Markets head for slowdown as Global economy weakens

By Jan-H. Heikes

Container Market

In the 1,700 teu and 2,500 teu ship sizes the Caribbean charter market has followed the global downward trend. Vessels with high reefer intakes are still able to earn a premium of between US$ 1,000 and US$ 2,000 but standard tonnage has come down to the same low levels (US$ 6,000-7,000) that ships can earn in Asia or the Mediterranean.

The 1,300 teu segment once again proved to be more resilient, resulting in about 20 per cent higher rates than the bigger vessels can achieve. The categories of 1,100 teu and below are relatively stable, with earnings in the mid to high US$ 7,000s.

Although only about 30 containerships between 500 teu to 900 teu are currently employed in Central and South American services, a special focus should be cast upon this segment. Strong demand, resulting in relatively high rates (US$ 7,500) and long charter periods, have even enticed two 700 teu ships to retrofit cranes in the Far East and position to the Caribbean.

Today, about the same amount of teu capacity (all vessels up to 3,000 teu) is being deployed on Latin America-related services as at the beginning of 2015. Compared with the peak in May 2015, however, the active fleet has been reduced by about 4 per cent.

The fact that the first new eco ships such as SDARI 1100s and SDARI 2400s have moved over from Asia during the fourth quarter underscore the need for high-specification tonnage in the Caribbean market.

Sale & Purchase of Container tonnage in Caribbean

This year’s trend of carriers taking advantage of low asset prices continued throughout the last months of the year as two high reefer 2,500 teu ships have been purchased by a specialized reeferized fruit carrier. A CV1100 was sold and is to stay in the Caribbean market, a 500 teu geared ship has been sold to a European operator and left the Caribbean market. It was replaced by a gearless vessel.

Merger & Acquisition

The worldwide shipping community is looking at CMA CGM purchasing NOL, of which APL is a part, and COSCO and China Shipping merging. The Caribbean shipping market saw Crowley taking over Seafreight, thereby supplementing its liner service network. In Europe, Transatlantic of Sweden sold its Baltic/Continent service to SeaConsortium.

Macroeconomics

Economically, the neighbor countries Venezuela and Colombia are currently moving in completely different directions. Colombia’s GDP is expected to grow by about 3 per cent in 2015 and several container terminals are undergoing modernization and expansion projects. Venezuela, on the other hand, faces serious economic woes. Dependence on energy exports coupled with record low oil prices has caused its GDP in 2015 to shrink by about 6 per cent. Furthermore, the country has to deal with a massive inflation rate of 200 per cent, the world’s highest. Brazil has now entered into a recession with the third quarter showing a hefty 4.5 per cent annualized GDP decline.

From a transport perspective, the situation for Central America and the Caribbean, however, looks much better. Although US$ export values are projected to decline in 2015 by 3.7 per cent in Central America and 17.3 per cent in the Caribbean, export volumes are up by 3.5 and 3.9 per cent respectively. Imports paint a similar picture, with negative monetary values but 6.6 per cent and 2.0 per cent increases in volumes.

China’s economic slowdown so far mainly affects the import of raw materials. Its strategic directive to emphasize domestic consumption and rising disposable incomes, however, will have a positive effect on imports of food and agricultural products. A similar trend can also be registered globally as demand for fresh food products is expected to remain strong for the next couple of years. This development should positively affect the economies of some Caribbean countries and increase the demand for reliable containerships with good reefer intake and speed values.

Negotiations over the relaxation of trade embargoes between Cuba and the US stalled during the second half of 2015.

Reefer

After a long, slow and difficult summer, owners finally saw some light at the end of the tunnel when a number of vessels were fixed for bananas from ECCA during the first half of September. These shipments were destined mainly for Mersin. The excess cargoes turned out to be a significant seasonal bananas surplus in Central America and Colombia and fixtures continued through the first half of November.

The upswing did, of course, please reefer operators and supported the charter market as it resulted in an ongoing congestion in Mersin. Consequently, the market for large vessels shortened and operators were suddenly partly lacking tonnage for their contracts out of Spain/Morocco.

The number of ships fixed, coupled with the congestion and scheduling in for Chile to start loading the first stone fruit and grapes expected from week 48 onwards, cleared the charter market of open tonnage. Owners, however, only managed to achieve higher time charter rates as of the end of October. Generally, though, returns had been stable due to a steady decrease in bunker prices.

This situation certainly helped to increase the demand for the smaller segment, which had a tough time with a dip in rates from August till October due to the lack of fish requirements / missing quota for Nigeria. The potato shipments that slowly started in the middle of October combined with drydocking, other spot activity, followed by trawlers returning to the fishing grounds, leaves operators looking positively to the coming season.

As the supply of capacity tightens, the market will continue to strengthen, but the effort to drive rates higher has so far only been successful in achieving small steps.