A high-profile corner of the container-ship charter market — small and medium-size vessels taken for short, multimonth rentals at mind-bogglingly high rates — has taken “a dive,” according to Alphaliner.
There is a connection between the rate drop and the extreme congestion at the ports of Los Angeles and Long Beach.
Short-term-chartered ships, largely operated by Chinese interests, have been inflating the California queue numbers by coming across the Pacific without terminal reservations. Ships costing charterers six figures per day are getting stuck at anchor or in holding patterns for a month or more, causing some charterers to reconsider how much they’re willing to pay.
Caught in the middle are U.S. importers who booked ocean transport through forwarders and were not aware that the ships their cargo was coming over on did not have pre-arranged windows at Los Angeles/Long Beach terminals.
Rates take ‘serious hit’
The high point in the short-term market came in September, when the Synergy Oakland — a ship owned by Euroseas (NASDAQ: ESEA) with a capacity of 4,253 twenty-foot equivalent units — was chartered at around $200,000 per day for 60-85 days. Alphaliner reported two other charters in October at near that rate, including the 4,339-TEU X-Press Kilimanjaro, chartered to China’s BAL Container Lines, at $190,000 per day for 40-50 days.
Alphaliner said on Tuesday that “the number of short-term charters concluded at sky-high levels by freight forwarders and new liner shipping entrants has gradually been receding, with charter rates for these ad-hoc employments taking a serious hit.”
It reported that the charter of the 4,892-TEU Zhong Gu Jiang Su has been extended by BAL Container Lines for three to four months at “only $125,000 per day, a level that compares poorly” to the $200,000 high-water mark. Alphaliner told American Shipper that the Zhong Gu Jiang Su had previously been on charter to BAL at $185,000 per day; the extension rate was 32% lower.
“The carriers behind these opportunistic employments are clearly becoming wary of growing uncertainties on the cargo front, with spot freight rates no longer rising and volumes expected to soften at the end of the current peak season,” said Alphaliner. It added, “Pricey bunkers [marine fuel] and crippling congestion issues … are also a mounting concern.”
Due to several deals at lower pricing, the Alphaliner charter index has just fallen for the first time since June 2020. However, Alphaliner affirmed that “these massive drops on short-term fixtures do not indicate any fundamental market turnaround, but rather, highlight a correction” in an “overheating” market.
Chartered ships feed congestion
Gene Seroka, executive director of the Port of Los Angeles, highlighted the chartered-ship situation during an appearance on CNBC on Tuesday.
Seroka noted that of 73 container ships stuck offshore that day, only 23 were ships from regular services using vessels of 10,000-TEU capacity or higher. The other 50 were mainly vessels from new services and retailer-chartered tonnage.
According to Seroka, “Many of these folks did not have reservations at the ports of Los Angeles and Long Beach even after they loaded cargo and the vessel began its journey. In many cases, they’re calling to try to make those reservations with our private-sector marine terminal operators as they come across the Pacific.”
He added: “An integral piece of this entire supply chain is making sure you have a window-based arrival appointment here at the port to bring your vessel in and have longshore labor ready to work that ship. It’s less efficient if you come across without a place to call home.”
For those that don’t, he said, “we try to hustle these folks in whenever we have a gap, which are few and far between.”
Seroka’s comments back up claims made by a manufacturer speaking to American Shipper on condition of anonymity last month. The source had cargo aboard the Zhong Gu Jiang Su. He said he was told that the operator “hadn’t negotiated with the terminals for a berth” before arrival, leading to the extended delay.
Costs to charterers mount
The Zhong Gu Jiang Su sailed from Qingdao, China, on Aug. 30. It arrived at the waiting area off Southern California on Sept. 13. If finally made it to a berth on Thursday — 52 days later.
It will not complete its return voyage to Qingdao until the third week of November, putting its round-trip time at around 80 days. Assuming the charterer is still paying the original rate, this equates to a leasing cost of around $14.8 million, not including fuel, for the time of the voyage.
Stefan Verberckmoes, shipping analyst and Europe editor at Alphaliner, told American Shipper, “If she [the Zhong Gu Jiang Su] would have, let’s say, 2,200 40-foot containers of spot cargo on board at $15,000 per FEU [forty-foot equivalent unit], her eastbound voyage revenue should be $33 million.
“It’s obvious that congestion is taking a big slice of the enormous income,” said Verberckmoes. “I’m convinced that this is the main reason why small players will cease to outbid the big carriers to pay astronomic high amounts to fix tonnage.”
The Zhong Gu Jiang Su situation is far from an isolated case. Six other container ships — A Kinka, BAL Peace, Hyundai Prestige, Wan Hai 508, Wan Hai 625 and AS Constantina — have been waiting a month or more.
Before that, the S Santiago, reportedly on charter for $135,000 per day, waited 28 days before getting to berth (implying a “waiting rent” of $3.8 million). The Martinique, reportedly on charter for $150,000 per day, arrived Sept. 9 and didn’t get to berth until Oct. 21, 42 days later (implied waiting rent: $6.3 million).
And then there is the price of marine fuel, which is surging.
Based on fuel consumption estimates provided by S&P Global Platts, a round-trip Los Angeles-China voyage could eat up another $2 million or so in charterer profits, not including fuel burned while puttering around near Catalina Island waiting for an anchorage.
But even with fuel costs and huge delays in Los Angeles/Long Beach, charterers’ profits per voyage can still be in the eight digits if ships are carrying premium-rate cargo, which explains why so many smaller chartered vessels are now floating in San Pedro Bay.
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