Hello, goodbye: Shipping’s latest entries and exits on Wall Street

The lineup of shipping stocks is in flux. There are multiple new listings as well as notable departures.

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Shipping stocks are having a good run, generally outperforming the S&P 500, Dow Jones Industrial Average and NASDAQ 100 during the past three years amid the pandemic and Russia-Ukraine war.

For those looking to place more bets on U.S.-listed shipping stocks, the lineup is in flux. There are new listings on the New York Stock Exchange and NASDAQ. There are also continued departures as more public players go private.

Latest listings and exits

CoolCo (NYSE: CLCO) began trading on NYSE on March 20. The company has a fleet of 12 LNG carriers with multiple charters expiring this year and next, providing exposure to potentially rising rates.

CoolCo CEO Richard Tyrell

“I describe CoolCo as Flex LNG [NYSE: FLNG] with upside,” said CoolCo CEO Richard Tyrrell at the 17th Annual Capital Link International Shipping Forum, held in New York this month.

Himalaya Shipping has filed a registration for a share sale and NYSE listing under the ticker HSHIP. The company owns 12 dual-fuel, 210,000-deadweight-ton dry bulk carriers.

Heidmar — a well-known manager of tanker and dry bulk commercial pools — announced on March 20 that it will list on NASDAQ via a reverse merger with the SPAC Home Plate Acquisition Corp. under the ticker HMAR.

Tanker owner Toro Corp. (NASDAQ: TORO), a spinoff of Castor Maritime (NASDAQ: CTRM), began trading March 8.

Delta Holding Corp., a ship manager and logistics provider for dry bulk, announced plans in late September to merge with Coffee Holding Co. (NASDAQ: JVA), with the combined entity to trade under the ticker DLOG. (The deal was supposed to close in the first quarter but there had been no announcement as of Wednesday.)

On the exits side of the ledger, formerly NYSE-listed Atlas Corp., parent of Seaspan, the world’s largest lessor of container ships, was delisted Tuesday. The company was taken private by a group of insiders including Fairfax Financial Holdings and the Washington family, together with ocean carrier ONE.

Hoegh LNG Partners was delisted from NYSE on Jan. 2 after being purchased by its private sponsor, Morgan Stanley-owned Hoegh LNG.

GasLog LNG Partners (NYSE: GLOP) looks like the next to go. On Jan. 25, it received a take-private offer from its sponsor company, GasLog Ltd., which was itself taken private by insiders and BlackRock in June 2021.

Aggregate loss of market cap due to entry-exit mix

Shipping companies leaving Wall Street over recent years have boasted strong long-term cash flows that attract large institutional buyers.

In contrast, several of the shipping companies arriving on Wall Street have been very small companies with shares that, by the companies’ own admission, pose high risks to investors and traders. 

In addition to the take-private deals for Atlas, Hoegh LNG Partners, GasLog Ltd. and GasLog Partners, Golar LNG (NYSE: GLNG) exited shipping by selling its LNG fleet to CoolCo in December 2021. Container-equipment lessor CAI was bought by Japan’s Mitsubishi in November 2021. Seacor was taken private by American Industrial Partners in April 2021. Teekay LNG was delisted and bought by Stonepeak in January 2021. DryShips was taken private by its founder, George Economy, in October 2019.

The aggregate market caps of all the shipping companies taken private in recent years (or in the process of privatizing), calculated as of the day prior to their take-private offers, was $10.5 billion.

Among the Wall Street arrivals since 2019, the largest was ocean carrier Zim (NYSE: ZIM), which IPO’d in January 2021. The second largest among the newcomers, Flex LNG, listed in June 2019.

The other entrants have had dramatically smaller market caps.

United Maritime (NASDAQ: USEA), a spinoff of Seanergy (NASDAQ: SHIP), began trading last July. Imperial Petroleum (NASDAQ: IMPP), a spinoff of StealthGas (NASDAQ: GASS), began trading in December 2021.

OceanPal (NASDAQ: OP), a spinoff of Diana Shipping (NYSE: DSX), commenced trading in November 2021. Castor Maritime began trading on NASDAQ in February 2019.

As of Wednesday, the aggregate market cap of companies listing since 2019, from Castor to CoolCo, was $5.9 billion. That’s roughly half the pre-take-private-announcement market cap of the companies that have delisted from NYSE or NASDAQ or exited shipping over the same time frame.

What’s driving privatizations

Many of the take-private deals have involved LNG shipping companies with extensive long-term charter coverage. The most recent exit, Atlas Corp., is a container-ship lessor that also has long-term coverage.

During the Capital Link forum, Stifel analyst Ben Nolan explained, “What differentiates the LNG segment relative to tankers and dry bulk is that you can get long-term cash flows. Infrastructure funds — which are by and large the ones buying these companies — are not making spot plays.”

Nolan also pointed out that many of the companies that were privatized were master limited partnerships (MLPs). “The MLPs were structurally a challenge, with valuations struggling to get back to reasonable levels. If there’s a structural reason your stock’s trading [low], going private is a valid way to think about it.”

According to Christian Wetherbee, shipping analyst at Citi, “It’s about duration and cash flow and predictability. That’s the reason we’ve seen private capital come in and withstand the leverage needed for those types of transactions. I don’t know that it lends itself to something closer to spot or shorter durations, like you see in some of the other shipping subsectors.”

