Red flag: Shipping companies are suddenly much less interested in leasing ships

The cost of transporting containerized goods peaked at unprecedented levels at the end of 2021. This cost has been falling ever since. In contrast, the rental cost of vessels carrying containerized cargo held up much longer. Even though the freight indices have slipped month after month, the charter indices have remained close to record levels this summer.

Not anymore. Indices that measure containership leasing rates are now dropping like a stone, suffering much steeper declines than freight indices. Ship charter indices have fallen in recent weeks.

“What’s amazing is how quickly the market seems to be turning,” ship broker Braemar said on Monday. “Only a few weeks ago, charter rates appeared stable and operators were still getting forward tonnage at historically high rates over long-term periods.”

The fact that liner companies are suddenly less interested in leasing container ships – and when they are, they are paying less and leasing for shorter periods – can only mean one thing: the sentiment of line towards the future balance between supply and demand in the freight market has deteriorated.

Charter indices fall rapidly

The Harpex index, published by the brokerage house Harper Petersen & Co. since 2004, reached an all-time high of 4,586 points at the end of March. It remained near that peak, in the low 4,400s, until late July. On Friday it had collapsed to 3,095 points, falling 30% in just eight weeks and 18% from the previous week. The Harpex is now back to July 2021 levels, although it is still four to five times higher than before COVID.

Braemar’s BOXi index was at 317 points on Monday, plunging 30% in the past week alone. The BOXi index was at 580 points at the end of July. It dropped 45% in just six weeks.

The Clarksons Brokerage Charter Index plunged 26% last week, although it was still four times higher than pre-COVID levels.

According to Clarksons Securities analyst Frode Mørkedal, “The slowdown has been most evident in the feeder sector in recent weeks. But the consequence of lower freight rates is further eroding [charter] rental rates in the larger size ranges, even if tonnage availability remains limited. »

Braemar also cited the weakness of the smaller ships. “In the feeder market below 2,000 TEU [twenty-foot equivalent units]we are seeing the greatest accumulation of open tonnage and that is in all regions.

Braemar also sees problems preparing for medium-sized ships. He highlighted a recent six month charter of a smaller Panamax class vessel at $50,000 per day for a period of just six months. “About three months ago, similar sized vessels were still able to secure five-year employment at similar rate levels,” Braemar said.

Wave of new constructions in 2023-24

When container lines leased ships for four to five years at historically high charter rates during the 2021-22 peak, that didn’t mean line executives thought freight rates would stay high for the next four. to the next five years.

On the contrary, it meant that the liners thought they would earn so much from high freight rates at the start of charters that they would emerge victorious even if they returned some of those profits in later years by continuing to pay rents. students. while freight revenues were much lower.

Freight rates were so high at the top of the market at the end of 2021 that even after starting to decline they continued to provide exceptionally high revenues relative to liner charter costs. Shipping carriers continued to rack up record quarters in the first half of 2022. Carriers remained confident enough in freight revenues to continue leasing container ships at very high rates. As a result, consistently high charter indices diverged from falling freight indices.

The speed and severity of the recent decline in the charter market index – closing the gap with the freight index trends – implies a shift in carrier confidence in freight revenues.

The order book for container ships is growing more and more. According to Clarksons Securities, tonnage on order now represents 27.3% of tonnage on water. Of new deliveries, 75% of tonnage will be delivered in 2023-24.

In previous cycles, when ocean liners had too many newbuild deliveries to meet cargo demand, they let ship leases expire. If they signed renewals or leased new ships, they paid much lower charter rates. They disarmed surplus ships and reduced sailing speeds.

At the bottom of the last cycle, when Hanjin went bankrupt in 2016, the Harpex reached a nadir of 314 points, or one tenth of the index’s current level.
Source: Freight Waves by Greg Miller,

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