 teu range, mainly from insolvent German owners.

Macroeconomics
The overall global economic outlook for 2017 predicts a slight improvement on 2016 levels. GDP growth values, however, have to be taken with caution when trying to forecast trade levels as the historic ratio of GDP to trade growth of between 2:1 and 3:1 is estimated to drop below 1:1 for 2016. The worldwide protectionist trends, the contraction of global value chains and the increasing role of the digital economy and e-commerce are some of the possible reasons for the decoupling of this traditional relationship.

Economic contraction, however, will hardly be helpful to trade interests and so Brazil’s turnaround is a positive sign for the region. The Brazilian real and equity markets have appreciated over the past couple of months and rising industrial production contributed significantly to the positive expectations.

The recent big trade topic has been Donald Trump’s surprise win. His generally protectionist stance and his specific aversion to Chinese and Mexican imports have the potential to negatively affect world trade. During the election he announced several times his intention to terminate the North American Free Trade Agreement, which embraces Canada and Mexico. At first glance, a weakening Mexican economy appears to be a strong blow to the Caribbean and Central American region; however, Mexico’s share of exports to Central and South America amounts to only 1.8 per cent and five per cent respectively. Mexico’s shares of total imports from Central and South America are 2.3 per cent and 1.3 per cent.

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