What’s driving (some) new listings

Many of the new listings over recent years — as well as their subsequent follow-on offerings —  are being handled by investment bank Maxim. These include Toro, Delta Holding, United Maritime, Imperial Petroleum, OceanPal and Castor.

Larry Glassberg, co-head of investment banking at Maxim, said during the Capital Link event, “IPOs in this market are going to be very challenging. But I think you will see people opportunistically do things, particularly around reverse mergers and utilizing SPACs … as a mechanism to get public and scale post-closing of those transactions.”

Shipping companies working with Maxim have been very active in the follow-on market, raising cash for vessel acquisitions. These Maxim-linked follow-on offerings account for the vast majority of equity capital raised in recent years by U.S.-listed shipping companies.

Maxim’s Larry Glassberg (Photo: Capital Link)

Maxim says it has been involved in $1.2 billion in shipping transactions since 2015. Marine Money has referred to Maxim deals as “the fountain of funding” and “shipping’s answer to Venmo.”

These equity sales feature discounted shares and warrants purchased by hedge fund intermediaries, who then flip those shares to the retail market.

In mid-2020, Top Ships (NASDAQ: TOPS) — a serial issuer of equity in deals handled by Maxim — was by far the most popular shipping equity on retail stock-trading site Robinhood. Top Ships ranked 37th among all stocks traded on Robinhood, ahead of Starbucks, Pfizer, ExxonMobil, GM and Sony.

According to Glassberg, “From a growth point of view, the U.S. capital markets for maritime companies are an incredible facilitator for capital raising.” He advised, “If there’s an opportunity to go out and raise capital, you want to take advantage of that … [to build] a stronger balance sheet.”

Buyers beware

But buyers beware. As reported by Tradewinds, share sales by Maxim-linked microcap shipping companies are highly controversial due to losses suffered by retail investors.

Unlike larger shipping companies that are generally not selling equity now and whose shares go up when market fundamentals improve, shares of microcaps doing follow-on offerings through Maxim are falling over time as a result of continued dilutive equity sales (and the threat of future sales) — a risk that is fully disclosed in prospectuses.

During Imperial Petroleum’s quarterly call last month, CEO Harry Vafias was asked how long equity sales that have “destroyed a lot of capital” would persist. The company’s share price has sunk 89% over the past year.

Vafias openly admitted equity sales will indeed continue. “We are still, in global terms, a very small shipping company. Ten ships is obviously not a big fleet by global standards. We have money to expand. But even with this money, we cannot really double or triple the fleet. For the time being, we will continue with the [equity offerings] until we have enough cash for a fleet that is large enough to be competing with the global players.”

a chart showing shipping microcap stock pricing
Share price performance of four shipping stocks doing equity offerings handled by Maxim: Performance Shipping (NASDAQ: PSHG), Imperial Petroleum, OceanPal and Top Ships. (Chart: Koyfin)

Share price performance of four shipping stocks doing equity sales facilitated by Maxim: Performance Shipping (NASDAQ: PSHG), Imperial Petroleum, OceanPal and Top Ships. (Chart: Koyfin)

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House panel eyes ending ocean carriers’ antitrust exemption

Members of Congress discussed container carriers’ antitrust exemption, along with how to implement the Ocean Shipping Reform Act, on Tuesday.

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In a subcommittee hearing on Tuesday, members of Congress discussed overturning antitrust immunity that ocean carriers have enjoyed for decades.

The Coast Guard and Maritime Transportation Subcommittee hearing also included discussion on requiring ocean container companies to load more domestic exports, while reconsidering how detention and demurrage charges are applied to U.S. exporters.

“It just turns out that the ocean carriers are exempt from the monopoly and the antitrust laws of the United States, and there ought to be a law that the ocean carriers are subject to antitrust laws, like other parts of our economy,” John Garamendi, D-Calif., said during the hearing.

Last week, Garamendi and several other House members introduced the Ocean Shipping Antitrust Enforcement Act to “address unfair practices that harm American businesses, producers, and consumers,” along with unfair container rate increases and refusals of cargo bookings for American exports.

Garamendi questioned Bud Darr, executive vice president, MSC Group, about ending carriers’ antitrust exemption.

“Don’t you think that’s a good idea?” Garamendi asked.

“I don’t think that’s a good idea, no sir,” said Darr, speaking on behalf of the World Shipping Council.

MSC Group is the largest ocean container carrier company in the world. The Switzerland-based company has more than 700 container ships in its network.

Darr also cautioned against politicizing trade issues in the shipping industry.

“I think it’s fraught with quite a bit of peril and unintended consequences,” he said. “Whether we like it or not, some of the major shipping companies that the world relies upon are state backed or state owned to some degree as well. We face that competition every day. Given the right framework, we will continue to compete and compete successfully. We will continue to serve the commerce needs in the United States, which is my country.”

But William H. “Buddy” Allen, president and CEO of the American Cotton Shippers Association (ACSA), testified that agricultural shippers have had to contend with unfair detention and demurrage charges from ocean carriers and ports. The Ocean Shipping Reform Act (OSRA), which was signed into law last June, aimed to offer certain protections for U.S. exporters. 

