An active feeder orderbook is being driven by emissions control and TEU space demands
An active feeder orderbook is being driven by emissions control and TEU space demands
Feeder business remains in good shape despite deepsea ships cascading on to other routes as the trade dispute between China and the USA escalates.
European routes are still attracting high freight rates, especially in sizes up to 2,500 TEU. Feeder scrapping is showing signs of increasing which will be welcomed, with clutches of 1990s-built vessels in the cellular sector up to 1,500 TEU now meeting their end.
The key reason is growing competition from younger vessels and multi-purpose freighters which have come into their own recently as newbuilding vessels have specified more TEU space. Charterers and deepsea owners are exercising more stringent due diligence inspections of vessels proposed for charter. Now, as we approach new emission control legislation at the start of 2020, it is mandatory for feeder operators to comply with the new low sulphur fuel legislation limits.
In Asia the outlook is proving less certain on feeder trades as all eyes are on China with a struggling economy and declining GDP. Another sobering thought is the belated awakening of China to more self-sufficiency in feeder services within their vast hinterland.
This has resulted in a growing number of feeder orders placed in Chinese yards. The policy is forcing out overseas owners through less dependency on chartered-in vessels. However, smaller Chinese builders who are allocated much of the feeder newbuildings are facing liquidity problems as the closure and bankruptcy of privately owned Zhejiang Ouhua recently demonstrated. Here was a builder with a sound reputation for feeder construction simply running out of cash flow and investment in a bullish market. Government intervention was not forthcoming and 12 feeders for export and domestic clients were abandoned.
A few were renegotiated with other builders with the main beneficiary being Huangpu Wenchong who dramatically increased its feeder backlog to 37 vessels aggregating 84,196 TEU ahead of Jiangsu New Yangzijiang with 29 ships totalling 55,483 TEU. Feeder orders are big business, as most are ordered in multiple units, but there are worries by some owners with Chinese builders over their ability to keep pace with demand. There has long been an acceptance of slippage on original delivery dates by most Chinese builders but excellent quality ships are delivered at the lowest prices globally.
Drive for state-of-the-art feeders
The quest for state-of-the-art feeder container ships knows no bounds at the current time. A year ago the situation stood at 238 vessels committed, but by the end of January this year the total had risen to 302, vividly underlining the continuing plethora of business. With more emissions control legislation less than a year away, the rise in numbers is expected to continue with China the big beneficiary as feeder construction falls in South Korea and Japan.
All eyes are trained on the level of scrapping to balance matters out which is expected to show a substantial increase in the second half of 2019 and through 2020. Statistics show that 86 ships were sold for recycling in 2018 while brisk further trading activity accounted for 177 secondhand purchases. The order backlog of 302 vessels will eventually commission 591,953 TEU into global trading on feeder routes.
Even with today’s bullish business there is still a consensus that until 2018 there had been relatively little investment in feeders, especially for smaller sizes, which are now set to prosper. Other owners wishing to make a quick impact on promising freight rates have chosen to raid the secondhand market for prompt delivery of vessels. Distress sales have tapered off today but there are still enough owners around who are coming under pressure to sell by banks as mixed vessel fleets suffer cash flow problems.
When liquidity problems are known about with owners, buyers push for lower sale prices and succeed. IMO 2020 regulation is likely to herald more business for third-party managers. Some owners are keen while many others are not. There are intense efforts by reputable managers to secure commercial and technical responsibilities.
Players and their moves
Several big name owners were overcome by liquidation problems after serving the box market for decades. One such household name – Bertram Rickmers – has now returned to the business by taking over eight 1,162-TEU feeders under construction at Fujian Mawei, China. A new privately owned company Asian Spirit Steamship Co has been established by Rickmers to own the ships. The vessels were originally contracted by Germany’s Marlink Project Management to an inhouse Bengalmax design. German owners, designers and charterers still exert a strong influence on the container scene.
Marlink will be heavily involved in a new commercial management company for the vessels. Long associated with quality vessels, the newbuildings will be fitted with scrubbers to comply with IMO 2020 emission legislation pushing up the price of the ships to US$20-22M apiece. Third-party technical management will be undertaken by Jebsen Shipping Partners (JSP) for the first two ships due for delivery in January and February 2019. JSP is competent in operating several feeders in this capacity range. Management is so competitive now that long-term deals are out of the question. It is believed JSP has negotiated a two-year deal with possible optional extensions. In this range most vessels are built gearless as it impairs TEU capacity. This is still an option by Rickmers at a future date.
Gear decisions are very much based on trading area and charterer requirements. Fitting scrubbers at around US$1-2M per ship depending on size is a vexed issue with owners. Not many at this stage will follow Rickmers, in contrast to deepsea ships, where there is a good take up of scrubbers among newbuildings. Clean fuel and operating costs will be a key consideration in the months ahead but is not expected to tempt feeder owners initially, especially for existing ships.
Draft, fuel consumption and TEU intake are said to make the Bengalmax very competitive in southeast Asia and persuade charterers to pay higher rates. Clean trading with new equipment such as scrubbers and ballast water treatment systems will persuade charterers to offer higher rates for green tonnage. The first move has been made to build next generation feeders operating on hydrogen fuel cells. Icelandic operator Samskip is leading the way with partners and has received a US$6.9M grant from the Norwegian Government to pursue the project. Norway will feature strongly in the trading route which will link Poland with Sweden and Oslo Fjord on a round trip.
Greeks are among the biggest investors in shipping with a big box ship fleet. This is not apparent however in the feeder trades. Currently no Greek owner has a feeder on order. Greek cabotage is mainly handled by overseas owners. One owner determined to change this is Contships Management Inc which has now built up a fleet of some 30 ships based on purchasing ex-German related tonnage.
Assets acquired from enforced sales is a speciality of the company run by Nikolas D Pateras who has a single-minded ambition to turn Contships Management into the leading Greek owner and operator of feeder ships. Seven ships were recently purchased in quick succession lifting the owner’s complement to over 30 vessels. Over the next two years Mr Pateras plans to double this total and consolidate its growing position as a leading player in the feeder business.
© 2023 Riviera Maritime Media Ltd.