With more than 90 new vessels coming out of yards during 1998, we observed a continuing cascade as older tonnage was being redelivered from existing contracts. A large number of vessels found no other alternative than to fix single trips, again taking advantage of exports expansion from the Far East. As a result, the imbalance in rates between the Far Eastern and the Atlantic markets has narrowed terribly.

Every order was meeting tonnage in a prompt position and rates suffered tremendous pressure. At the end of the year, geared vessels of 1,650-1,750 teu range were down to some $7,750, down from 8,500 in the fall, 9,250 after the summer, region 11,500 at spring time and about 12,000 daily a year ago. Less than 3 years back, ships of this type were beating records at peaks close to $18,000.

Another clear observation is that the rate differential between geared and gearless tonnage has virtually disappeared for vessels offering good speed performances. This was evidenced for instance, by the fixtures concluded by Maersk of the "Cape Norman" and her sistership, 1,504 teu, 21 knots, fixed in August for $9,450 for 6 months. Slower units were still taking a beating like the "Global Horizon", 1,552 teu, 19 knots, fixed at the end of the year for only $6,000.

Showing the significant softer market in the medium sizes are the "Birte Ritscher" and the "Wieland", 20,000 dwt, 1,452 teu, 19 knots and geared, fixed for 6 months in September to OTAL at $8,500 a day. Their last charter was $10,500 back in February.

In September, the "Olivia", 20,000 dwt, 1,388 teu, 18.5 knots, was reported extended at $8,000 a day, down $2,500 from her original fixture in March to South Americans.

Again with the huge number of newbuildings, the lower sizes experienced very soft conditions.

At the end of the year, the geared "Lilly Rickmers" and the "Mai Rickmers", 1,162 teu, 17 knots, were chartered to CGM and Sea-Land for $7,000 daily. "Elise Schulte" and "Auguste Schulte", 17,520 dwt, 1,208 teu, 17.5 knots, were reported gone at $6,850. Back in the spring time, those vessels were still earning $9,750. Faster vessels were as always doing a little better, as evidenced by the extensions of the "Castor" and "Saturn", 18,400 dwt, 1,150 teu, 18.5 knots, by TMM for $8,800 daily, although itself $1,700 lower than rates paid for such units back in June 1998.

Being often replaced by above modern tonnage, traditional compact vessels such as RW49 continued to take a beating with numerous vessels open on a prompt basis, rates have been falling from around $8,700 at the beginning of the year, slipping to 8,000 and then low 7,000 during the summer. They finished the year in the very low 6,000s.

Ships in the 500-700 teu range experienced contrasting fortunes, as demand in the Far East has evaporated. The gearless sector (where much less good choice was available) remained surprisingly stable. This category benefited from increased interest in the Atlantic, Mediterranean and Baltic. Some of the fastest units even managed some increases over their last fixtures. In the autumn, we observed that fast quality, shallow compact 700 teu ships were even commanding premiums on standard 1,000 teu designs.

In the lower part of this category, smaller ships were also holding up for a few months compared with the upper categories, although rates were also softening at the end of the year.

Ships from 200 to 499 teu

Alike the preceding category, the market for 200 to 500 teu ships has stayed fairly stable and the modern, fast units managed to resist the general trend during the first months of the year. Ships that were aiming at rates in the region of $6,000 at the end of 1997, were finally fixed well below this level at the beginning of the year.

At the end of the year, similar tonnage was willing to fix sensibly below the five thousand dollar bar. In the smaller sizes, short term business prevailed and geography determined the softness of the rates. Some non-cellularized tonnage obviously turned to other markets such as the mini-bulk or project cargoes for those with heavy-lift capacity.

Ships fixed in the Atlantic were generally having better earnings. For example, the "Aron", 4,870 dwt, 333 teu, geared and 14 knotter, gone in May for 6 months Caribbean trade at $4,600 or the "Angelica Schulte", 370 teu, 2 x 40 tons, 15.5 knots, at $4,800. While, in the Far East, similar size, but often slower ships, were forced much closer to the four thousand dollar level, for instance, the "Srakane", 336 teu, 2 x 25 tons, 12 knots, extended for Indian Ocean trade for 6 months at $4,100.

Smaller vessels such as "Uglegorsk" types, 221 teu, 2 x 25 tons cranes, 12 knots, were fixing in the mid threes at the end of the year and a number of vessels were still left on the lists.

Clearly the overtonnaging has now become frightening and analysis of changing demand patterns gives no big reasons for optimism, as even the introduction of new strings fails to make any significant impression as large and speedy new vessels continue to enter the fleet.

As observed above, with a few exceptions, all sectors continued to experience weakness and at the end of the year, charterers placing new orders on the market were submerged with avalanches of proposals. Given the lists of prompt tonnage, the feeling was shared by all actors that we should remain locked in this depressed environment for some time.

So far, the situation has not become so bad as to force ships into lay-up. However, as rates continue to tumble and owners’ earnings erode, attention is switching to the bankers to see how they will respond to their clients’ plight in the next few months. With the prevailing trend, rates are unlikely to be sufficient to repay the mortgages and a continued depression in the market could well force many lenders to reconsider their strategic position.

Another worrying factor is the decline of the US dollar. The Deutsche Mark is now about 12% off its heights and owners who are constantly suffering lower rates, are now being doubly hit.

A consolation is that new ships deliveries will fall sensibly in 1999 and scrapping appears to be increasing. Overaged vessels will become much harder to fix, although low bunker prices are still keeping some fast old ships in business. Any upturn in fuel costs could of course modify the cards and accelerate the scrapping trend. Containerships are however generally considered to have a much longer life compared with other general cargo ships, tankers or bulk carriers, as they are much less susceptible to hull damage from cargo. Also, fast needs and changing of routes pattern have made it possible for the re-assignment to minor trade routes for older ships.