OSRA’s implementation and enforcement in the maritime industry are still being reviewed and amended by Congress.

“[ACSA] members want to move cargo fast. We want to take cost off the table. We want certainty. We want choice. We want an open marketplace, in the manner by which we procure and utilize assets so that we can move as fast as possible and reduce cost to our customers as much as possible,” said Allen, whose Memphis-based organization represents merchants of raw cotton in the U.S. and abroad.

“At the same time, we incurred $1.3 billion worth of unbudgeted costs during this time frame [in the pandemic], not all of which were detention or demurrage, but certainly some were,” Allen said. “In addition to the monetary cost, U.S. agriculture lost market share and faces reputational risk, and we simply must do a better job of communicating so we can operate more efficiently together.”

The committee also heard testimony from Matthew Leech, president and CEO, Ports America, and Mario Cordero, executive director, Port of Long Beach.

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Trans-Atlantic container rates still double pre-COVID levels

A fifth of U.S. containerized imports come from Europe. Shipping on this route remains much more expensive than it used to be.

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Container shipping rates are not back to normal quite yet. Trans-Pacific rates have returned to pre-COVID levels, but pricing in trans-Atlantic markets has not.

Spot container rates from Europe to the U.S. — while falling — are still more than twice pre-pandemic rates. U.S. imports from Europe remain strong, with building materials supporting volumes.

Drewry and FBX spot assessments

The Drewry World Container Index (WCI) spot-rate assessment for Rotterdam, Netherlands, to New York was $5,061 per forty-foot equivalent unit in the week ending Thursday. That’s down 32% from last year’s peak but still 2.5 times rates in March 2019.

Asia-West Coast spot rates shot far higher than trans-Atlantic rates during the 2021-2022 shipping boom but came down faster and fell further. The WCI Rotterdam-New York spot-rate assessment was 2.7 times higher than the Shanghai-Los Angeles index assessment last week.

chart showing trans-Atlantic rates vs. trans-Pacific rates
Spot rate assessment in USD per FEU. Blue line: Rotterdam-New York. Orange line: Shanghai-Los Angeles. (Chart: FreightWaves SONAR)

Current import headwinds from bloated inventories are curbing transport demand for manufactured consumer goods, in particular. Europe, which provides about 20% of U.S. containerized imports, is much less exposed to that market than Asia.

Different spot-rate indexes show different numbers but the same trend: trans-Atlantic rates down from the peak and continuing to fall but still well above pre-COVID levels.

The Freightos Baltic Daily Index (FBX) put Europe-East Coast spot rates at $3,891 per FEU on Friday. That’s down 54% from 2022 highs but 2.3 times March 2019 levels.

Spot rate assessment in USD per FEU. Blue line: FBX Europe-East Coast. Green line: WCI Rotterdam-New York. (Chart: FreightWaves SONAR)

Xeneta short-term and long-term assessments

Norway-based Xeneta collects data from shippers on both short-term (spot) and long-term (contract) rates. Xeneta CEO Patrik Berglund told FreightWaves on Monday that the trans-Atlantic westbound market is following the same trajectory as trans-Pacific eastbound markets, only with a time lag.

“It’s coming off quite heavily,” he said.

Xeneta’s data shows average short-term trans-Atlantic westbound rates peaking at $8,660 per FEU last June, with current average rates at $4,131 per FEU. The low end of the range is now at $2,874 per FEU, down from $6,950 per FEU in August.

“The low end is moving quickly downwards, which means that some carriers are bidding lower and lower, dragging the market down,” said Berglund.

Long-term trans-Atlantic westbound rates peaked at $7,700 per FEU last August and are now down to $3,700 per FEU, according to Xeneta data.

Assuming spot rates continue to fall, as Berglund expects they will, “that means those companies that just finalized their RFQs will pay elevated contract prices [versus spot] over the coming 12 months.”

US imports from Europe stay strong

The U.S. Census Bureau publishes statistics on metric tons of containerized imports, derived from Customs data.

U.S. containerized imports from Europe totaled 3.46 million tons this January, up 22% from January 2019 and 42% from January 2018. This January’s imports were higher than in January 2021 and 2022, amid the COVID boom. 

Full-year imports in 2022 were 22% higher than in 2019 and 26% higher than in 2018.

(Chart: FreightWaves based on data from U.S. Census Bureau)

A granular look at the import data, by four-digit Harmonized Tariff Schedule code, shows what’s driving the volumes.

Comparing full-year 2022 numbers to 2019, four of the top five gainers are related to building supplies and home furnishings. The largest volume gainer was bagged Portland cement and other cement, up 644,737 tons or 101%.

The next-largest increase was for gypsum and plaster (up 485,477 tons or 165%), followed by ceramic paving and tiles (rising 466,042 tons or 31%), electric storage batteries (404,244 tons, 376%), and furniture (286,496 tons, 39%).

The biggest decline, by far, was for U.S. imports of European beer. Beer imports plunged 329,052 tons or 22% in 2022 versus 2019. 

Americans have not become teetotalers. They’ve just changed their drinking preferences. Imports of European spirits and wine more than offset beer losses, up a combined 338,518 tons in 2022 versus 2019.

