Russbroker Caribbean Market Review

Record rates not seen for over a decade!

Container Market

The year 2020 ended with phenomenal charter rate increases and reached record levels not seen since 2008. The “Contex” for example went from a low of 308 points in June to a high of 720 points by very early January 2021. This marks the highest value since the global financial crisis in 2008 and passes the previous “post-Lehmann” high of 600 points in 2010.

This development was driven by several factors. First of all, transportation demand rebounded sharply as warehouses had been run empty by early summer and restocking was needed. As a consequence, freight rates between Asia and the United States rose strongly. Additionally, a big imbalance in imports and exports absorbed a lot of containers into the United States and the consequent shortage in equipment further drove freight rates up. Latin America also contributed to the imbalance in containers as during the first nine months of 2020 the number of imported TEUs shrank by 11% while exports remained just above 0%. Higher freight rates in turn led operators to change services and deploy extra loaders in order to maximize the share of high-paying freight.

From all this resulted a large demand for container ships starting in the larger vessel size and then filtering down as segment after segment had been sold out. By the end of 2020 there was barely any prompt container vessel available in the Atlantic, regardless of size.

The demand side push was mainly driven by the Pacific market but at the same time in Europe supply was also shortened. A relatively high number of technical breakdowns, extended shipyard stays due to missing personal or spare parts caused by coronavirus restrictions, ships being quarantined, delays due to bad weather and port congestion either due to lack of shore work or strikes, all reduced the effective capacity.

Generally, the Americas “bonus,” normally being paid for the higher operating expenses compared to Mediterranean trade has completely disappeared in this very strong market as ships in Europe are also able to command very high earnings. The disappearance of the “Caribbean premium” led to a higher number of ships than usual, leaving the area towards Asia or Europe for scheduled dry dockings, as higher costs and longer stays at Caribbean shipyards could not be balanced by higher rates afterwards. At such high charter rates, a lot of options were also declared.

Among the typical feeder sizes in the Caribbean, the largest segment of 2500 TEU enjoyed the largest rate increases. In September standard 2500 TEU ships were still fixing between US$ 8000 and US$ 9000 and fuel economic ones just under US$ 10,000. By early November rates had escalated to above US$ 14,000 for standard ships. In Asia rates rose towards the end of 2020 to over US$ 18,000; in the Americas there just were no ships fixed at all during December.

In addition to rates not seen for years, owners oftentimes where also able to achieve, or even dictate, longer periods and even two-year periods were not uncommon. Short periods of just a few months came at large premiums, some ships in this size category fixed US$ 25,000 and more for intra-Asian trade.

As no ships were readily available in the Americas at the end of 2020 or for early 2021 dates, charterers had to look at tonnage coming open in Europe and also had to offer basis “as is” positions.

The segment of 1,700 TEU did not register such large jumps as the other sizes, which however was most likely attributed to the low fixing activity towards the end of the year. The last 1,700 TEU Americas fixture in 2020 occurred in early November and reached just over US$ 9,000. In late summer such ships had gone for around US$ 8,000. Any new fixture should however be well above US$ 12,000 as there were no prompt vessels available at the end of 2020 and similar ships had been concluded at over US$ 12,000 and US$ 13,000 US$ in Europe and Asia respectively. On the WCSA one operator closed its own feeder service run with a 1,700 TEU ship and gave the cargo to a common feeder operator who extended an existing service by chartering in a fourth 1,300 TEU ship.

In September the 1,300 TEU high reefer segment, despite relatively low idle numbers, still had to fix rates between US$ 6-7,000 levels. In October earnings improved to mid US$ 8,000 figures and after a sister ship led with a very strong US$ 11,000 fixture in the Mediterranean in November, the ships in the Caribbean also followed suit.

At such high levels, operators tried to optimize their costs as much as possible and one ship had been offered for a possible relet of a couple of weeks during the somewhat quieter Christmas season.

There was quite some movement in the 1,300 TEU segment. One gearless 1,200 TEU ship which had been trading in the Caribbean for many years was first redelivered in the spring, then went to North Europe in order to pass its class survey and then, after being unemployed for several months returned to trade in the Caribbean again. Another gearless 1,300 TEU ship took advantage of the regular aid cargoes from Turkey to Venezuela to position into the Caribbean where it consecutively started a period charter. Finally, a 1,300 TEU geared ship fixed a one-to-three year charter at an escalating rate, starting in Northern Europe but for eventual trade between the USWC and the Pacific Islands.

