Page 46: of Maritime Logistics Professional Magazine (May/Jun 2018)

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Container Shipping: Finance

Container Freight and Charter Markets and

Their Impact on Secondhand Valuations

Credit: Haifa Port

Improving charter rates are driving up second values while struggling freight rates indicate a broader slowdown could be at hand.

By James Frew he container shipping markets continue to emit contra- to customers but which will not deter liner companies from dictory signals. In its Q1 report, MSI opened an overview launching new services.

T of containership earnings and prices with a comparison Secondly, liner companies may choose to counter losses of freight and charter markets, and noted an ominous diver- by seeking to increase market share rather than cut capacity, gence in their fortunes. As in 2011 and 2015, charter rates which if anything would imply greater demand for charter were marching upward at the same time that freight markets market tonnage. stagnated. Our concern was that, just as in 2011 and 2015, this The tone of any review of freight rates is inevitably set trend would precede a downturn in charter earnings. against the backdrop of proftability. While liner company re-

In the intervening period this divergence has widened further. sults for 2017 were frmly in the black, Q1 2018 has been a lot

While the speed of charter market increases has slowed recently, more mixed, with industry bellwethers such as Hapag Lloyd the gains made in the interim have been impressive. Freight mar- (a loss of EUR 34.3 Mn) and CMA CGM (down $77 Mn) kets, meanwhile, remain lackluster and most major liner compa- demonstrating that the industry remains under pressure. nies have announced losses in their Q1 2018 fnancial results. This pressure has not been distributed equally. A recent di- vergence across freight markets shows that north-south trades

Reconciling a changing Market saw plummeting rates over Q1 and have seen limited recovery,

On the face of it, the different paths of these two markets while mainlane trades experienced a similar plunge before re- is tricky to reconcile. We ask, ‘why do liner companies pay covering their ground. The most striking element is instead increasing amounts to hire vessels when they can only run the extent to which intra-Asian freight rates have broadly held them at a loss?’ However, there are some factors at play which their ground amidst the gyrations of the longer-haul trades, imply that this is not quite as contradictory as it appears. suffering a minor slump in Q1 before recovering the entirety

First, one major factor behind liner company losses is the of the lost ground by April. increase in the fuel price, which has yet to be fully passed on In part this is likely refective of the strength in intra-Asian 46 Maritime Logistics Professional May/June 2018 | |