Trans-Atlantic shipping capacity

The trans-Atlantic market not only provides carriers higher rates per FEU. It’s also a shorter route compared to Asia-U.S. and Asia-Europe. Thus, the rate per FEU per mile is much higher than in the other mainline trades. This should increasingly attract more capacity to the trans-Atlantic and bring rates down.

“While the trans-Atlantic run remains the most lucrative of the major east-west trades, the normalization process has begun. Rates are primed to continue easing further,” said S&P Global Commodity Insights.

According to Berglund, “Carriers definitely deploy capacity into the trades where they can make more money, so it’s only a matter of time [before the market falls further].”

Nerijus Poskus, vice president of ocean strategy and carrier development at digital freight forwarder Flexport, believes there’s a structural reason why rates have held up longer than some expected.

In a recent interview with FreightWaves, he said one reason for continued rate strength “may not necessarily be demand driven,” but rather, due to carriers not adding capacity fast enough.

“It is happening but much slower [than people thought] because it’s actually a lot more difficult to do than it seems. The reason is that Europe has a lot of ports,” he explained. In some ports “only a few carriers have services to select areas in the U.S. In some cases, you have only three carriers competing, with a few more buying slots. So, there are fewer players,” said Poskus.

“In order for a carrier to launch a new service, it has to sign new terminal contracts. It’s a lot of work. And carriers are afraid to do that, because they know what happens when you add more capacity. The prices go down very quickly.” This reluctance means “it will just take more time” for the trans-Atlantic to normalize, he said.

Other trans-Atlantic markets also strong

If there is a capacity-related factor involved, other trans-Atlantic trades connecting to European ports should also be holding up longer.

In fact, trades between Europe and South America are following the same pattern. Rates are down from their highs, but the decline began later than in the trans-Pacific and Asia-Europe and rates are still well above pre-COVID levels.

The FBX spot assessment for Europe-South America East Coast was at $2,965 per FEU on Friday, 2.7 times 2019 levels. The FBX Europe-South America West Coast index was at $4,302 per FEU, 2.4 times pre-COVID levels.

chart showing trans-Atlantic rates to South America
Spot rate assessment in USD per FEU. Blue line: Europe-South America East Coast. Green line: Europe-South America West Coast. (Chart: FreightWaves SONAR)

Berglund noted that the rate development in the Europe-South America East Coast market is virtually identical to what is playing out in the Europe-U.S. East Coast market.

Xeneta’s short-term rate assessment for Europe-South America East Coast peaked in May at $4,211 per FEU and is now at $3,070 per FEU. The lower end of rates in this trade peaked at $3,470 per FEU in May and is now at $2,011 per FEU.

The same holds true in the eastbound trades from South America. Xeneta’s data shows “exactly the same pattern, just with different dollar values, for South America East Coast to North Europe,” said Berglund.

Thus, the tail end of the container shipping boom is not quite over. There continue to be pockets of elevated rates in the Atlantic even as the two biggest mainline trades — Asia-Europe and Asia-U.S. — are largely back to square one. 

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In search of shipping’s next supercycle: Are tankers next?

Container shipping just experienced a record boom. Some believe crude and product tankers are poised to follow suit.

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There have been two historic shipping booms since the turn of the century. Could a third be around the corner?

The first, in 2003-2008, was driven by a surge in Chinese demand as that country came onto the world trade stage. All shipping sectors benefited, with dry bulk the big winner, and secondarily, tankers.

Greek dry bulk owner Aristides Pittas said at a ship finance conference in 2013, “If you look at the fantastic times we had in 2003 to 2008 and the money that was made, and you think that this will be happening again, I can tell you: This will not happen again.”

Then it happened again. In 2021-22, container shipping experienced a historic spike in profits, driven by a surge in consumer-goods buying during the pandemic. COVID played the demand driver role that China did in the prior shipping boom. One shipowner who owned dry bulk vessels in 2003-2008 as well as container vessels in 2021-22 told FreightWaves that the container shipping supercycle was actually the stronger of the two.

The focus now is on crude and product tanker shipping. Optimism is being fueled by an unprecedented shortfall in new capacity coming online, growth in global demand and trade dislocations caused by the Russia-Ukraine war.

The phrase “supercycle” is once again being bandied about. The 2003-2008 and 2021-22 booms were unpredicted and demand driven. The predicted tanker boom, if it happens, would be largely driven by vessel supply constraints.

‘I can’t poke holes in it’

The mood on tankers was ebullient at the 17th Annual Capital Link International Shipping Forum held in New York this week, albeit with an undercurrent of “is this too good to be true?”

Navios vice-chairman Ted Petrone (Photo: Capital Link)

“This happened 15 years ago and was not supposed to happen again but here we are. Everything’s flashing green,” said Ted Petrone, vice chairman of Navios Corp. (NYSE: NMM).

“What happened in the container market completely encapsulates this [tanker] market,” Petrone continued. “Containers didn’t make a dime for 10 years, then in two years they made a decade’s worth of money. That’s shipping. You have to control your risks and control your costs and be in position to make money when you can. That’s where we are now.”

