Container shipping is recovering well from the global pandemic, with rates within the sector soaring to seven-year highs, driven by strong demand and limited supply, writes VesselsValue head cargo analyst Olivia Watkins
One of the largest increases in rates has been seen in the 8,500-TEU sector where one-year time charter rates have tripled in value from the lows of June 2020. This is due to a combination of very strong cargo demand in Asia and an increasing shortage of 40-ft containers which have seen spot rates for Chinese export rising sharply over the last few weeks. This has been further amplified by the stockpiling of goods and the seasonal Christmas period.
The number of available slots on almost all trade lanes is at an all-time low amid the resurgence in demand, and logistical problems and equipment shortages are also driving rates up.
The accompanying graph shows the effect of rates and cargo demand on the five-year-old market values for 18,000- and 13,000-TEU vessels. The container shipping market was impacted significantly by the Covid-19 pandemic, with values decreasing by about 15% between January 2020 and June 2020 (when values hit an all-time low).
However, since June, the container market has rebounded, particularly for larger tonnage. Values have increased to above and beyond January 2020 levels an increase of about 18%, demonstrating how a market can fluctuate.
This has never been seen in the container industry before and shows how the effects of a pandemic and a significant drop in demand can have such an impact on values.
The sale and purchase market has remained relatively stable for container tonnage >10,000 TEU even though we had much lower demand during the summer months due to the pandemic.
Over the past five years, 2017 has demonstrated the highest number of transactions and the highest amount spent totalling over US$4Bn. As the end of 2020 nears, only half the number of transactions have taken place and only US$2Bn has been spent in the secondhand S&P market.
Although COSCO Shipping has been the biggest buyer over the last five years, they are nowhere to be seen in 2020. Seaspan has been the biggest player in the market in 2020 with US$0.8Bn spent in secondhand transactions.
Before Covid-19 broke out, Seaspan bought four 11,923-TEU vessels, built 2017-2018, at Jiangsu Yangzijiang for a total price of US$367M, with the deal including a long-term charter from PIL.
When things relaxed slightly in the summer months, Peter Dohle offloaded two 13,371-TEU, 2010- and 2011-built box ships to Seaspan for a total price of US$146M. The transaction also included a charter to Hapag Lloyd.
The more recent deals took place at the end of September and into early October for two 11,923-TEU, 2018-built vessels for US$88M each.
The newbuilding market for large container ships saw a boom in orders during 2015 with US$12Bn spent by market players. With the average age of the fleet between 0 -5 years old, many of these vessels have since been delivered and are already operating.
Although 2020 showed uncertainty at the beginning of the year, the surge in container rates looks to have prompted a number of larger owners to order these ‘megamax’ vessels. OOIL (Orient Overseas International Limited), parent company of the ocean carrier OOCL, is one of them. Due to 12 vessels ordered in 2020, they are clear winners spending over US$1.6Bn on 12 23,000-TEU ultra large container ships.
The orders consist of seven 23,000-TEU vessels, with a build date between 2023 and 2024 at either Dalian or Nantong COSCO. The total cost of all seven is US$1.104Bn or about US$157.7M per ship.
This adds to the orders placed in March which consisted of five 23,000-TEU megamax container ships, build date 2023 and 2024 at either Dalian or Nantong COSCO. Taking the total price of all 12 ships ordered by OOCL to US$1.88Bn.
Although there are no recorded charter rates for >10,000-TEU vessels, the 8,500-TEU post-panamax charter rates are a good indicator of how the market has been affected.
Between January and June this year, charter rates fell by 60%. This was due to a significant drop in demand between China and the US, two of the biggest consumers in the world. Exports from China dropped about 18% during this period and imports into the US fell by 30%. However, as China started to recover from the pandemic mid-year, and the European market opened up again a massive resurgence in rates took place. Rates have now soared to three times the US$/day that was being achieved in June with current figures around the US$36,000 per day mark. They are still not showing any signs of weakness which provides confidence going into the New Year and Q1 2021.
Rates have increased three-fold for 8,500-TEU container ships from the lows of June 2020 with demand being the key driver of this global increase. A combination of strong demand in Asia and an increasing shortage of containers has sent the market mad. Container volumes at China’s largest container port Shanghai recorded a new monthly high due to the growth in China’s export volumes amid strong demand from the US and Europe due to the Christmas period as well as bulk buying ahead of the UK’s departure from the EU.
The S&P and newbuild market has remained relatively healthy for vessels >10,000 TEU amid the pandemic with major players like Seaspan and OOCL taking advantage of the volatile market.
Rates are still increasing as of mid-December which bodes well for the New Year.