The Reefer Ship Market in 1998

At the cross-roads

Market context and trends 

The 1997-1998 season was the worst that had been experienced for 15 years. Given the climate conditions and above all an economic context that was again diffi-cult, it was more than disappointing overall, dashing the few hopes that the owners-operators might have had. 

In the event, all the contracts were renewed at rates below those of the previous year, and the spot rates were set on average 34% below those obtained one year before. Furthermore, the season was extremely short, and the seasonal rates slumped from the second half of March. 

The 12-month time-charter activity was very limited and rates were low. Large ships were once again preferred to medium-size vessels. 

Despite a slight increase in the scrapping rate, retirements from the fleet were not able to offset the arrival of new ships. 

The nature of the 1997-1998 campaign was influenced by several factors. 

Climatic events severely disrupted export prospects in some regions of the world: 

• all through the season: influence of the El Ni'o weather pattern, with higher than normal temperatures in the northern hemisphere, abundant rainfall in South America, drought in Central America, Indonesia, Australia and New Zealand; 
• in Ecuador 20% of the plantations were affected by torrential rain, with one fifth of this percentage entirely destroyed; 
• late apple harvest in Chile; 
• in contrast to forecasts of a 20% increase in citrus fruit exports from Morocco, rain caused a reduction of approximately 15% compared to the previous season; 
• poor core fruit harvests in New Zealand (about 25% lower than the previous year) because of the drought; 
• orange harvests in Brazil about 30% lower than the previous year, following the development of an insect disease on the citrus fruits. To a world economic context that w as hardly euphoric (financial crisis in the Far East and political and economic crisis in Russia) and the unfavorable climatic effects discussed above can be added other factors which have contributed to the negative trend in freight rates compared to the previous year: 
• increasingly strong competition from container ships, 
• increase in the world reefer ship fleet, 
• strong dollar, 
• high stocks of squid in Japan and Korea, 
• high stocks of apples and pears in the United States, 

linked to the reduction in exports to the Far East, leading to a decrease in imports from Chile. 

The following significant events could be noted in the market in 1998: 

• January 1998: Purchase by Del Monte (which already held 51% of the shares) of the remaining 49% of Horn-Linie shares, held by the Compagnie G'n'rale Maritime. 
• January 1998: Following the condemnation of the European Union (EU) banana import system by the World Trade Organization (WTO) in an initial judgement in April, then on appeal in November 1997, the European Commission in Brussels adopts a new project for submission to the EU agriculture ministers and the WTO. The main change is the elimination of the import license system. 
• March 1998: Cool Carriers starts a new weekly service from Durban to North Europe and the United Kingdom. 
• April 1998: Seatrade launches a regular service (reefer - conventional - containers) between Europe and Argentina (Rotterdam/Sheerness, Rosario/Buenos Aires), offering a sailing every two weeks in each direction. Three ships of the "Hope Bay" class, 531,764 cu ft, built in 1996/1998, height 2.20 meters, 5,939 square meters, 4,250 pallets, 20 knots, 146 teu are used. 
• April 1998: Swan Reefer (Actinor and Swan Shipping) buys Irgens Larsen Holding (Agdesidens Rederi) for a reported price of US$164.5 million. 
• June 1998: Seatrade launches a return service from Antwerp to Durban, Port Elizabeth and Cape Town. The initial frequency is every 15 days, planned to increase in the future to weekly. 
• June 1998 (26): Adoption by the EU agriculture ministers of the new banana import system, scheduled to come into force on 1 January 1999. 
• July 1998: The United States files a complaint with the WTO against this new system, judging inadequate the changes made to the previous system. 
• October 1998: Ugland takes a 10.4% holding in Swan Reefer. 
• October 1998: Outspan and Unifruco (South Africa) decide to merge all their activities with effect from 1 January 1999, the new entity to be called Capespan Group Holdings (the "export" branches of the two companies had already been brought together in 1994 under the Capespan banner). 
• November and December 1998: The United States threatens unilaterally (without reference to the WTO) to take economic sanctions (imposition of prohibitive cus toms duties on certain products) against the EU if the banana import system is not modified (wider opening to dollar-zone bananas) by the EU before the end of January 1999. The Europeans announce their intention to appeal to the WTO in the event that the United States persists in its intention to impose these sanctions. 
• November 1998: Unicool sets up Arctic Reefers, a new pool that will operate ships of more than 350,000 cu ft. The initial participants are Cool Carriers, Ahrenkiel, Eastwind, Mediteranska Plovidba, Dawn, Tokumaru, Zodiac, and 'sterreichischer Lloyd. For medium-size ships (250,000-350,000 cu ft), the Eco Shipping pool (Cool Carriers and Eastwind) expands by 8 additional ships made available to the pool by Eastwind. 
• December 1998: Lauritzen Pacific Line reinforces its service from South America to the West coast of the United States and from the Far East by establishing a regular year-round weekly line between Chile, Peru, Colombia, Mexico, the West coast of the United States on one hand, and the Far East on the other. The Far East run will be operated by the Orient Overseas Container Line, with which Lauritzen Reefers started cooperating in 1997. 
• December 1998: The Fyffes group acquires 50% of Capespan International Holdings (European distribution branch for Cape and Outspan brand products) and 10% of Capespan Group Holdings.