According to Ben Nolan, shipping analyst at Stifel. “With tankers … I can’t poke holes in it. It feels more obvious now than in any of the last 20 years I’ve been trying to do this, which makes me really nervous. It seems too obvious.”

Ridebury Tankers CEO Bob Burke (Photo: Capital Link)

Bob Burke, CEO of Ridgebury Tankers, said, “I’ve been doing this since the ’80s. I have never seen it so strong. I think the next two years are going to be great, just like they are now. But I also think something will happen that is one in a thousand.

“There are a lot of things that are one in a thousand, so the chances are actually more than one in a thousand. So, I would say something will change, nothing that we can predict right now. It could be strongly to the upside or to the downside.”

Anthony Gurnee, CEO of product tanker owner Ardmore Shipping (NYSE: ASC), said, “I think what’s really at play here is recency bias.” Recency bias gives greater importance to more recent memories. “I think we’re all scarred from 10 years of weakness. You can almost hear it in our voices as we’re talking about the market and the outlook. I think there are psychological factors in play.”

According to Clarksons Securities analyst Frode Mørkedal, “When I look around, people don’t seem to be willing to take a bet on next year yet. So, I think there’s a lot of upside potential.”

Look to tanker customers, not tanker execs

What panelists say at shipping conferences is often suspect, because shipping executives generally overemphasize the positives, whether because they believe it’s their job to promote their company’s future profit potential or because — via career “natural selection” — shipping executives are inherently optimistic.

Shipping supercycles are extremely rare; even moderate upturns are uncommon and often fleeting. False starts are frequent. Commodity shipping executives spend most of their careers putting on a brave face amid multiyear cyclical downturns, clinging to whatever crumbs of good news and glimmers of hope they can find.

“I’m permanently optimistic,” said Robert Bugbee, president of Scorpio Tankers (NYSE: STNG), during a luncheon speech in New York in January. “You have to be optimistic in this industry to remain sane and keep going at times.”

All of which leads to many false alarms on impending upturns from shipping executives speaking on conference panels. More important is what tanker customers do, not what tanker owners say.

James Doyle, Scorpio Tankers’ head of corporate development, said at the Capital Link forum, “Rather than all of us up here saying we believe in this market, it’s [more about] when you have Exxon, Shell and BP coming out and saying ‘we agree and we’re willing to put our capital toward it.’”

Spot rates are highly volatile. The big test of whether an upcycle is sustainable is whether charterers bite the bullet and sign multiyear charters to protect themselves from future pain in the spot market, at period rates that are highly profitable to shipowners.

“What drives the period market is pain in the spot market,” said Petrone. “We’re now seeing major oil players talk about doing more longer-term deals, because they see the same numbers we do.”

3-year charters: Still a long way to go

If and when the current tanker upcycle reaches a sustainable level, oil companies will book many more charters for three years in duration or longer at high rates.

Listed owners that have had their fleets almost entirely in the spot market over the past decade will evolve into companies with heavier time-charter coverage, supporting hefty dividends, the pattern seen in 2003-2008.

Panelists’ comments on the three-year charter market were mixed. Most of the positive comments focused on product tankers, not crude tankers.

Spot rates for very large crude carriers (VLCCs, tankers that carry 2 million barrels of oil) are hovering around $100,000 per day. But charterers do not yet seem to be worried about being on the losing end of a multiyear spot-rate boom. They’re not yet covering their exposure to future spot exposure in a significant way.

“I don’t believe we have seen real liquidity, particularly for VLCC time charters of three years-plus,” said Lois Zabrocky, CEO of International Seaways (NYSE: INSW). “We haven’t seen that yet. I think it has to continue to build before that market develops and has the liquidity that would be more reliable for owners.”

According to Petrone, “I think going forward that oil companies that have said for the past 10 years, ‘I’m going to put 5% of my portfolio on long-term deals and I’ll probably lose money on those, but I need them just in case something blows up,’ are going to say, ‘I need 20% covered on a long-term basis.’ We’re seeing a lot of calls come in.”

The three-year charter market on the product tanker side sounds further along. According to Doyle, the three-year market for product tankers is “active and liquid.”

Scorpio is in the process of shifting more of its fleet from spot to long-term charters. It now has 15 of its 113 tankers placed on charters of three to five years. The rates it’s getting are rising.

Among its three-year deals, Scorpio chartered the first LR2 (a long-range product tanker with capacity of 80,000-119,999 deadweight tons) at $28,000 per day last summer. It booked another in December for $37,500 per day. It announced a new three-year LR2 contract on Tuesday at $40,000 per day. (In comparison, Clarksons estimates current spot rates for modern-built L2s are $59,500 per day.)

What happened in 2003-2008

The 2000s supercycle generated unprecedented returns for dry bulk shipping. It was more mixed for tankers, with ups and downs.

The years 2004, 2005 and 2008 were exceptionally strong for crude and product tankers. In 2006 and 2007, the Baltic Clean Tanker Index was around the level it is today. The Baltic Dirty Tanker Index was below current levels in 2006 and 2007.  

Analyst reports and financial filings from that earlier era portray a tanker market at a much different stage in the cycle than today’s. Long-term charter coverage was much higher.

