Carriers Increase Charter Rates as Demand Increases

Carriers Increase Charter Rates as Demand Increases

The supply and demand gap has been widening in 2011 as the global economy rebounds faster than anyone really expected. Capacity issues have arisen and have ocean shipping companies scrambling to provide service for the business that is out there. Carriers have increased their charter rates and are holding out for new ships on order to arrive.

According to an article on the Journal of Commerce's web site, a 3,500 20-foot equivalent unit gearless sub-Panamax ship is currently earning $14,500 a day compared with an average of $13,250 in 2010 and $6,575 in 2009. They got this information from the London shipbroker, Clarkson. A standard 4,250-TEU vessel is fetching just over $23,000 a day on a two year time charter against $22,555 at the beginning of the year, according to the Hamburg Shipbrokers Association. The Association's ConTex index of time charter rates for five ship sizes, from 1,100 TEUs to 4,250 TEUs, fell to 548 at the end of November from a 2010 high of 601 in mid-October. It has recovered to 578.

A delicate balance of capacity and demand are needed for ocean freight and transportation companies to see optimal profits and operate efficiently. Ideally, a narrow gap should exist between supply and demand. Earlier, we reported that Japan based NYK Logistics' research group believes that the new ships on order will arrive in 2011 and upset the delicate balance they've been enjoying. They said that tight capacities last year helped the ocean shipping industry turn a profit, but they do not think it is likely to happen again this year because of new ships on order coming in and increasing capacity by about 10%. Maersk Line believes that the flood of new tonnage they are seeing will continue as emerging new markets in China, India and Africa support the increase, making the new ships necessary and not causing a gap in supply and demand.

Strong cargo demand on key trade routes have ocean shipping companies competing for a limited volume of available tonnage, which is causing charter rates to increase. Spot freight rates are decreasing on some trades, "undermining efforts to push through general rate increases that took effect at the beginning of the year," according to the Journal of Commerce.

Carrier Clarkson is holding back from taking on new tonnage because they expect rates to "soften" when more ships arrive on the market. They say that continued growth and limited capacity could make things work out better than expected for the ocean freight market.

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