The 1,100 TEU category provided lots of activity during the fourth quarter of 2020. Charter rates rose from high US$ 6,000 levels to over US$ 10,000 for the last fixture reported in 2020 at the end of December.

A Mexican ferry operator plans to start a new domestic service with two yet to be chartered 1,000 TEU ships in January. This venture however remains questionable as tonnage availability is so low. Other Caribbean charterers were also looking unsuccessfully for 1,100 TEU ships in the Mediterranean during the fourth quarter and had to settle for service reorganizations or even charter in multipurpose vessels.

Despite the shrinking fleet and yet continued demand the rate development for sub 1,000 TEU was lagging behind the larger ships. 900 TEU vessels followed a similar path as the 1,100 TEU ships but 600 to 700 TEU ships were still fixable at mid US$ 6,000 thousand levels by the end of 2020.

One charterer had to position a 700 TEU geared vessel, which he already had on charter in the Mediterranean, to the Caribbean as a number of those ships were sold to new owners who are no longer interested in container trade. Due to this development the remaining vessels are in a stronger market position and rates should rise in the near future.

With owners oftentimes being able to chose from various business opportunities, operators wanting to trade to sanction-burdened countries such as Cuba and Venezuela, found it increasingly difficult to source tonnage.

Macroeconomics

The overall economic situation is still dominated by the effects of the Coronavirus. Most of the Americas and Europe are in the middle of the second wave and are grappling with extreme strain on their health-care systems. In order to combat the spread of the virus, many countries restricted public life during the fall and winter. As a consequence, tourism has come to a standstill, disposable income is down for many and spending on services has contracted sharply.

Due to all those negative effects, the global economy is projected to contract by about - 4% in 2020, but the consensus amongst economists is that 2021 should bring a recovery of around + 5.5%. Both South America and the Caribbean Area are however forecasted to do much worse than the global average. Not only is the economic downturn in 2020 stronger with about – 8% for South America and – 5.5% for the Caribbean, but the improvement for 2021 is also expected to be much lower with just + 3.5% and + 4% respectively.

On an individual country level Jamaica, for example, expects an economic decline of between 10% and 12% for 2020 followed by a recovery of only 3% to 6% in 2021.

Colombia, which had been a positive driver for the Central American and Caribbean region in recent years, is struggling with coronavirus, high numbers of refugees, rising violence and private banks coming under pressure. All those factors caused the state’s credit rating to be downgraded and the economic figures paint a similar picture to the area’s averages with -8% and +4%.

Venezuela’s importance in terms of trade has all but disappeared with 96% of the population now living in poverty. With a leadership that controls all branches of the government, there is little hope any for change in the near future.

Even countries which have a higher share of commodity exports among their economic output, such as for example Trinidad & Tobago, depict a twice as strong decline with over -5% in 2020 and only +2.5% recovery in 2021.

Sale & Purchase of container tonnage in the Caribbean

With the rebound in charter rates and the improvement of the coronavirus situation in the summer, the sale and purchase market also came back to life. Physical inspections, crew changes and handovers proved to be very difficult to conduct under lockdown conditions and consequently put many sales on hold during the first half of 2020. But once the coronavirus situation improved during the summer and rising values prompted many lenders and also a quite a number of owners to cash in; more than 100 container ship sales occurred during the second half of 2021.

Prices also increased strongly. During the summer, 15-year-old, standard designs such as the CV 1,100 and Wenchong 1,700 went for just over scrap value at US$ 2 and US$ 4 million respectively. By the end of the year the values had almost doubled. Several ships trading in the Americas were also sold; most following the trend of recent years that they changed ownership from German to Greek hands. A package of five vessels of the popular, high-reefer Mipo 1,800 design, as well as two more CV 1,100 types found a new home in Greece.

Against the current trend of end users buying second hand tonnage to hedge against the very tight charter market, one 1,100 TEU ship owned by a liner company, which had been trading between the USWC and Pacific Islands, was sold to Asian interests and a geared 900 TEU ship from another operator had been offered for sale, but the asking price could not be achieved. One major operator on the other hand bought more than a dozen ships of 1,700 TEU and larger during the fourth quarter of 2020, though none of them were trading in the Caribbean.

Another continued trend of recent years was the exodus of sub-1,000 TEU tonnage. A 600 TEU gearless ship and a 700 TEU geared vessels, both had been trading in the Americas for years, were sold to Mediterranean-based buyers who converted the ships to general cargo vessels. The same development can also be witnessed in Europe were several small container ships were sold to be converted to general cargo ships.