Charterers did not move fast enough to protect themselves against the initial spot rate surge in 2004. In January 2005, brokerage and consultancy Poten & Partners published a report on how much more charterers paid as a result of their delay.

(Chart: Poten & Partners weekly report, Jan. 12, 2005)

“As term chartering managers approached the end of 2003, they were facing a three-year term market with rates around $31,000 per day for a VLCC and a spot market at just over $87,000 per day.

“What is amazing is that very few three-year charters were concluded despite numerous owners who expressed interest in doing term business,” said Poten.

Poten estimated that a charterer would have paid $20 million less per VLCC in 2004 if it had signed a three-year charter versus continuing to play the spot market.

“Most charterers were fighting to get the owner to lower the [three-year] charter premium another $500 per day. Rather than paying this additional ‘premium,’ charterers in effect said, ‘We do not want to pay the $182,500 additional charter hire per year — $500 times 365 days. We will face the risk of high [spot] rates.’”

Eventually, charterers capitulated and took cover in the period market. Tanker owner General Maritime had 28% of its ships taken on time charters at the beginning of 2004. By 2007, according to an analyst report from Dahlman Rose, General Maritime had 73% of its operating days covered by time charters.

Dahlman Rose put three-year time charter rates at $70,000 per day in mid-2008, more than double three-year rates at the end of 2003.

By mid-2008, Frontline (NYSE: FRO) had 43% of its capacity on long-term charters, with Teekay Tankers (NYSE: TNK) at 44%. As of last month, Teekay Tankers had only one of its 45 ships on time charter. Frontline had only seven of its 70 ships on time charter.

Despite ups and downs in freight rates during the 2000s supercycle, tanker values continue to rise. According to Dahlman Rose, the value of a 5-year-old VLCC rose from $60 million in late 2003 to $165 million in mid-2008, a surge of 175%.

And then, everything collapsed. By mid-2009, 5-year-old VLCCs had shed half their value. One of those one-in-a-thousand events that Burke warned about had happened — the global financial crisis — and the supercycle was over.

(Charts: Dahlman Rose Marine Transport Weekly, Dec. 7, 2009. Chart data: Clarksons)

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Houston, New Orleans ports see container volumes rise

Ports in Houston and New Orleans reported strong cargo container flows during February, boosted by exports of plastics and chemicals.

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Gulf Coast ports in Houston and New Orleans reported strong cargo volumes in February as plastics and resins helped drive exports of loaded containers.

Port Houston sees import growth slowing but exports rising

Port Houston container volume in February rose 15% compared to the same month last year to 313,452 twenty-foot equivalent units.

“Our cargo activities continue to remain solid for the first two months of the year versus 2022,” Roger Guenther, Port Houston’s executive director, said during the port’s monthly meeting Monday. “Our overall tonnage is up 7% today compared to last year; that’s collectively for all of our terminals.”

Import containers were up 20% year over year (y/y) in February to 159,787 TEUs. Imports were down 7% compared to January. 

Imports of steel, which helped carry Port Houston to some record-breaking months during 2022, were down 30% y/y in February to 327,655 tons.

Export containers were up 11% y/y to 153,665 TEUs. Total export tonnage was up 9% y/y to 2.2 million tons. 

Guenther said ports across the country are seeing “softening” import demand as retailers try to get rid of inventory sitting in their distribution centers nationwide.

Total imports, including empty import containers, were down 4% y/y in February to 2.3 million tons.

“For the U.S. overall, we are now seeing some considerable softening of demand at our container terminals as well, especially in the import of containers in Houston,” Guenther said. “Retailers in our country, and regionally and across the country, have a very high level of inventory in their distribution centers. It’s likely imports will continue to trend down during the first half of the year as retailers are selling off these goods that they have in these distribution centers. We believe the recovery of the volume will start in the second half of the year.”

Jeff Davis, Port Houston’s chief operations officer, also said imports are “dropping off” with less cargo from Asia.  

“As we look at this month, it is up, but compared to the last six months of [2022], it’s starting to drop off,” Davis said. “We’re not seeing empties go back to Asia and come back as full containers.”

Davis also said there are no container ships waiting to get into the port as the ship queue has gone to zero.

“You might recall for the past two years we’ve had a few ships waiting to get into our facility, and it peaked at about 30 ships at the container facilities about six months ago,” Davis said.

During February, ship calls were down 6% y/y to 581 vessels, while barges calling at the port fell 29% to 262.

Port of New Orleans records jump in container cargo

The Port of New Orleans reported total TEUs in February of 38,456 TEUs, a 33% increase compared to the same period last year.

Top containerized commodities that passed through the port in February were plastics, resins and chemicals.

“Overall container figures are up compared to February 2022,” Kimberly Curth, the port’s spokeswoman, told FreightWaves. “This is an encouraging sign as export demand is strengthening.”

Breakbulk cargo totaled 125,580 short tons in February, a 35% y/y decline compared to the same month in 2022.

Steel and rubber cargo were the top breakbulk commodities during the month.

The port handled 12,723 Class I rail car switches in February, a 22% y/y increase. The port handles switching operations for the six Class I railroads that operate in New Orleans: BNSF Railway, CN, CSX, Kansas City Southern, Norfolk Southern and Union Pacific.

Watch: Will there be more major trucking mergers?

