Container ship owners see boom until 2022

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The unprecedented demand for container ships will not end anytime soon, according to executives of companies that lease ships to ocean carriers. Their overwhelming confidence is yet another worrying sign for beleaguered freight shippers – and another signal that inflation may persist.

Managers of container ship rental companies (known as tonnage providers) spoke at Capital Link’s New York Maritime Forum on Wednesday. Panel leaders are known to ‘talk about their book’ – oil tanker panelists have been touting an imminent recovery for 11 years and it has yet to happen – but container ship lessors have transaction history to back it up. their optimism.

The price that liners are willing to pay for renting ships reflects the degree they need to carry cargo. For the rare vessel yet to be rented, rates are at stratospheric highs. And what tonnage suppliers see in recent deals strongly implies that liners do not expect the market to decline in 2022.

According to George Youroukos, CEO of Global Ship Lease (NYSE: GSL), “In November of last year, I used the term ‘super cycle’ and my co-panelists were laughing. But I really think it’s playing out now. It won’t be a strong market in the short term. We see continued force for at least the next two years, with the exception of a black swan event. “

Evangelos Chatzis, CFO of Danaos Corp. (NYSE: CAD), said: “Our customers [liners] face fantastic freight rates and see the depth of the market in terms of cargo to be transported.

“They see this is a market that is going to stay strong and they need the assets to move these cargoes because they are making huge sums of money. Paying $ 40,000, $ 50,000 or $ 60,000 a day to charter a ship is actually a blip from what they are doing.

2022 strength indicators

Executives cited three pieces of evidence showing carrier confidence in high freight rates until at least 2022.

First of all, liners “fix themselves” – not just piecemeal, but in huge numbers. Chatzis explained: “The liners rush to repair [charter] tonnage even one year before the expiration of current charters for four or five years [duration]. They understand trade flows much better than anyone else and it shows their perspective on the market. “

Graham Talbot, CFO of Atlas Corp. (NYSE: ATCO), the owner of Seaspan, revealed: “We have already made 58 aircraft before this year, almost half of our current fleet on the water. We don’t have a roll-off [expiring charters] are gone this year and only a few next year and a few the following year.

Aristide Pittas of Euroseas (Photo: Marine Money)

Second, it’s not just about entering into rental contracts early, it’s about vessel acquisitions. According to Aristides Pittas, CEO of Euroseas (NASDAQ: ESEA), “Not only do we see charterers repairing ships a year in advance for four years, but we even see them buying ships with delivery one year after today. “

Third, liners take lease payments in the first year of multi-year charters. According to Constantin Baack, CEO of MPC Containers (Oslo: MPCC), “We have in some cases been able to preload the charter component.

Chatzis confirmed: “We have also done upstream transactions where, for example, the charter rate is $ 45,000 per day, but we earn $ 80,000 per day in the first year, then there is a gradual decrease. over the coming years. We are not the ones who suggested this. It came from our charterers. They want to match charter payments with their huge revenue visibility at this point, [given that] they don’t know how it’s gonna be one, two, three years later.

Refueling of ships: No risk until 2023

On the ship supply front, tonnage suppliers see no threat to the boom in the new construction market in 2022. While the current order book now represents 23% of the on-water fleet, against a minimum of 8% last year, the vast majority of ships ordered in larger vessels will not be delivered until 2023-24.

“Deliveries in 2022 are going to be extremely minimal,” Pittas said. Additionally, global supply chain disruptions and issues in China related to power outages and COVID are not only hampering global merchandise trade. They also affect shipyards. “I think there will be delays in the delivery of new construction,” Baack said.

The risk of vessel supply does not begin until 2023, Talbot said.

“It’s a big chunk,” Talbot conceded, referring to new ship deliveries in 2023-24. “You would expect that to have some kind of softening effect in the market, so we’re trying to make sure we’re stuck. [with charters that extend through then] minimize our exposure to the 2023-24 period as much as possible.

Request for vessels: overdue arrears

On the demand side, said Youroukos, “We see a lot of manufacturing disruptions and a lot of backorders. And now we have the power outages in China, which will create even more backlogs. It may sound negative to us as an industry, but I see it as very positive.

“Why? Because right now we have a completely blocked system. Adding more fuel to the fire doesn’t really matter. It’s much better that we shift some cargoes into the next 12 months so that we can continue. to have a very high demand in the cargo pipeline, pushing back all this delay.

Youroukos also expects COVID-related supply chain disruptions on the export side to continue, further increasing backlogs – and therefore demand for ships.

“We may be very close to treating COVID in the United States and Europe, but we are very far from treating it in Asia, South America and other countries. If anyone thinks we’ll be done with COVID around the world in the next 12 months, then yes, congestion will slowly but steadily decrease. But I don’t think anyone thinks we’ll be done with COVID in the next 12 months around the world. “

Pittas pointed out that unlike previous shipping cycles, current market strength is not purely a question of ship supply versus demand.

“The biggest problem is not the ships, but the trucking, the containers and the factories. That’s it, ”Pittas said. “So for this to stop, we would have to see a significant drop in global growth. That possibility exists, but I don’t think it’s very possible. I’m pretty sure the next two or three years. are going to be extremely good [for shipping]. “Until the arrival of the 2023-24 new build wave,” Pittas added, “I can’t imagine any real correction.”

Asked about the recent drop in spot freight rates from record highs, Youroukos said this was a positive, explaining that freight rates must be high enough for liners to pay rents. high to tonnage suppliers, but not to the point that the demand for ships is destroyed. .

“Freight rates have softened a bit and I think it’s healthy,” Youroukos said. “We want consumer confidence. We want consumers to be able to spend. And we all know inflation is on the rise.

“If, because freight rates are so high, consumers have less money to spend, that’s not good. It’s shooting us in the foot.

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