Containership owners have experienced some tough times in recent years, and early in 2015 it looked as if things might at last be on the up.
However, last year proved to be the classic ‘game of two halves’, and as vessel demand suffered a range of shocks from the world economy, the performance in the second six months of the year led to a rapid evaporation of any positive sentiment.
What Could Go Wrong?
Compared to 2014 levels, weighted average containership earnings across last year as a whole were 13% up. However, 2015 was characterised by a clear upturn in earnings in the first half followed by an abrupt downturn in the second. Early in the year, after a good few years around the bottom of the cycle, containership charter rates had finally gained some traction, but threats loomed in the form of a challenged freight market and the potential for slowdown on the demand side.
On The Defensive?
The box freight market across 2015 remained not only highly volatile but also subject to severe downward pressure. The spot freight rate on the key Far East-Europe trade averaged just $620/TEU, 47% down on the 2014 level, hitting fresh historical lows on more than one occasion during the year. Liner companies continue to battle against consistently robust deliveries of very large containership capacity, with 12,000+ teu capacity growing by 28% in the year on the back of 46 newly delivered units.
Nevertheless, in the early part of the year, limited capacity growth in the small and medium sized containership fleets, allied to a slowdown in the cascading of relatively larger vessels into the trades served predominantly by charter market tonnage, drove a more positive charter market. The one-year timecharter rate for a 2750 teu vessel increased from $7,850/day in January to as high as $13,500/day in Q2 2015.
Victory Into Defeat?
However, earnings collapsed in the second half of 2015, driven by the cumulative impact of weakening demand trends. Volumes on the key Far East-Europe trade contracted by around 4% last year, growth in intra-Asian volumes slowed to around 3% on the back of turbulence in the Chinese economy and container imports into commodity exporting developing economies also began to slow significantly in the second half. Accordingly, global box trade is estimated to have expanded by just 2.5% in 2015, a fairly weak performance.
As a result, the level of idle capacity increased once again, reaching around 7% of the fleet late in the year. Slowing volume expansion clearly proved a major headwind to the market (in particular generating substantial surplus Post-Panamax capacity), and by the end of the year charter rates had generally fallen back to the bottom of the cycle. The one year rate for a 2750 teu ship dropped to $6,500/day. Not a great result for owners.
So, moving into 2016, the freight market remains under severe pressure and on the charter market, although supply side fundamentals still look potentially helpful (and total capacity growth set to slow to nearer 4%), it appears unlikely there will be significant upside for timecharter rates until the pressure from the demand side alleviates, which could take time. If 2015 was clearly a ‘game of two halves’ for the boxship sector, then 2016 might be more of a ‘waiting game’ for containership owners. Have a nice day.