Page 17: of Maritime Reporter Magazine (December 2003)

Container Market Pauses r

Early last year, "experts" were warn- ing of a prolonged slump in the box trades, fueled by reckless over-ordering by irresponsible carriers and ship- builders offering special deals on price.

Howe Robinson's Container Index had sunk to a low point of 451 in January and leading liner company executives were attending hastily convened crisis summits to discuss possible lay-up schemes and other short-term survival strategies.

Less than two years on, the market has paused briefly for breath after what bro- kers describe as an unbelievable recov- ery, both in its scale and speed. Last week's Howe Robinson index was just over 1104, slightly down on the previ- ous couple of weeks but nevertheless attained in a consistent climb that, until now, has seen no breaks. Meanwhile, brokers report that there is simply no tonnage available for sale. Asked to identify newbuilding resales or contain- er ships delivered within the last couple of years, a broker pored over potential candidates for two days, finally report- ing that no vessels could be developed for sale. Despite warnings in some quar- ters that the market risks overheating, the fundamentals appear pretty strong for some time to come. The fact that the world's shipyards are pretty much full for the next three years is a mixed bless- ing, however. On the one hand, con- straints on new tonnage supply will sup- port the market, keeping charter rates at healthy levels and presumably earning a reasonable return for notoriously unprofitable liner companies. On the other hand, new ship prices and second hand values are rising dramatically - brokers estimate by as much as 15-20% in some sectors over recent months.

While this may be a welcome relief for shipowners who wish to dispose of existing tonnage, it also acts as a stimu- lus to existing and aspiring shipbuilders to increase capacity and bring new yards on stream.

Amidst all the euphoria, however, there are now signs that some analysts are starting to worry that the remarkable revival may not be sustained if, for some reason, demand does not continue to grow at recent levels. Clarkson, for example, warned recently that the 2005 demand supply balance is not as certain as some forecasters are suggesting. To absorb the firm's fleet growth estimate of 8.4% in 2005 will require continuing demand growth of at least 9%. While this level has certainly been achieved in the recent bull run, some are questioning whether this level or growth can be sus- tained year on year, as the market becomes bigger all the time. Already, market statistics show that the contain- ership orderbook is equivalent to almost two fifths of the existing fleet.

Clarkson is thought to be the first of the analysts to express early concern and it will be interesting to see whether oth- ers follow suit. However, Clarkson's caution does arise against a backdrop in which significant trade disputes are threatened. U.S. steel tariffs are an issue of contention in Europe and remain unresolved with talk of tit-for-tat retalia- tory action.

These developments do not appear to worry the China Ocean Shipping Co, however. A massive charter contract thought to be worth more than $550 mil- lion has recently been announced between the Chinese carrier and

Greece's Costamare. Terms have not been released but Cosco is taking five 8,200 TEU vessels under construction at

South Korea's HHI on ten-year charters.

Brokers estimate the charter rate in excess of $30,000 a day.

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Panama Canal Investments in Equipment

The Panama Canal Authority (ACP) announced two key investments — both part of the Canal's permanent modernization program. The ACP has purchased an advanced new meteorological radar system and will build a new launch vessel, making the Canal safer, faster and more effi- cient. The launch will be constructed in Panama by the ACP.

The ACP's new meteorological radar system, model DWSR-8501S-9, was manufactured by

Enterprise Electronics Corporation and will provide the Canal's Meteorological and Hydrological

Section with cost-efficient and state-of-the-art information to make atmospheric predictions. This will help to control Canal water levels, to monitor rain in the Canal Watershed and to plan water spills at the Canal's dams.

Never done before, the ACP's Industrial Shipyard Division is constructing an aluminum launch vessel, a boat used to transport Canal linehandlers to ships navigating the Canal. The launch is 50 ft. long, 15 ft. wide, and powered by two Deutz 653 horsepower motors, generating a max- imum speed of 22 knots. The launch will be used to deliver as many as 30 linehandlers to ships using the Canal, assisting as the cargo and passenger vessels are towed or use their own power to journey through the Canal's locks, lakes and Cut. The launch complies with all international requirements for shipbuilding and its construction is being inspected by the Bureau Veritas of

Panama.

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