The dust has now settled on the brief rally and subsequent dramatic downturn of the containership charter market in 2015.
After a good few years in the doldrums, last year saw some fairly animated movements in boxship charter rates. Accordingly, the start of a new year marks a good time to reflect on just how the present market looks in a historical context.
Hitting The Buffers
More than seven years have now passed since the downturn of 2008, when boxship earnings fell to record lows and container trade then contracted by 9% (in 2009). The Panamax 4,400 TEU one year guideline charter rate fell to $6,450/day in October 2009, having stood at $38,000/day at start 2008. Boxship idling was adopted by many operators, reaching a peak of 11.8% of fleet capacity at end 2009, a level which it has not since neared. The surplus capacity generated during that downturn has remained a factor in market fundamentals ever since.
By mid-2010 the charter market seemed to be improving, trade growth rates appeared to indicate a bounceback and operators re-activated idle vessels. This lowered idle capacity to around 2% of the fleet, helping charter earnings recover to levels comparable to historical averages. The one year rate for a 4,400 TEU Panamax reached $28,500/day in March 2011. However, both freight and market fundamentals did not reflect the renewed optimism and problems of overcapacity remained. As a result, charter vessel demand soon fell once more, with charter rates dropping back to the bottom of the cycle, and idle capacity reaching around 6% of the fleet by March 2012.
The market would spend around three years in the doldrums before elevated scrapping and limited growth in the smaller vessel sizes finally helped improve fundamentals. This generated the conditions under which rates could recover, led by the Panamaxes in mid-2014.
Panamax earnings were supported crucially by the ‘cascade’ of capacity onto intra-regional routes. And subsequently the moderation of this trend then supported higher earnings in the Sub-Panamax sizes. Rates initially looked to be heading back towards historical averages but the recovery proved short-lived. Ship demand fell in 2H 2015 as a result of the cumulative impact of a range of box trade growth shocks. Global box trade is estimated to have grown just 2.4% in 2015, the slowest rate since 2009. By December, idle capacity stood at 7% of the fleet, the highest level since early 2010, and earnings fell sharply with the end 2015 guideline rate for a 4,400 TEU Panamax reaching a record low of $6,000/day.
A Difficult Outlook
So since 2009 boxship earnings have largely failed to achieve historical averages, spending large amounts of time at the bottom of the cycle. Supply-side factors still look helpful but the impact of these is expected to remain dormant unless combined with improved box trade growth. Until then (and the world economy will have a major say in when), the charter market looks likely to remain nearer the foot than halfway up the ladder.