The Containerships Market in 1998
The containership charter market remained in free fall, with declines
accelerating in most sectors throughout the year. With all new tonnage that came on
stream, the older and slower vessels have been permanently cutting their rates and
accepted lousy terms just to stay employed. The lists of open vessels remained long in
almost each category and we have seen a number of owners constantly willing to undercut
the last done fixture.
In this spirit, owners often had to accept ballasting considerable
distances for their charters, sometimes even for relatively short term fixtures, and
additionally wait to deliver their vessels.
In addition to the phenomenal amount of new-buildings delivered this
year, a great number of long term charter-parties fixed during the strong market in 1995
came to an end in the course of 1998 and naturally created extra pressure on the market.
Charterers being extremely confident that the market was continuing to
move in their direction, we naturally observed shorter charter periods which then quickly
became a further destabilizing element. With many ships fixed for round-voyages or short
interval periods, a multiple of vessels have been landing back on the market regularly.
We wont spend too much lines on statistics, but here below the
highlights observed in 1998. A total of 302 newbuildings have been delivered this year in
the range 150 teu and upwards, and although the number of, scrapped units in 1998 (just
over 50) is now becoming more sensible, it is still far from having any influence on the
In certain categories, mainly the large sizes, the orderbook is still
extremely important. For instance, the size 5,000 teu and upwards, where some further 41
units are still to be delivered. This represents over 80% of such existing tonnage.
Another 78 new vessels are still expected in the size 1,000 to 2,000 teu (about 10% of
existing fleet in this size); a pretty worrying fact, considering the existing
overtonnaging conditions already prevailing on that sector of the market.
Only a few categories show more reasonable figures, such as the small
sizes up to 500 teu where only 3% of the existing fleet is still on order, or the 3,000 to
4,000 teu with less than 6%.
Beside this foreseeable overtonnaging situation, other aspects have
driven us into this depressed scenario.
By the middle of last year, carriers active in the North Europe / Far
East trades were more optimistic about prospects than they had been for a very long time
and lots of efforts were made in order to develop such route by the major container
operators. Some 18 months later, the picture is totally reversed. No doubt the Asian
economic crisis has had an enormous impact on international container trades. On the
worlds trunk routes, except for the Atlantic trade, the supply / demand situation
for container flows from Asia has improved remarkably as a result of a sharp increase in
cargo shipments from Asian countries. As far as this year is concerned, liner companies
active on the Asia / Europe route have been able to restore rates (freight rates have
improved by almost 60% from end of last year). By contrast, Asian bound cargo flows have
decreased sharply due to a decline in the purchasing power of many Asian countries. As a
result, the imbalance between out-and-inbound commodities has widened month after month
and thousands of empty containers were stacked up in major western hubs, awaiting
redistribution into Asia. Furthermore, intra-Asian liner operators severely reduced the
frequency of their services through joint operation and space charters. Such logistical
nightmare and its financial consequences have created an operating problem of major
proportions to all container operators.
According to some Seatrade analysis, main affected trades are both the
Transpacific and Asia / Europe shipping lines. Transpacific imbalances are expected to be
in the region of an estimated 1.6 million boxes in 1998, with the backhaul trades
accounting for about 70% of the fronthaul. Driven by continued growth in Chinas
exports and expected flatness in Asian imports, this deficit is expected to grow to about
2 million in 1999, 2.3 million in 2000, 2.5 million in 2001 and 2.75 million in 2002. At
that point, the backhaul ratio could be close to 50%.
No doubt the liner industry will need new ways of coping with such
imbalances and their impacts. Specifically, the container alliances will be pressured to
take further steps to rationalize further container fleets and inland moves.
Showing the significant impact of Asias turmoil on worlds
economy are the following figures: converted into teu, the worlds growth is expected
to have increased by only 2% in 1998. In 1997, such progression had been estimated to
about 8.5%. According to analysts, such annual growth is however expected to pick-up again
to about 3% in 1999 and about 6% in 2000.
