Ocean freight rate forecast based on charter rates

Hello, In this article, I would like to use charter rates to understand the current level and inflection point of ocean freight rates.

Containership rates continue to be sluggish, and dry bulk carriers have recently recovered after bottoming out after reopening in China. Let's do a comparative analysis by comparing charter rates and freight rates.

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1.     Charter Rate

Let's look at the definition of charter fee first.

 

Chartering is a kind of ship rental, which is paid by the charterer to the owner for the charter, and refers to charter rates in a broad sense, including voyage charter rates and period charter rates. The minimum standard is the cost, which consists of the maintenance cost of the ship borne by the owner and the operating cost borne by the charterer, and it is determined by adding the actual market price of the demand for the ship. The price of a voyage charter, which is the cost of a charter party, is calculated on a voyage-by-voyage basis for the number of cargoes or space transported, and the charter rate for a time charter is a period such as day or month. is calculated in units of

Leaving aside the detailed concepts of voyage charter and regular charter, you can see it as the concept of rent when you simply rent a car.

 

‘Chartering’, which is called the flower of shipping, can be played by chartering a vessel even if you do not have your own vessel in the market, if you can actually write down and analyze market conditions. In other words, if the current market situation is at the level of $10,000, and according to my analysis, if the market conditions are expected to rise to the level of $15,000, then you can charter a ship for $10,000 and 1) make a cargo contract 2) repurchase the ship to someone else You can rent. In other words, if the price level of re-leasing is 13,000 dollars, by this contract, a total of 18 It turns out that you can arithmetically make a profit of $10,000.

 

It's so simple, why is it so hard to make a profit... This is because, of course, all participants have similar information and judgments. In other words, if the $10,000 market is expected to rise to $15,000, this ship is already traded between $13,000 and $4,000, not $10,000 in the market.

 

Anyway, as you can feel from this concept of charter rate, charter rate can be used as a criterion for rate judgment because it is traded by many market participants and can indirectly judge the current market.

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2.     Container Chartering Vs. SCFI

First, let's look at the level of charter rates for container ships. According to the data, the 3-year charter rate level for 9,000 TEU class vessels maintained its highest point for 19 consecutive weeks from May to July 2022.

 

I believe that the period during which charter rates, which reached new peaks, remained flat was an opportunity for investors to reach an inflection point. In other words, if it can no longer renew its peak, it has no choice but to fall naturally. As the mountain is high, the valley is deep, from the peak of 96,500$/Day to the current 39,250$/Day, a -59.3% drop.

We classified short-term charter rates of less than one year and long-term charter rates of three years or more by size/year. As of 23, the level of charter rates has declined significantly compared to 22, which was the peak, but it is still higher than the level of 19, before the pandemic.

 

In light of these points, it was confirmed that overall, market participants believe that this year's freight rate is clearly higher than that of 20 years.

▶ Based on the SCFI composite index, as of 2023 (cumulative basis), it is 968, and the 20-year average is 1,265. In other words, it is judged to be an excessive drop in spot fares of about 31%.

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3.     Dry bulk vessel charter vs. BDI

The figure below is a graph of one-year regular charter rates by cape/panamax/supra/handy size. It can be seen that the peak period was different from the previous container ship, and it can be seen that it is currently recording at a higher level than 19 years, same as the container ship.

Looking at the 23-year standard, the Cape Sun is at the 20-year level, and the Panamax/Supra/Handy is located at the median level of 20-21 years. If the recovery of the Cape market is supported, overall dry bulk carrier market conditions are expected to be fairly high, between 20 and 21 years

▶ Based on the BDI index, as of 2023 (cumulative basis), it is 1,046, which is lower than the annual average of the last 10 years, which was 2,943 in 21 years, which was the max, but almost similar to the 20-year average of 1,066, and at least higher than the 20-year level this year I look forward to doing it.

 

thank you