The scale of feeder ordering is almost unprecedented, with the strong market likely to continue
The scale of feeder ordering is almost unprecedented, with the strong market likely to continue, explains Barry Luthwaite
The hunger in feeder trades shows no sign of abatement. Owners continue to reap good rewards from profitable rates induced from charters on time and spot employment.
European and Asian traders reap dividends from port congestion and profit from ’troubles’ the ULCS find themselves in. Orders for ULCS have stalled as existing tonnage struggles with maximum loads. Suddenly the thinking has changed from direct, to a balance between direct calls and feeder factors in ports to satisfy customers. Congestion has been delaying discharge and loading of ULCS allowing feeder vessels to play a crucially important role in minimising delays to the customer.
The most striking feature now is the rush by the box majors to order directly owned feeder ships instead of chartering in, which in the long run allows more operational control and economy of scale. The market is so busy that in recent months major box ship owners have increased lengths of employment to up to two years or added optional extensions for feeder owners.
However, the newbuilding market is still suffering from bankruptcies of shipyards especially in China, where smaller, privately owned yards cannot secure enough cash flow after gaining success from rapidly rising feeder orderbooks. The runaway success of China is vividly illustrated by the fact that of 331 container ships up to 5,000 TEU on order, 221 will be commissioned in this country. The next two nearest nations of Japan and South Korea only share jointly 37 vessels each. The total orderbook at the end of April 2019 stood at 331 vessels which will commission 741,939 TEU into the global fleet over the next three years. The situation three months earlier stood at 302 vessels aggregating 591,953 TEU.
One thing is clear in owner preferences. Only one vessel is on order in the 4-5,000 TEU range. This size range was very popular at one time with several 5,000 TEU units being constructed as wide-beam designs allow extra capacity. Today they are a dying species with many destined or already delivered to the recycling yards. The most popular units are between 2,000-3,000 TEU, especially in the 2,500-2,700 TEUu capacity range and suitable to fit Bengalmax and Bangkokmax draft restrictions.
Unprecedented feeder orders
The sheer scale of feeder ordering is almost unprecedented and currently there is work for all on a sustainable basis, but will the bubble burst? A number of feeder orders are running in tandem with ULCS commitments, with the majors effectively operating a partnership to provide a successful final delivery path to the customer. It has reached a stage where the feeder has become an indispensable asset.
For feeder owners it is a win-win situation. Spot business can be secured at higher charter rates for single voyages while time charter business shows increasing signs of necessity over a longer duration with optional extensions. Bonds are increasingly built up between owner and charterer. Certainly, in Europe more pools and consortia are being formed to stay competitive. Enforced sales have all but ceased in a revived trading position although banks and other creditors remain cautious.
Freight rates are keeping owners very happy at the current time despite falling over a one-year period as more vessels have delivered into the global fleet. At the end of April 2019, feeder sectors command the following time charter rates on average:
TEU |
Rate (US$) |
Period |
1,100 TEU |
$6,584 |
daily over 12 months |
1,700 TEU |
$8,088 |
daily over 12 months |
2,500 TEU |
$10,042 |
daily over 24 months |
2,700 TEU |
$9,964 |
daily over 24 months |
3,500 TEU |
$9,740 |
daily over 24 months |
4,250 TEU |
$9,700 |
daily over 24 months |
2,500 TEU |
$9,144 |
daily over 12 months |
2,700 TEU |
$8,960 |
daily over 12 months |
3,500 TEU |
$8,754 |
daily over 12 months |
4,250 TEU |
$8,773 |
daily over 12 months |
Generally these show a fall year-on-year from 2018, from peaks of slightly under US$12,000 a day in the 2,700-4,250 TEU capacity ranges. The prognosis however is still excellent since it was only 18 months ago that US$6-7,000 a day was considered a dramatic improvement. Differing circumstances of course apply.
A salient feature looking ahead, however, could be a growing orderbook of too many ships. The average age of a feeder is always longer due to shorter distance voyages which boost earnings potential. There is only evidence of vessels built in the 1990s and early 2000s going for recycling. They are largely faced with new emission control legislation from the start of 2020 requiring big expenditure on renovation which is not economical. The newbuildings, in most cases, will incorporate the most efficient fuel performance engines and charterers will lean towards super-eco-friendly ships.
The big mover in the last three months for newbuildings has been joint Chinese/South Korean SinoKor Merchant Marine. A huge order was placed by this owner among three Chinese yards. Four 2,400-TEU units were placed at Jiangnan Shipyard while 16 1,100-TEU vesels were equally shared between Huangpu Wenchong and Chengxi shipbuilders. Deliveries are set for between 2020 and 2021.
The world’s largest container ship owner – Maersk – struck a deal with ICBC Financial Leasing, China to construct 13 2,200-TEU feeders shared between three yards. Jiangnan Shipyard will build five plus optional five units which is firm business. Other business centres on three more from Zoushan and a final five from Japanese builder Imabari. All deliveries are scheduled between 2020 and 2022. No prices were confirmed.
All the vessels are aimed at deeper penetration of the intra-Asian feeder markets. Subjects have still to be cleared on the latter two deals. Maersk will lease the vessels and offer long-term charter employment with the option to purchase on expiry. All the ships will be operated by the Maersk subsidiary Sealand (Asia). Maersk has made it clear the company will concentrate on feeder penetration in the next few years after calling a halt to ULCS construction in the immediate future. The owner recently completed delivery of a series of 3,700-TEU feeder ships now serving Europe, introducing a somewhat niche capacity size.
The secondhand market has also been very lively with multiple acquisitions and even company fleets by feeder operators. There will be disappointment that currently there is a slowing of enforced sales partly inspired by strong trading freight rates. Suddenly there is an ambition, especially among Asian-based owners, to build up larger fleets and to challenge for top status in market leadership. Asian companies also have an eye on penetrating European owner-dominated markets. Such competitive factors consolidate and expand a bullish trading market in the immediate future.
© 2023 Riviera Maritime Media Ltd.