As we stressed last year, the race for consolidation has been
accelerating sensibly. The revised Grand Alliance, in which OOCL and MISC joined Hapag
Lloyd, NYK and P&O Nedlloyd, and the New World Alliance of APL (former APL/NOL), MOSK,
and Hyundai Merchant Marine, were phased in early this year, while Hanjin Shipping pulled
closer to former TRICON partners, DSR-Senator and Choyang.
A number of further grouping took place in 1998: partners since the
beginning of the year, Compagnie Generale Maritime, Marseille Fret and Contship run
together a "round the world" service with 2,200 teu ships and one sailing every
ten days. CGM also took over Australia National Line with three ships for about 7,000 teu
trading between Asia and Australia.
In France, Compagnie Maritime dAffretement announced a new
partnership on the Europe / Asia route with Swiss Norasia that quitted MSC.
One big name regularly making headlines in shipping newspapers has been
CP Ships. In the course of the summer, CP signed a 50/50 alliance with Transportacion
Maritima Mexicana. Such agreement involves the liner activities of TMM and CP Ships
two subsidiaries, Lykes Lines and Ivaran. CP Ships were regularly mentioned for further
approaches and is now a major player on North / South trades.
In Italy, the state-owned group Finmare concluded the sale of Lloyd
Triestino (LT) and Italia di Navigazione to private interests. LT went to Taiwanese
Evergreen with whom they were already cooperating on a few routes linking Europe to Asia
and Australia. Such decision was an evidence of major carriers looking closely at breaking
seriously into the Mediterranean market.
Italia di Navigazione on the other side, remained with Italian partners
and was taken over by DAmico with whom they were also formerly operating the
Mediterranean Basin / Pacific (West Coast US) service.
In Germany, Hamburg Süd took over Alianca.
In South Africa, Safmarine, which took in July the full control of SCL,
was officially announced at the end of the year as being themselves for sale. Controlling
a total fleet of about 40 units, 16 owned and serving routes between Europe / Africa and
the Indian Ocean region. This shows how fast the scene is changing since you will remember
than just two years ago, Safmarine was together with a group of companies bidding for the
privatization of the French state-ruled company, CGM.
A number of further talks were also taking place around Latin America.
Container lines operating between South America, Europe and the US were reported to take
the necessary steps to reduce capacity by as much as 30% in response to poor volumes
triggered by the Asian crisis and chronic overtonnage.
Further joint ventures were about to be made public at the very end of
the year involving Hamburg Süd, Alianca, CGM and Transroll between South America and
Europe. On the South America / US trade, other negotiations were rumoured to be pretty
advanced for another grouping where Maersk, Sea-Land, Hamburg Süd and CSAV would be
Paradoxically, at a time when most carriers are forming alliances or
mergers with former competitors, the Swiss MSC is one of the very few, along with
Evergreen, that now stays without a partner on the Europe / Asia routes. They now operate
this service with 10 ships of 3,300- 3,700 teu offering a weekly service.
Another major explanation for such an ugly year in liner shipping also
comes from the wrong analysis of the market by some shipowners and banks. Obviously, too
many owners in Germany had been ordering new ships, thinking primarily of tax advantages
rather than taking first into account commercial considerations. Everybody on the market
is now fully aware of this situation, and, in any case, this is going to change. Indeed,
1997 was the last year when German investors could be able to benefit from a "loss
allocation" of 12.5% of their original investment. With the amendment of the law and
the elections in Germany, we have seen German Shipping Funds decline from a level of about
3 billion DM in 1997 to about half that level in 1998.
Like every year, we shall try, within a few lines, to describe the
trends for the various sizes in the market:
Mare Internum - 2,959 teu, 34,800 dwt, 22
knots, delivered Dec 97 by Hyundai.
Controlled by Hansa Mare, Bremen