Feeder trades are going from strength to strength, with charter rates hitting highs, writes Barry Luthwaite
While all the headlines seem to concentrate on larger sizes in the box business the past year has seen a phenomenal rise in feeder contracting as ports gear up for an improvement in global trading. That recovery has been a long time coming but the recession in deep sea trades has not impacted on the feeder trades. They continue to go from strength to strength as the container giants have been forced to cut the schedules for economy of scale and employ more feeder links to cover.
After a year of drought, ultra large containership orders have resumed, with the highest capacity so far of 22,400 TEU. Within a more bullish market the situation has changed again for feeders that, if anything, has improved their fortunes still more. In January it was almost a ‘name your price’ scenario with charter rates hitting some of the highest recorded in many months.
Even smaller 1,000 TEU range feeders touched US$6-7,000 a day on the spot market or on short duration period charters. Existing deep sea ships of around 8-9,000 TEU are unable to reach this figure and are becoming an endangered species. Owners know this and the current orderbook does not even show one vessel under construction between 5,200 TEU and 9,450 TEU.
The market will undergo profound change in the next two years and this has seen a preparatory run on contracting resulting in newbuilding feeders and shortsea traders reaching 238 vessels since the start of 2017. This bullish situation will continue, mainly because of economies of scale, with port calls by the majors centred more on port hubs, and an anticipated rush of vessels for recycling by 2020.
New mandatory emission control legislation at the start of that year will force many older or non-compliant deepsea vessels out of business. This shake-out has been a long time coming but is badly needed for a more stable market that will benefit all.
Despite the KG debacle, German owners remain among the strongest in the business in spite of a decimation of fleets and traditional owners. Consortiums have been formed giving such alliances a more competitive framework, especially in Europe. Hitherto, such plans have never worked due to owner-protection of individual fleets and trading relations but sweeping mergers, bankruptcies and distress sales have dramatically changed today’s perception.
German banks still stuck with KG-financed tonnage have decided to part with them and the low prices on offer brought a record number of sales in the box ship market overall topping one million TEU throughout 2017. Banks cut their losses but predators know a bargain when they sense one.
For feeder owners, they must balance both asset positions of newbuilding and secondhand acquisitions. Some argue that newbuilding is still a risky business but prices remain low and are bound to rise giving the opportunity of asset play at a later date for a higher price often with charter employment. Then there is the “certainty” of much scrapping by 2020 forcing charterers to employ more modern tonnage.
A big mover in asset play is MPC Container Ships (MPCC), of Germany, which was only formed in April 2017 but already controlled a feeder fleet of 57 ships in the space of just nine months. The company has its sights set on 100 feeders. In business you need good planning and luck and MPCC certainly struck the latter. Since April 2017 there has not been a single month without it making acquisitions, all taken on a secondhand basis and largely from distressed companies.
Large injections of finance were raised in Norway and an Oslo listing is projected with an IPO in New York under consideration. Investors have been encouraged by the current market prospects and prompt delivery of acquired vessel assets. In some cases whole fleet purchases were involved and, no diubt, previous customers re-engaged. Such consolidation in the feeder trades has bred confidence and MPCC has a foot in Asia as well as Europe.
The big mover in newbuildings is China with 59 feeders currently on order occupying almost a quarter of business. The country has finally got to grips with the necessity to improve port infrastructure and acquire feeders to serve its hinterland and cut congestion in ports. Some of these are low air draught river/sea types, including a contract recently placed with WUT Guangha for six 1,140 TEU units that will be equally shared by COSCO Shipping, Sinotrans & CSC and Zhonggu Shipping. More self sufficiency, though, will eliminate some overseas feeder charters.
One reason behind 1,000 TEU vessels proving so popular is accessibility to smaller ports and, for callings in Japan up to 10,000 gt, reduced port dues apply. One of the biggest casualties in recent months was Bertram Rickmers, which was forced to declare insolvency when bank support was withdrawn. Now the proud owner has bounced back with private family money to finance the purchase four of six 1,162 TEU feeders under construction at Fujian Mawei, China, for Germany’s MarLink Project Management. Six vessels are still held on option.
The vessels are so called Bengalmax designs from MarLink with two more on order for MTT Shipping, Malaysia. Zeaborn of Germany, which purchased some of the liquidated Bertram Rickmers stock, was also involved in the acquisition of shipmanager ER Schiffahrt (Erck Rickmers) and management of its containerships, mainly in the feeder category.
Sentiment is high in the feeder sector for now. Altogether 52 containerships in excess of 20,000 TEU are on order with 23 of these due for delivery in 2018 and a further 18 in 2019. The remaining 11 are due to commission in 2020 and 2021. All will need feedering and serve the Asia/Europe lucrative service.
The biggest reefer containerships now reach 10,600 TEU aided by a deeper and wider Panama Canal lock system. Some of the feeders on order are designed with reefer slots to cater for demand, especially in South and Latin America regions. In recent months there have been complaints from the big operators of port congestion as the largest ships were taking 48 hours to discharge and load, which was disrupting their schedules – much to the advantage of feeders.
This has partly accounted for feeders’ freight rates well above normal but likely to be sustained. Another bonus for feeder operators is a lack of barge provision for internal port delivery to local destinations.
In addition to feeders, much attention is being paid to replenishment of barge fleets in the form of zero emission targets and cleaner propulsion such as LNG and battery power. Several are on order to serve the low countries and hinterland.
So can the feeder boom continue? On the surface, there is no reason why not and, as in Europe, congestion also applies in Asian ports. This is partly why China is attracting so many feeder orders, including from overseas owners.
Much depends on increased scrapping in the next two years and charterers being forced to take emission-compliant tonnage. Either way, the challenges are there to be met but, for once, where owners rightly complain of too much legislation and interference from politicians in the maritime industry, in this instance it may prove to be a winning hand.