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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 Niño 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 Générale 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 Österreichischer 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.  

Contracts 

The contracts of the Canary Islands vegetable exporters, traditionally renewed in mid-July, were concluded at the beginning of July 1997 at trip rates once again 4 to 12% lower than those of the previous year, depending on destination, on the same basis of 12 ships. 

The New Zealanders Enza and Zespri chartered their ships in partnership and obtained terms about 5% lower than those of the previous year. 

The South African fruit exporters also obtained a reduction of about 3% compared to the year before. 

This was also the case for the Chilean fruit exporters. 

The spot market 

Compared to 1997, the average level of rates on the spot market in 1998 was disastrous for the owners-operators, with an average reduction of about 34%. 

The beginning of the high season was marked by high availability of ships, caused mainly by below-forecast exports from Ecuador and Chile. The traditional peak at the beginning of March, due to seasonal export volumes from Chile, was of low amplitude, and the rates rapidly fell again because of the absence of non-contract demand ex-South Africa and ex-New Zealand. Then from April the full influence of El Nino was felt, in particular in Ecuador and New Zealand. 

Rates thus rose only briefly at the beginning of March, and from the beginning of June moved down to the exceptionally low bottom levels of the period. 

The spot rates obtained during the period, starting from only 30 cents at the beginning of January (50 cents in 1997), rose a little to 40 cents in mid-January. At the beginning of February the rates for modern ships of 350,000-450,000 cu ft were about 50 cents/cu ft/30 days (80 cents in 1997), and only 60 cents in mid-February (90 cents in 1997). A steep but short rise then occurred, taking rates to the season's peak (beginning of March) at $1.10, 15.5% below the $1.30 obtained at the same time of year in 1997. But they then dropped very rapidly, to 80 cents by mid-March ($1.25 in 1997), and 65 cents at the beginning of April, reaching 50 cents in mid-April, and continued to fall rapidly to 25 cents at the beginning of June. There was then a degree of stability, and it might have been thought that this rate would be the floor rate for the summer months. This was not the case, and rates of 18 cents were reported in mid-July and even 14 cents in September (28 cents in 1997). 

Like last year, most of the modern ships that were able to find work during the summer period, even on derisory terms, obtained cargoes of garlic ex-China and cars ex-Japan. 

In the case of old ships, at least those that had been reactivated, the traditional seasonal laying-up was obviously started very early. 

Reefer vessels spot T/C seasonal rates

Time charters 

The charter market weakened to a lesser extent, but nevertheless significantly. The per cent decrease can be estimated at about 20%. 

For the 400,000-550,000 cu ft size, the continuation of a two-level market can again be observed, the gap between the two levels widening a little further each year. For 12-month periods, fast modern palletized ships with good container capacity and well geared were negotiated at rates of around 65 cents/cu ft/30 days (80 cents in 1997), whereas for first-generation palletized ships and converted conventional ships the rates were only around 50 cents. 

For the 260,000-300,000 cu ft size, the average 12- month rates were about 60 cents/cu ft/30 days, a level about 20% below that of the previous year. The rates this year were again generally higher for large ships than for small ones. 

Reefer vessels time-charter rates




Shipping and Shipbuilding Markets 1999

I N D E X





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