Container shipping 2021: strong rates, weak newbuilding

In its December container ship report, Maritime Strategies International (MSI) put timecharter assessments for 8,500-TEU vessels at US$36,000 per day, and US$42,000/day for ‘eco’ 9,000-TEU units, while 4,300-TEU box ships earnings rose to US$24,000/day compared to a low of US$7,000/day in June, and 6,500-TEU vessels surpassed US$30,000/day. The rate surge was an about-face from the first half of 2020 when Covid-19 dragged down demand.

MSI expects the earnings environment to persist through to February 2021 – the end of the Lunar New Year holidays in China, as retailers in Europe and the US look to replenish their inventories.

It will be interesting to see the final tally on Q4 2020 earnings of container shipping lines, after a ‘blowout’ Q3 2020 performance in which they had net earnings of US$5.054Bn – a more than fourfold increase year-on-year, according to an analysis by Blue Alpha Capital founder John D McCown. Net earnings for the same 11 major container shipping lines for Q3 2019 were US$1.187Bn.

One-time chairman and chief executive of Jones Act container vessel line Trailer Bridge, Mr McCown said, “This was the best quarterly performance by the container shipping industry since before the financial crisis more than a dozen years ago.”

While it is bullish on the demand outlook for 2021, MSI cautions “the longer-term impacts of the economic fallout from Covid-19 in terms of unemployment, business closures and fiscal strains in emerging markets remain to be seen.”

Ship valuations rise

With rates increasing threefold for 8,500-TEU container ships, there was a knock-on effect on ship valuations. Valuations for large five-year-old container ships – 18,000-TEU and 13,000-TEU units – recovered from their historic lows in June 2020, increasing in value by 18% in Q4 2020, according to VesselsValue.

Fleet renewal slow

In its Shipping Market Review, Danish Ship Finance points out that fuel and technology considerations kept investors from ordering new vessels over the last two years, and the coronavirus “seems to have amplified this trend.” As of September 2020, only 30 vessels totalling 177,434 TEU were ordered, corresponding to 0.8% of the fleet, down from 4% in 2019.

“Newbuilding contracts, albeit being few, show Chinese owners placing orders at Chinese yards. The orderbook amounts to 2.1M TEU, equal to 9% of the fleet – the lowest level in decades. Of this, 65% is scheduled to be delivered by mid-2021.”

While prudent ordering will most likely continue in the container ship sector, LNG-fuelled tonnage will continue to grow.

French shipping giant CMA CGM added the world’s largest LNG-fuelled ship in 2020, 23,000-TEU CMA CGM Jacques Saadé, and is committed to having a fleet of 26 LNG-fuelled container ships by 2022. With its US$35M retrofit of the ultra-large container ship (ULCS) Sajir to LNG propulsion underway – due for completion in early 2021 – Hapag-Lloyd has inked a letter of intent with Daewoo Shipbuilding & Marine Engineering to build six, with options for six others. If all 12 box ships are confirmed, Hapag-Lloyd would invest an estimated US$2Bn in LNG-fuelled box ships.

MAN Energy Solutions, which is supporting the conversion of Sajir’s two-stroke 9S90ME-C10.2 to a dual-fuel 9S90ME-C10.5GI, is developing an ammonia-burning engine that it plans to have ready for delivery to a shipyard in 2024. That engine could well equip a new DSME ammonia-fuelled 23,000-TEU ULCS design that was granted approval in principle by Lloyd’s Register in 2020.