4 April 2024 (Lloyd's List) - RED Sea diversions continue to buoy containership lessor returns by inflating demand for available tonnage.
Less than 1% of the world’s containership capacity is commercially idle, a level that “echoes numbers recorded during Covid”, said Alphaliner on Tuesday. Idle capacity was at 0.9% in March and 0.7% in February, the lowest since February 2022, at the height of the supply chain crisis.
Demand for ship charters “remains healthy,” with lease rates that exceed pre-Covid levels. Scrapping remains minimal.
Post-panamaxes and larger ships continue to be fully booked, leading to a dearth of fresh charters. Panamaxes “remain very popular with charterers and are enjoying further rate increases”, said Alphaliner.
It reported that the 4,253 teu panamax Synergy Antwerp (IMO: 9443580) has just been chartered by Hapag-Lloyd for 11-14 months at $26,500 per day, above the prior benchmark of $25,000-$25,500 per day.
Sub-panamaxes and smaller ships are seeing even higher demand. According to Braemar, “The feeder segment remains the most active, with the majority of reported transactions and extensions.”
The ultimate impact of the Red Sea crisis on containership lessors hinges on whether Red Sea diversions outlast current legacy charters, which are headed toward a “maturity wall”.
A substantial portion of tonnage in larger asset classes was placed on multi-year charters during the Covid boom. Many of those ships remain tied up on legacy leases, but lease maturities will accelerate in 2025, with renewal prospects to depend on whether disruptions are still ongoing.
“Nobody has the slightest clue when the Red Sea situation is going to be resolved,” said Lars Jensen, CEO of consultancy Vespucci Maritime, in an interview with Lloyd’s List. “It could be a month or two from now. It could be a year or two.
“I don’t think we can rule out a scenario where this is something that lasts for years. So, the Red Sea problem could still be persisting when those [legacy lease] ships come back on the market.”
Very different scenario without Houthi attacks
The Red Sea crisis changed the script for carriers — and thus, ship lessors — just as carriers were about to start idling more tonnage, believes Jensen.
“My take is that just before the Red Sea erupted, the carriers were in their usual staring contest — who will back down first?”
He believes that if the Houthis hadn’t launched their attacks, carriers would have reached a tipping point and reduced capacity in Q1 or early Q2 of this year. “Rates would have been a lot worse. Carriers would have said ‘enough is enough’ and we would have seen vessels being idled.”
Instead, the Houthi attacks created a market “where we have enough ships to go around Africa and we don’t have excess ships. It’s fairly well balanced.
“As we get the orderbook delivered through the rest of 2024, carriers will likely try to manage that by slowing down some of the ships they had previously sped up to make their schedules around Africa.”
Outlook positive for lessors of smaller ships
Ship size has also played a major role in resilient demand for leased containerships and should continue to do so going forward.
“The orderbook is heavily skewed toward the bigger vessels,” said Jensen. This equates to less capacity pressure on lease rates of smaller ships.
“Also, some of the new carrier networks that are coming out are more hub-and-spoke, and if you go to more hub-and-spoke, you need the small ships,” he added.
A common view of how the container shipping cycle will play out is: Carrier profits fell first as freight rates normalised from pandemic highs, and containership lessor profits will fall next as legacy multi-year charters expire.
In a note to clients on Tuesday, Jefferies detailed a new interview with Oscar Hasbun, CEO of CSAV (which owns 30% of Hapag-Lloyd), in which Hasbun was paraphrased as saying, “All vessels were needed during the pandemic, with longer contracts with shipowners, but these are coming to an end in 2025-2026.”
Carriers will have much more fuel-efficient newbuilding tonnage in their fleets by then, allowing them to save on operating costs by letting leases on older ships expire — to the extent older leased tonnage is no longer needed to service demand.
“In theory — and in aggregate — that is right,” said Jensen of this scenario. “But there will be enormous differences, because it boils down on the size of the vessels. The ship lessors are going to be pressured in aggregate, but the extent is going to be extremely diverse and will depend on which vessels they’ve got.”
Lessors of smaller ships will fare better, he said. “Carriers have underordered smaller ships, so some might sit on [leased] assets. Because even if there is structural global overcapacity and I have too many 20,000 teu ships, that does not help me if I need a ship that can go into the fjords of Oslo.”