Click for more FreightWaves articles by Noi Mahoney.

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How decarbonization backfired, slowing tanker building to a trickle

Shipowners say they won’t order expensive new dual-fuel tankers without charters. They’re not getting charters, so they’re not ordering.

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The drive to decarbonize shipping looks like it’s about to pay off in a big way — not for the environment, but for the owners of the tankers that carry the carbon: the crude oil, gasoline, diesel and jet fuel the world continues to burn in ever-larger quantities after it’s shipped ever-longer distances across the seas.

To decarbonize shipping, you either need an onboard carbon-capture system (which doesn’t exist yet) or to build new vessels that burn something other than fuel oil.

The regulations on this new fuel haven’t been written yet. So, why would tanker owners in the business of making money accept the residual-value risk of ordering ships that could be prematurely obsolete after the rules are written?

The answer is: They haven’t and they won’t. There is now a historically low number of crude and product tankers on order.

Tanker orderbook dwindles

The numbers are stunning. The ratio of crude tanker capacity on order to crude tanker capacity in service is now down to an all-time low of 2.7%, according to Clarksons Securities.

For very large crude carriers (VLCCs; tankers that carry 2 million barrels of crude), it’s a mere 1.7%. VLCCs are vital for transport of crude exports from the U.S. Gulf and the Middle East. There will be 910 VLCCs of all ages on the water by the end of this year. The number of new VLCCs to be delivered in 2024? Zero. The number to be delivered in 2025? One.

The situation is almost as severe on the product tanker side. The orderbook-to-fleet ratio for product tankers is down to just 6.1%.

How the tanker orderbook dwindled so low — and the profits this implies for owners of existing tankers — was a focal point of speakers at the 17th Annual Capital Link International Shipping Forum in New York on Monday.

“We are now seeing what happens when you go several years without investing [in new capacity],” said Jefferies analyst Omar Nokta.

Owners balk at ordering risk

Uncertainty over future rules on vessel propulsion is one reason more tankers haven’t been ordered. Another is that crude and product tanker owners only recently started making money again; 2020 and 2021 were the two worst years for the industry in three decades.

Yet another reason relates to the cargo itself.

There is a two- to three-year lag between when an order is placed and when a new tanker is delivered. These assets last 20-25 years. Thus, a newbuild ordered today will likely be in service in 2050. If the world is actually decarbonizing and shifting away from consumption of dirty fossil fuels, what are tankers ordered today going to carry in the latter years of their life spans?

“You’re going to be taking a lot of residual value risk. That is usually not a good recipe for long-term success in shipping,” said Ben Nolan, shipping analyst at Stifel. (Residual value risk is the risk that the future resale value will lead to a loss.)

To offset residual value risk, most owners want a shipper of the tanker cargo — a refiner or energy major or trader — to take a portion of that risk themselves by signing a multiyear charter agreement for the newbuilding.

“When you’re ordering a $100 million ship that ordinarily costs $70 million, you’d better be really sure you front-end load your economics,” said Nolan. “If somebody’s willing to give you a time-charter contract to cover your front-end economics, fine. If not, that’s a lot of risk.”

Four years ago, FreightWaves reported on the practical necessity that oil shippers back new tanker orders with long-term charters amid the decarbonization drive. Shippers still haven’t done so and show no signs of changing their strategy.

‘Nothing to do with capital discipline’

“Fundamentally, the lack of tanker orders has nothing to do with capital discipline,” said Bob Burke, CEO of Ridgebury Tankers. “There is no capital discipline in a market like this. It’s just not in our own best interest to order expensive ships with uncertainty over propulsion systems.

“For a ship that will be delivered two and a half years from now, at historically high prices, with a capital drag until delivery and when you don’t know whether the propulsion system is going to last very long, it is really hard for a shipowner to go out and take a flier on something like that without a charter from an oil company,” Burke said.

Maersk Tankers CEO Christian Ingerslev said, “If we look at the orders today, it’s people who have a tax incentive to do so or it’s somebody who gets backing from a longer-term charter, typically for a dual-fuel design. Otherwise, there’s nothing being ordered.”

According to Lois Zabrocky, CEO of International Seaways (NYSE: INSW), “If you order a VLCC in Korea it’s probably $120 million. Then tack on another $15 million to $20 million for dual-fuel LNG capability. That’s a really big number. That’s why you need a partnership to defray some of the risk.”

She said it would take a charter of seven years or more to incentivize a VLCC order. “We haven’t seen that,” Zabrocky said. “Other than the 10 VLCCs in the Shell project, no one else has done it.”

In March 2021, Shell agreed to seven-year charters on 10 dual-fuel VLCC newbuildings. Three were ordered by International Seaways, four by Advantage and three by AET. The first of International Seaways’ dual-fuel VLCC newbuildings, the Seaways Endeavor, was delivered this month.

The Shell deal elicited much fanfare at the time as a potential model for fleet renewal during the energy transition. So far, it has turned out to be a one-off.

LNG, container ship orders backed by charters

Commercial ships are built by yards in China, South Korea and Japan. Shipyards slots through 2025 are already virtually sold out with orders for new container ships and LNG carriers. High ordering in these sectors has jacked up pricing in other sectors such as crude and product tankers.

