Global upswing pulls caribbean charter market along

CONTAINER CHARTER MARKET REPORT FOR THE AMERICAS / CARIBBEAN REGION, JANUARY TO MARCH 2018

During the first three months of the year, a very dynamic market with strong demand for smaller container tonnage, especially in Asia, caused charter rates to increase substantially. The Caribbean market presented itself relatively balanced and actually registered a small decline of three fewer vessels employed on Latin America related services (up to 3,000 TEU) at the end of March compared with the end of 2017. In intra-Europe and intra-Asia services, however, 22 more ships are trading now than at the end of last year. As a consequence, ships that left the Caribbean trading area due to upcoming special surveys did not all return after leaving the dry dock, as the Caribbean ‘premium’ had pretty much disappeared by the end of March.

Throughout the first quarter of the year, barely any ship, regardless of size, had run into a spot position. This good utilization, in addition to higher rates, also led to periods with reduced flexibility.

At the beginning of the year, ships of 2,500 TEU employed in high reefer trades were still able to command a bonus of around US$ 2,000. With the general market increase, however, standard tonnage had caught up by March and also managed to achieve earnings in the US$ 11,000 levels. A very interesting development in the high reefer segment has been that one of the fruit majors for the first time utilized two gearless 2,700 TEU high reefer ships to run a service between the US East Coast and Central America.

The 1,700 TEU segment also continued the positive development from the end of last year and moved from high US$ 8,000 levels to over US$ 10,000 by March.

Outperformed

Once again, the 1,300 TEU high reefer category outperformed the slightly larger ships and moved from mid US$ 8,000 to mid US$ 10,000 levels. Charter rates had even reached levels where some charterers were reluctant to fix periods longer than around six months as the rates were deemed to be high. Some pressure on this segment could result from the upcoming closure of one reefer-focused transatlantic service which had been run mainly with such vessels.

The market for 1,100 TEU vessels was most active during January, when several ships were extended at high US$ 7,000 to low US$ 8,000 levels. Modern, more fuel-efficient ships remained popular and were able to fix for about US$ 2,000 more than a standard 1,100 TEU design. In February and March the market was quieter, though the few remaining ships were even fixed for higher rates reaching close to US$ 9,000. The trend towards more gearless ships trading in the Americas almost continued as well in the 1,000 TEU size segment, but two ‘European design’ ships with ice class and good 45 ft container intake, intended to run a Caribbean string, failed on subs.

Again, a 700 TEU gearless ship positioned from Europe for a new US-Mexico service. Otherwise, little activity showed in the category below 1,000 TEU. In particular, the very small ships of under 800 TEU continued their decline in numbers as good employment opportunities could also be found in the Mediterranean. As of the end of March, fewer than 10 charter ships in this size range remain. Charter rates stayed relatively strong, with levels between mid US$ 6,000 and mid US$ 8,000 depending on exact size and specifications.

The US administration has requested a study into the effects of waiving the Jones Act for services to Puerto Rico. At first this appears to be a positive note for container liner services, but as currently there are only two strings running directly from the US, the effect from such a loosening of the Jones Act would be very limited.

Macroeconomics

Strong global economic growth figures are now overshadowed by the trade war between China and the USA. Although not directly affecting the Caribbean economies, less global trade is likely to slow down global economic growth, which in turn will have an adverse effect on the demand for Caribbean products.

GDP forecasts for the Caribbean and Latin America are positive, with +1.9 per cent in 2018. Those numbers, however, lag well behind the global average of 3.9 per cent. The reasons for this gap are seen in a lack of infrastructure investments and inefficient tax systems and regulations, which often create the wrong incentives for businesses.

On a positive note for trade, the Caribbean Export Development Agency has set up a cooperation with the EU to give financial grants to private businesses which manufacture goods for export.

Good signs are coming from Mexico, where despite all the talks about tariffs the manufacturing sector is expected to increase by 3.4 per cent in 2018 – even stronger than the 2.7 per cent rise in overall GDP.

Colombia is forecast to slow down some, but should still produce growth figures of around three per cent. Due to those reduced expectations and the lessening inflation, Colombia’s sovereign credit rating has been downgraded. Brazil also had to accept a downgrade of its debt worthiness. Overall, though, the average rating of the major Latin American countries is much better than a year ago.

In Venezuela, the situation is turning from bad to worse. About 10 per cent of the population has fled the country due to lack of food and other basic necessities. The political opposition estimated the economy to have shrunk in 2017 by 13 per cent. The number of regular container services calling at a Venezuelan port has come down to just seven with only 11 ships involved. Neighboring Colombia, by contrast, currently has 24 services with over 50 ships deployed just for intra-Americas trades.

The Cuban economy is struggling as well. Waning energy support from Venezuela, slow reforms, no progress in relations with the USA and natural disasters have all had an impact on growth prospects. In 2018 the economy of Cuba is expected to grow by just one per cent.

Sale and purchase of container tonnage

A lot of ships in the size range below 3,000 TEU have changed hands during the first quarter of 2018. The combination of rising charter market levels and some aggressive buyers with large financial reserves has driven up prices substantially. For example, one 2008-built 2,500 TEU ship, trading in the Caribbean, has been sold twice within one year, first for about US$ 5 million and then for around US$ 10 million.

The four 1,100 TEU vessels ordered by an American operator, slated for early 2018 delivery, have still not been delivered yet and otherwise the global containership order book holds little tonnage below 2,000 TEU that looks suitable for Caribbean trading. One operator purchased a standard 15-year-old 1,100 TEU vessel, which may hint at the upcoming shortage of such tonnage in the next few years due to the increasing average age of the fleet.