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Larger containerships can look to bullish charter market

Larger containerships of 3,000 teu and above can look forward to a bullish charter market against a backdrop of continued tight supply and strong demand.

Container shipping analyst Alphaliner noted that while some charterers have been focusing on installing scrubbers on their vessels, non scrubber-fitted ships are also expected to attract demand in the medium term as charterers seek to optimise economies of scale to rein in the additional operating expenses resulting from the implementation of IMO 2020.

“This should prompt a further hike in charter rates once demand picks up after the Chinese New Year holiday, although the market will very much remain two-tier, with a continued substantial rate differential setting scrubber-fitted vessels apart from non-fitted units,” Alphaliner stated.

The entering into force of IMO 2020 since 1 January 2020 has made it mandatory for all ocean-going vessels to burn marine fuels with a maximum sulphur content of 0.5%. Ships can continue to burn high sulphur 3.5% fuel provided they are fitted with scrubbers to bring down the sulphur content.

Prospects for small container vessels of under 3,000 teu, on the other hand, remain uncertain.

Alphaliner observed that most size segments – especially between 1,000-2,600 teu – remain “chronically oversupplied” which prevents any major improvement in charter rates.

Smaller ships, particularly the least energy efficient units, are seeing their competitive edge further eroded by the IMO 2020 sulphur regulation especially on higher volume routes where larger vessels could prove more efficient to operate.

“It remains to be seen whether more scubbers will be installed on smaller vessels, which could potentially change the dynamics in these sizes,” the container shipping analyst said.

On the supply front, the amount of newbuilding tonnage expected to hit the water at just over one million teu, or about 5% of the capacity in service, appears “manageable”.

Overall the container shipping charter market should benefit from the positive macroeconomic factors expected in 2020, among which a 3.3% growth rate of the world economy, a gradual normalisation of the US-China trade relations and more clarity surrounding Brexit, Alphaliner wrote.

Meanwhile, despite the positive market developments, concerns remain over the carriers’ abilities to recover the costs of compliance with the new IMO 2020 low sulphur fuel regulation, according to Xeneta, an ocean freight rate benchmarking and market intelligence platform.

“We have been tracking the effects of the new regulation in our data. Like market commentators have so far suggested, our rate data also does not show IMO 2020 having had any significant impact in the rate levels so far,” said Patrik Berglund, ceo of Xeneta.

“The carriers are yet to find the right formula for recouping the cost of more expensive fuel. They face real difficulties on commoditised routes, where pricing is critical to achieve market share, and the slight rises we see are mainly because of basic supply and demand, nothing more.”

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