Hello, it’s IINO.
I would like to broadcast IINO san’s Logistics Radio today.
Today’s theme is about increase in container charter rates. Since Corona disaster, we have reported many times on the rising cost of ocean freight.
We have been telling that this was due to the increase in freight rates by the shipping companies, but in fact, there is also an increase in container shipping rates in the background.
Daily Logistics Radio by IINO san in 14th Sep. 2021
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Rising container charter rates
The current container charter rates are increasing like this.
Current Charter Rates;
Pre-Corona Charter Rate
Container ship size: 4,400TEU
The price has been gradually increasing since last summer, and now it has jumped to about 10 times the price.
Shipowners and Operators
In explaining the charter rates for containerships, let me first explain the difference between a ship owner and an operator. In the shipping market, shipping companies such as ONE and Maersk do not own all ships.
Of course, shipping companies own their vessels, but they also rent vessels from other ship owners and operate them. Therefore, shipping companies are sometimes referred to as operators.
For example, it became a hot topic when EverGreen ship ran aground in the Suez Canal in April this year.
The owner of the ship was Shoei Kisen of Japan, so it was Shoei Kisen, not EverGreen, that was negotiating with the Suez Canal Authority for compensation.
Ship charter period is attention point
Before Corona disaster, the term of charter was one year at most. Nowadays, however, it is reported that from 4 to 5 year contracts are the norm, and it is difficult to renew short-term contracts of one year.
Shipowners are negotiating for longer contracts at higher charter rates.
Although the shipping market is expected to remain high from now until 2022, shipping companies (operators) want to avoid to have to pay high charter rates to ship owners, even if the shipping market declines after 2023.
However, if negotiations with shipowners do not go well, shipping companies may not be able to lease ships from them, which could limit the supply of services.
Investment in expensive ships
As a shipowner, the investment in a ship is very large, ranging from several 10 million to 180 million USD per ship.
In spite of the investment, if the market conditions are low, the shipowner may not be able to fully recover the investment and may suffer a huge loss.
In this sense, it is natural for shipowners to want to sign long-term contracts with high charter rates.
The market price depends on the balance between supply and demand. Currently, supply is not keeping up with demand, and ocean freight rates are at an all-time high.
However, as Corona and North American Christmas sales settle down and demand declines, prices will also settle down.
It would be a good idea to keep an eye on charter rates in the future shipping market.