Source: China Ocean Shipping e-Magazine, March 6, 2023.
Despite declining demand and falling freight rates, container ship leasing transactions are still ongoing in the container ship leasing market, which has reached a historic high in terms of order volume.
Current leasing rates are much lower than their peak. At their peak, a three-month period lease for a small container ship could cost up to $200,000 per day, while the lease for a medium-sized ship could reach $60,000 per day over five years. However, those days are gone and unlikely to return.
George Youroukos, CEO of Global Ship Lease (GSL), stated recently that "leasing demand has not disappeared, as long as demand continues, the ship leasing business will continue."
Moritz Furhmann, CFO of MPC Containers, believes that "leasing rates have remained stable above historical averages."
Last Friday, the Harpex Index, which measures leasing rates for various types of ships, fell 77% from its historical peak in March 2022 to 1059 points. However, the rate of decline this year has slowed down, and the index has stabilized in recent weeks, still more than double the value before the 2019 pandemic in February.
According to recent reports by Alphaliner, after the end of the Chinese New Year, demand for container ship leasing has increased, and available rental capacity in most of the segmented ship markets continues to be in short supply, indicating that leasing rates will rise in the coming weeks.
Medium and small-sized container ships are more popular.
This is because, during the market's best period, almost all large ships signed multi-year leasing contracts that have not yet expired. In addition, some large ships due for renewal this year have already extended their leases last year.
Another major change is that lease terms have been significantly shortened. Since October last year, GSL has leased its four ships for an average of ten months.
According to shipbroker Braemar, this month, MSC has chartered the 3469 TEU Hansa Europe vessel for 2-4 months at a rate of $17,400 per day, and the 1355 TEU Atlantic West vessel for 5-7 months at a rate of $13,000 per day. Hapag-Lloyd has chartered the 2506 TEU Maira vessel for 4-7 months at a rate of $17,750 per day. CMA CGM has recently chartered four vessels: the 3434 TEU Hope Island vessel for 8-10 months at a rate of $17,250 per day; the 2754 TEU Atlantic Discoverer vessel for 10-12 months at a rate of $17,000 per day; the 17891 TEU Sheng An vessel for 6-8 months at a rate of $14,500 per day; and the 1355 TEU Atlantic West vessel for 5-7 months at a rate of $13,000 per day.
Risks increase for leasing companies
Record-breaking order volumes have become a concern for ship leasing companies. While most of these companies' vessels have been leased out this year, what will happen after that?
As shipping companies receive new, more fuel-efficient vessels from shipyards, they may not renew leases on older vessels when they expire. If lessors cannot find new lessees or cannot earn profits from rent, they will face vessel idle time or may eventually choose to scrap them.
MPC and GSL both emphasize that the high order volume and potential impact on ship lessors essentially only put pressure on larger ship types. MPC CEO Constantin Baack said that the vast majority of the order book is for larger ships, and the smaller the ship type, the smaller the order volume.
Baack also noted that recent orders favor dual-fuel vessels that can use LNG or methanol, which are suitable for larger vessels. For smaller vessels operating in regional trade, there is insufficient LNG and methanol fuel infrastructure.
The latest Alphaliner report states that 92% of container newbuilds ordered this year are LNG or methanol fuel-ready vessels, up from 86% last year.
GSL's Lister pointed out that the capacity of container ships on order represents 29% of existing capacity, but for ships over 10,000 TEU, this proportion is 52%, while for smaller vessels, it is only 14%. It is expected that the scrapping rate of vessels will increase this year, resulting in minimal actual capacity growth.
Post time: Mar-24-2023