The rash of take-overs and mergers is far from being over yet. Some medium size players, mainly North / South operators have shown to be conscious of the potential squeeze by the mega-carriers who continue to expand their networks into the niche lines and specialized trades. As we underlined last year, the implication in most of these operations is that there will be further combined services and appropriate down sizing which will naturally manifest itself by less chartered vessels. Additionally, more and more potential requirements are being covered internally between partners, after internal rescheduling of own tonnage and is further business lost for the market.

As you realize, we do not see the tide turning in a near future. With charterers remaining very confident that the market is moving in their direction, we will naturally remain mostly with short periods and multiple options for some time. Let’s hope that some charterers, within a few months, (summer / fall 1999?) will then start wondering whether the timing has not arrived on certain sizes to take advantage of particularly attractive rates on the basis of longer commitments. This could then be interpreted as a first "shy" step towards market recovery.

To conclude on a more positive note, we observed that a number of the mega-operators are moving towards chartering rather than owning tonnage. This is seen as another way of upgrading their fleets, without the risk of finding themselves after sometime with obsolete tonnage for their changing requirements, and obtain further economies of scale through larger ships without the hefty capital outlay of a newbuilding order. As we observed in previous years, a huge part of the battle is being conducted on shore and such operators will then be in a position to concentrate their investments on port terminals, services to their shippers, etc...

This could constitute a serious opening for a new type of long term bilateral relationships between main line operators and First Class owners.

In general, activity was relatively low and concentrated above all in the first half of 1998.

A total of about 70 units were sold on the trading market, including 30 ships of less than 1,000 teu and 20 ships in each of the categories 1,000-2,000 and 2,000- 3,000 teu.

The feeder ship market slowed considerably compared with 1997. Slow gearless ships had the hardest time finding buyers, when they managed to find them at all. The general increase in size of the feeder type, often exceeding the 1,000 teu barrier, is seen clearly here. It is therefore easy to understand the present reluctance of shipowners to make long-term commitments by purchasing one or more units already practically obsolete in terms of their size, their speed or their lack of gear.

The sale of a ship such as the "Premier" (700 teu, built in 1983, gearless) to the owner Vroon at a price of $7 million is perfectly representative of the fall in prices in this sector.

Other significant sales:

• "Kris Terasek", built in 1985, 7,676 dwt, 440 teu, 2 x 36 tonnes, 13 knots, sold in August for $3.1 million to Turkish buyers,
• "Tranztas Trader", built in 1988, 14,205 dwt, 1,000 teu, 2 x 40 tonnes, 15.5 knots, sold in March for $7 million to clients of OEL,
• "Tiger Wave", built in 1988, 17,503 dwt, 790 teu, 3 x 40 tonnes, 15 knots, sold in June for $6 million to clients of Pacific and Atlantic.

The 1,600-1,800 teu ship category suffered from the massive arrival of new units ordered in large numbers, notably through the German KGs.

The vertiginous drop in charter rates has without contest discouraged buyers, who foresee the deterioration of a situation that already poses problems given the size of the orderbooks.

Newbuilding prices have fallen so low that the book value of modern ships substantially exceeds the cost of ordering equivalent new ships. As a consequence the sale of recent ships has become impossible, unless the shipowners take book losses that are for the time being judged unacceptable.

Significant sales:

• "Hanjin Chungmu", built in 1981, 25,700 dwt, 1,662 teu, gearless, sold in June for $4.5 million to clients of Target Marine,
• "Buxsea", built in 1985, 33,860 dwt, 1,923 teu, gearless, sold in June for $8.5 million to clients of Vroon,
• "Richmond Bridge", built in 1983, 32,631 dwt, 1,830 teu, gearless (1,730 x 14 tonnes homogenous), sold in March for $9 million to clients of Tanker Pacific.

The 2,000-3,000 teu segment is probably the one that has least suffered, given the small number of ships available for sale. This contributed to maintaining prices at an honorable level.

During the second half-year, the fall in newbuilding prices linked with a substantial drop in rates, approximately 40% over the year, significantly degraded this picture. The majority of the transactions concluded were the sales of Korean ships with back charters, these opera tions being motivated only by the cash problems of these owners as a consequence of the economic and financial crisis that is hitting this region. Hanjin, which had sold seven ships (2,900 teu, built in 1986/1987) at the end of 1997 for $23 million per ship and four years back charter at $20,000/day, sold the same type of ship, but three or four years younger, in the middle of 1998 at the same price against a three-year back charter at $16,700/day!

Significant sales:

• "Hanjin Vancouver" and six sister ships, built in 1990/1991, 43,270 dwt, 2,668 teu, 21 knots, were sold to a consortium comprising Samatzis, Drytank and Danaos at a unit price of $23 million, against a three-year back charter at $16,700/day,
• "Choyang Glory" and "Choyang Victory", built in 1990, 44,000 dwt, 2,797 teu, 21 knots, sold in May for $23.5 million per unit to clients of the Ofer group.

In 1998 about 50 ships were scrapped despite a very substantial fall in the prices on the scrapping market. All sizes were involved. This is probably the only good news to be reported this year. Although this figure is encouraging, it nevertheless remains insufficient to have a real impact on the still-growing unbalance between supply and demand.

There is no doubt that price alone is a strong motivation for newbuilding orders. It would be pointless to remind the reader here of the inevitable consequences of continued ordering in a market that is already very unhealthy. The risk here is to see some shipowners obliged to place orders, if only to align themselves with competitors who might profit tomorrow from today’s low prices. Under these conditions the arrival of the recovery has to be pushed back a little further.