Leading charter owners are laying up their ships because hire rates don"t cover vessel financing costs.
Container ship charter owners are preparing to idle scores of vessels for extended periods over the coming weeks as hire rates reach new lows and ocean carriers press for steeper discounts to compensate for collapsing liner freight rates. There were 392 box ships of 1.1 million TEUs, or 8.8 percent of the world fleet, without work in mid-February, according to AXS-Alphaliner, a Paris-based consultant that tracks laid-up tonnage.
But that figure ?may yet even prove to be a conservative estimate,? says London shipbroker Clarkson.
Leading charter owners are laying up their ships because hire rates don"t cover vessel financing costs. Euroseas, the Nasdaq-listed box ship and bulk carrier owner, has already laid up one of its 10 container vessels and this week said it might be more economical to temporarily lay-up ships coming off hire rather than sign new charters that are likely to generate low revenue through 2009.
Earlier, Euroseas agreed to renegotiate two charters -- from $18,500 a day to $12,000 for a 1,742-TEU ship, and from $16,500 to $11,000 for a 1,932-TEU vessel. It also agreed to extend the charters at even lower daily rates of $10,000 for a year and $7,000 for six months, respectively.
Claus-Peter Offen, one of Germany"s biggest charter owners, plans to lay up around 10 vessels ranging between 1,200 and 2,500 TEUs. It has already laid up three ships that couldn"t find work after their charters expired.
Until now, charter owners and ocean carriers have opted for ?hot? lay-ups where vessels are kept ready to resume trading very soon after a charter is fixed or freight rates and cargo demand pick up.
But an increasing number of owners are now mulling ?cold? lay-ups, a more drastic step involving considerable expenditure in maintaining the idled vessel for a prolonged period and eventually returning it to trading.
The trend toward cold lay-ups reflects the steep slide in charter rates, and more recently, the shrinking demand from ocean carriers for tonnage as they axe services and lay-up their own vessels.
Average daily charter rates for a 1,700-TEU ship fell this week to $5,418, less than a third of the $17,905 it commanded in early May and a 2,500-TEU vessel is earning $6,940 a day, down from $25,074, according to the Hamburg Shipbrokers" Association. Its closely watched ConTex index this week had fallen to 305 from 974 in early May.
Rates for larger vessels also are retreating, with the daily rate for a 3,500-TEU gearless Panamax ship down 44 percent in the past three months to $10,500 from $15,500, according to Clarkson.
But ocean freight rates have fallen even more, widening the gap with charter rates, particularly deals when carriers were competing for scarce tonnage to meet double-digit traffic growth. All-in rates from South China to Europe have plunged nearly 70 percent since November, according to London"s Drewry Shipping Consultants.
Ocean carriers have responded by announcing rate increases, mostly effective from April, and putting further pressure on charter owners to slash rates and accept clauses allowing them to break and renegotiate charters at short notice.
An increasing number of charter owners are opting for cold lay-up, but the majority are caving in to carriers" demands in order to cover as much as possible of their ships" financing and insurance costs.