Despite falling spot container freight indexes and low import demand, the industry is not behaving like it is facing an imminent crisis. Rates paid by liner companies to charter container ships are now increasing, while the duration of charters is rising. The number of idle container ships has decreased, and liner companies continue to buy more vessels in the secondhand market. The expected tsunami of ship recycling has yet to occur. Instead, liner companies continue to place orders at shipyards for more vessels.
While charter rates are still eroding, charter markets have found a floor and have recorded slight upticks across different vessel size categories. Charter durations are also rising again, with 12-month periods becoming the new normal, and some deals being done for two years or more. Commercially idle capacity is falling back, with only 5.5% of ships being commercially idle as of late March.
Surprisingly, the sale and purchase (S&P) market for container ships is experiencing massive activity at very high prices, with several categories of buyers. Scrapping remains low, with only 19,800 TEUs of capacity being scrapped in Q1 2023. Newbuilding orders continue to come in, with liner companies ordering methanol-powered vessels driven by demand for dual-fuel vessels.
Both carriers and nonoperating owners (NOOs) have huge cash reserves that will cushion the fallout from excess ship capacity. This, along with their historically low leverage ratios, suggests a better future for container shipping than people might expect based solely on freight rates and the orderbook.
