Q2 2024

SUPPLY

The pressure on capacity is reflected in carriers’ demand for tonnage, which has seen the idle fleet drop while charter rates have risen. This is a clear indication that carriers are not choosing to blank sailings for commercial reasons in hopes of driving rates up – but rather because they don’t have the necessary ships to fill their schedules. In early June, Maersk announced the suspension of its TP20 service between the Far East to the US East Coast, despite high rates and volume growth on this trade, needing to re-deploy those ships to other services and trades.Alphaliner reports that the idle fleet fell to just 131 000 TEU on 20 May 2024, though by 3 June it had risen to 216 000 TEU. This represents 0.7% of the total fleet, while the 0.4% it hit in May was the lowest the idle fleet has been since February 2022. Of the 75 ships that are idle, only 18 have a capacity of more than 3 000 TEU, of which only two are owned by a non-operating owner, while the rest are carrier controlled.The owners of the few ships that are available for charter are profiting, able to demand higher charter rates and longer contract durations. The average charter rate for a 2 500 TEU ship lasting between 6-12 months is up by 109.6% from the start of the year, rising to USD 24 000 per FEU at the start of June. Owners are also offering lower rates for longer contracts, betting against the charter and the wider container shipping market staying at current highs in the longer term. For the same ship size, the average charter rates for a contract lasting three years is USD 16 000 per day, a 57.6% increase from the start of the year. While high, it should be noted that charter rates are still a fraction of their highs over the pandemic years.The last time charter rates rose at this pace, at the end of 2020, it almost immediately provoked a buying spree for secondhand ships as well as a rush to build new ships, the result of the latter is the record high growth of the container fleet seen last year and this year.There has been a pick-up in activity on the second-hand market, with MSC once again very active. Amongst others it has bought four 2000 built 9 640 TEU ships from Maersk, hoping to profit from them in the red-hot market.On the contracting side, it is unlikely carriers and non-operating owners will respond the same way this time around, though activity picked up in May and the first half of June when 110 830 TEU of new ships were ordered, bringing the total in the first five-and-a-half months of the year to 362 260 TEU. The difference in contracting appetite between now and back in 2020 is the 5.5m TEU that have been delivered since the start of 2021. Throughout 2023 overcapacity drove the drop in freight rates and, with another 2.6m TEU expected to hit the market this year, carriers were expecting an even poorer 2024 - until the Red Sea crisis changed the picture. However, once the effects of the diversions and congestion are resolved, overcapacity will once again be the dominant factor. Ordering ships now, which have a delivery date between the end of 2026 and into 2028 means they risk being delivered when no-one wants them. Already this year the container shipping fleet has grown by 4.6%, driven by the delivery of 1.34m TEU, with demolition of 43 500 TEU having little impact. The record high deliveries mean the global container shipping fleet breached the 29m TEU in May. This comes only four months after the 28m TEU mark was passed.The average time it has taken the global container shipping fleet to reach each one million TEU milestone has fallen dramatically as the pace of deliveries has increased. After passing the 20 million TEU mark in February 2016 it took 24 months to reach 21m. It then took an average of 12 months for the milestones between 22m and 26m TEU to be breached. However, the past three milestones have been passed in five, five and four months respectively.

The 30m TEU mark will also be hit this year, with Xeneta expecting full year fleet growth of more than 8%, with a further 1.34m TEU to be delivered on top of the 1.26m that has already arrived.The extra demand generated by carriers continuing to divert their ships around the Cape of Good Hope, as well as the inefficiencies driven by congestion, mean the new ships have and will continue to be deployed as soon as they are delivered. This is in contrast to Q4 last year when carriers were struggling to deploy new capacity in an already saturated market and a growing idle fleet.