Where is the bottom of container freight?

(Chapter1. Container market status through second-hand and charter rates)

 

There are several factors that affect the freight rate market: 1) supply and demand, 2) market participants' sentiments, 3) port conditions, and 4) charter rates. In this chapter, I will examine the current freight rate through charter rates and price fluctuations of new and used ship prices.

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 1. Charter rates change

Container Shipping Market (‘22/30W) (tistory.com)

Container Shipping Market (‘22/30W)

 As I continued to write earlier, charter rates for container ships, which were at a record high in history, have been falling since September. As of 9/9, compared with the 22 year YTD, most recorded a drop of about -1.5%, but the decline was remarkable at -6.7% only at the 6800TEU level (3 years period).

 

 What this means is that

1) the demand for ships in the market for large ships of 9000TEU or higher is still strong

2) the short term (6~12M) has a drop of -1.5%, whereas only the long term (3 years) has a large drop. This shows that even within the market, in the long term, the current high market conditions will continue to decline.

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2. Trend of used ship price fluctuations

 

 In general, we would like to examine the future SCFI price through the newbuilding division of Neo Panamax ships (6600-6800TEU) and the price of 5-year used vessels.

 

 From 2009 to early 21st, before COVID-19, of course, the price of new ships was higher than that of used ships. As SCFI freight rates rose sharply, the price of second-hand ships was higher than that of new ships as of June, 2021. In other words, market participants are judging that it is more profitable to buy a used vessel for 5 years and operate it until the scrapped vessel than it is to receive the order from the current vessel and receive it 2 to 3 years later and operate it for 20 years.

 

 What we are suggesting here is that SCFI freight rates have taken the lead, followed by newbuilding and used ship prices. Accordingly, the price of second-hand ships is maintained at a high level without much difference from the sharp drop in freight rates.

 

 It is expected that freight rates will stabilize when the current high gap between new and used ship prices is filled. Therefore, when looking at the charter rates and the price of used ships, the current SCFI rate downward trend is expected to continue for the time being.

 

Thanks.