2017 was the most active year for container ship transactions. The current trading volume is 100,000 TEU worse than that at the time. However, there are still 4 months before the end of the year. Analyst Thomas Betts said that at the current rate, more than 6% of container ships worldwide may change ownership in 2021.
Set a record for three consecutive quarters
In the last three quarters, ship transactions have been the most active. Clarkson Research said that since the fourth quarter of last year, the amount of second-hand container ship sales has exceeded US$8.9 billion. Before the second quarter of 2020, due to the impact of the new crown epidemic, transaction volume fell to its lowest point in more than a decade. However, after the fourth quarter, the situation has taken a turn for the better.
However, as trade rebounded and port congestion intensified, it has become very strenuous for liner companies to charter ships.
The ship could not move in the port
Analyst Betts estimates that in the first half of 2021, about 32% of container ships will be docked at the port, while this proportion averaged close to 30% between 2015 and 2019. He said, "This has led to many liner companies entering the trading market in order to obtain tonnage, because second-hand ships look very attractive."
Fearnley Securities said that in 2021, congestion "seems to have become" a "major feature" of Western ports. The investment bank said that there are 47 ships waiting in Long Beach and the Port of Los Angeles, including 7 large new Panamax container ships, which is a record.
Ships continue to be tense
Analysts Peder Nicolai Jarlsby, Erik Gabriel Hovi and Ulrik Mannhart added: “In January, the volume of container ship transactions reached about 40 vessels, which was the first peak. After that, the situation fell back to only 10-15 vessels in the summer. It has not been completely eliminated. Since July, the transaction volume has continued to climb and has become the current situation."
It is reported that dry bulk ship owners enter the container shipping industry and use Capesize bulk carriers to transport boxes, with a daily income of up to 50,000 U.S. dollars. Analysts believe that this further shows that the current shipping market is tight. Betts said that the record-breaking freight market has also provided liner companies with "heavy incentives" to maximize capacity deployment.
Clarkson believes that the significant increase in ship value has also attracted shipowners to sell ships in order to obtain a return on investment. At present, the market is showing a trend of ship operators buying ships from shipowners, Betts said, this accounts for at least 60% of this year's transaction volume. In contrast, this proportion averaged only 35% in 2018 and 2019.
Approaching 10-year high
According to Clarkson data, from October 2020 to the end of August this year, the second-hand ship price index rose by 160%, approaching a 10-year high. At present, a 10-year-old Panamax container ship with 4,500 TEU is valued at US$60 million by the company, compared to only US$10.5 million in October last year.
Similarly, the value of 1,700TEU feeder ships soared by 400% to US$30 million. Betts said: "With the increase in ship prices, the total value of the container fleet has almost doubled to $247 billion. So far, the container ship market has performed very well, and the second-hand market is no exception."
The survival dilemma of SMEs
At present, the container shipping market is hot, and the cost is basically flat, which makes the income of container liner companies increase substantially. However, the "collapse" of the shipping market is being paid for by small businesses struggling to get rid of the impact of the epidemic.
The latest "Container Shipping Market Review" (referred to as "Review") jointly released by Global Shippers’ Forum and MDS Transmodal shows that shippers are facing a "collapse of the container shipping market" as the peak season approaches. As the existing capacity cannot keep up with the increasing demands of consumers and enterprises, the freight has been pushed up to a level that many small and medium-sized enterprises cannot afford.
MDST Chairman Mike Garratt said: "Global container traffic increased again in the second quarter, reaching a record level, but it has not fully recovered to three years ago. At that time, liner companies had begun to reduce the number of new ships."
He added that in some key markets, the share of capacity that has signed a ship-sharing agreement or joined a shipping alliance has now exceeded 40%. "The advantage of this high level of integration is that liner companies can adjust capacity allocation according to changing needs, resulting in very high utilization rates. Freight rates have therefore remained at an unprecedented level, which means that some potential freight volumes may be suppressed."
Garratt added that compared with before the epidemic, industry performance indicators, including the skipped ports, are still very poor. The Review uses eight key indicators to evaluate the integrated operation industry, including capacity, cost and revenue, competitiveness, connectivity, and service performance. The report covers the impact of the blockage of the Suez Canal and the closure of Yantian Port on the schedule and port calls. But even these incidents are "almost insignificant" under the "global background of rising freight rates, declining services, and full cabins."
The report found that in the past 18 months, the transportation cost of a unit container has hardly changed, and the profitability of the carrier has soared because the growth of unit revenue continues to be higher than the cost. The report shows that, on a global scale, the unit container revenue of liner companies is more than twice that of when the epidemic first began.
"Of all the industry indicators, none of the industry indicators indicate that a large amount of goods have not been transported. These boxes are stranded in the docks, stacked in warehouses, waiting for space. Only when these goods are put on the market can we see whether the economy is recovering or the shelves are empty. Consumer prices are rising," Garratt said.
He warned that thousands of companies are counting on being able to survive the downturn of the epidemic during the peak season, and that their solvency is already in jeopardy. He stated that “governments of all countries need to pay more attention to the out-of-control shipping market”.
