Red Sea diversions mean container lines need more ships to hold the identical amount of cargo. The safety situation — which is much more precarious within the near term on account of coalition air strikes in Yemen — has already driven spot container freight rates much higher. Now it’s beginning to push up the worth container lines pay to rent ships.
“This week saw a scramble for prompt tonnage,” said MB Shipbrokers (formerly Maersk Broker) in a market report on Friday, referring to ships that will be chartered immediately.
“Owners have definitely turn into more bullish and are pushing for higher-than-last-done levels in all segments and most regions.” Charter rates are headed higher, “specifically for brief periods of three to 6 months’ duration,” said MB Shipbrokers.
Shipbroker Braemar reported Sunday: “Chartering activity [has] further improved. Various prompt vessels across all sizes and regions [are] seeing increased interest. Charter rates in addition to periods are witnessing a firming trend.”
Analytics group Alphaliner commented on charter-market strength in a report last Tuesday, noting that the Red Sea effect is now “starting to indicate.”
“Despite a continued influx of newbuilding tonnage of all kinds, demand for many sizes of charter-market ships … stays strong. The crisis within the Red Sea, with most carriers now avoiding the world, is partially contributing to the market’s brisk activity,” said Alphaliner.
Spot freight rates rise much faster than charter rates
The initial diversions away from the Red Sea caused delays in return trips to Asia, prompting liners to charter ships for brief terms as “extra loaders” to choose up the slack.
Now that diversions are more ensconced, liners might want to add additional vessels to service strings to take care of weekly schedules, given the longer voyage distance across the Cape of Good Hope.
To the extent newbuildings and existing fleets don’t fill the gap, they would wish to charter or buy more ships.
The Harpex index, which measures six- to 12-month charter rates for ships with capability of as much as 8,500 twenty-foot equivalent units, has risen 12% since mid-December.
That pales compared to Red Sea-driven moves in freight rates. The worldwide spot freight indexes of each Freightos and Drewry have greater than doubled over the identical stretch.
But 2024 was alleged to be a really weak yr for charter rates given the tidal wave of newbuilding deliveries, and due to the Red Sea effect, the Harpex index is now 28% higher than it was in January 2019, pre-COVID.
“Obviously, a persistent crisis within the Red Sea and, to a lesser extent, ongoing problems on the Panama Canal could partially cushion the chance of overcapacity because of the demand for extra tonnage they are going to generate,” said Alphaliner.
Few container ships available to charter
The challenge in today’s chartering market is that there are only a few vessels available to charter. Many of the tonnage is already tied up on long-term leases.
Liners were desperate for ships in the course of the supply chain crisis. The more ships they controlled, the more containers they might carry at stratospheric freight rates, and the more profits they might reap.
The businesses that charter ships to liners — so-called non-operating owners (NOOs) — could dictate the terms. Not only did NOOs demand historically high charter rates in the course of the peak of the COVID-era boom, additionally they forced liners to take the ships on multi-year charters. Most of those leases are still in place.
Among the many U.S.-listed NOOs, Danaos (NYSE: DAC) has 90% of its fleet already locked up on charters through the tip of 2024. Charter coverage of Costamare (NYSE: CMRE) is 87% for 2024, with Global Ship Lease (NYSE: GSL) at 82% and Euroseas (NASDAQ: ESEA) at 70%.
One other source of chartered tonnage is “relets” — ships that liners have on long-term charter from NOOs that they opt to re-charter to other liners. But a few of these relet opportunities are actually being withdrawn, reported MB Shipbrokers.
Normally, “the limited availability of prompt tonnage” is keeping chartering activity “at a low level,” it said.
Liner stocks up greater than NOO stocks
Liner company stocks should profit more from Red Sea disruptions than NOO stocks, provided that freight rates have risen much faster than charter rates, and so many ships are already locked into existing leases.
Stock pricing data from Koyfin, which is adjusted to account for dividends, confirms this.
Shares of liner operator Zim (NYSE: ZIM) are up 65% from mid-December through Friday, with Hapag-Lloyd up 45% and Maersk up 19%.
In contrast, shares of GSL are up only 9% over the identical period, with Costamare rising 10% and Danaos 11%. Shares of Euroseas, which have essentially the most open exposure to the 2024 charter market of the 4 firms, have performed the perfect, rising 37%, in response to Koyfin data.
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