LNG carriers are ordered by shipowners with the backing of long-term charters from LNG cargo shippers. The duration of those charters is increasing, said Harrys Kosmatos, corporate development officer at Tsakos Energy Navigation (NYSE: TNP).

Charters backing LNG newbuilding orders were down to five to eight years in duration. “Now 10-year contracts are easily on the table,” he said. Cargo interests in the LNG shipping sector “have realized that for an owner to make an investment in such a high-priced asset, at least a good part of its life needs to be covered by a decent return [through a time charter].”

Container-ship newbuildings are either ordered by liner companies or by shipowners. The vast majority of container-ship newbuildings ordered by shipowners are backed by multiyear charters from liners. 

For example, the newbuilding program of liner company Zim (NYSE: ZIM) consists of vessels ordered by Seaspan and other shipowners that will be chartered to Zim for up to 12 years.

Tanker shipping used to follow the same model of charter-backed newbuilding orders seen today in LNG shipping and container shipping. It no longer does, leading to the current clash with owners’ newfound insistence on charter-backed orders.

The tanker business in the 1950s through the mid-1970s followed an “industrial shipping” model, author Martin Stopford recounted in “Maritime Economics.” Tankers were either owned by oil shippers or taken on multiyear charters from independent shipowners.

Charters backing newbuilding orders were for five to seven years in duration in the 1950s. In the 1960s “charters of 15 or even 20 years were not uncommon,” wrote Stopford. The widely used charter-backed newbuilding model was known as “shikumisen” in Japan.

From an industrial shipping to a spot model

That all changed starting in the mid-1970s. 

“The transport of oil changed from carefully planned industrial shipping to a market operation” — a spot business. “By the early 1990s over 70% of this [independent owner] fleet was trading on spot, compared with only about 20% in the early 1970s.”

The reason was that “the oil trade changed from the predictable trade for which transport was carefully planned … to a volatile and risky business in which traders played a substantial part. Transport was, to a large extent, left to the marketplace to manage,” explained Stopford.

Burke said during the Capital Link forum, “In the 1960s and 1970s, oil companies had long-term charters. The spot market was on the fringes. Then the oil companies figured out that it was cheaper to get their ships in the spot market. They had other uses for their equity and capital. So, a big spot market developed.”

Oil shippers were no longer there to provide charters to back shipowner newbuilding orders. “They didn’t have to because we always ordered new ships and hoped the market would go up Then they took advantage of the lower capital costs,” said Burke. “We just walked right into it. This time, we can’t.”

For orders to pick up this time, Burke argued, the tanker business “has to go back the other way” — reverting from spot to more industrial shipping.

“If I’m an oil company or trader, I’d be thinking, ‘If these guys [shipowners] aren’t ordering now, when are they going to order?’”

The answer, said Burke, is “we are not going to order.” If oil companies or traders want new ships “they’re going to have to step up and do something.”

‘We will be cash distribution machines’

Because yards are already full of container ship and LNG carrier orders, and because of construction lead times, there’s no way that a material amount of new crude and product tanker capacity can be brought to the market before 2026 at the earliest.

“Even if we deliberately wanted to ruin the market [by overordering], we couldn’t,” said Mikael Skov, CEO of product tanker owner Hafnia (Oslo: HAFNI).

Gross fleet growth percentages from new ships will be in the low single digits in both the crude and product tankers sector in 2024 and 2025. Meanwhile, a large number of older crude and product tankers are being purchased and shifted into the so-called “shadow fleet” for transport of sanctioned Russian oil. These vessels are effectively removed from Western trades.

According to Kosmatos, “New Russian trading patterns will absorb ships into the shadow fleet and we could be facing a situation in Western trades where growth could be negative next year in certain segments.”

Demand growth in both crude and product tanker markets is widely forecast to be positive and to exceed supply growth, leading to high returns for tanker owners, possibly boom-level returns.

“I have never seen it so good. The fundamentals of supply and demand are all in our favor,” said Burke. “There will be a shortage of ships.”

Anthony Gurnee, CEO of product tanker owner Ardmore Shipping (NYSE: ASC), predicted, “We will become cash-distribution machines.”

Click for more articles by Greg Miller 

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Inflation triggers major user fee increases at FMC

Fees to register a business or file complaints at the Federal Maritime Commission will be significantly higher in 2023 to account for higher agency costs.

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WASHINGTON — The Federal Maritime Commission is raising its user fees as high as 650% over current rates to account for higher costs related to staff salaries, inflation and an electronic filing upgrade.

The FMC acknowledged the increases in a Federal Register notice posted Tuesday, noting that when it last updated user fees in 2020 (when many of its fees were adjusted downward or raised slightly), the agency used FY2019 cost data, including 2019 staff salaries.

Ocean Transportation Intermediary (OTI) applications, which include the cost to apply for a freight forwarder or non-vessel operating common carrier license, received the biggest increase. A new license application increases 422%, from $250 to $1,304. The cost to make changes to a current license increases even more — 654%, from $125 to $943.

“Despite the fact that the 2022 update to user fees is occurring two years later, the Commission is using salary and cost data from FY2022 to provide the most precise estimate of costs associated with user fees,” the agency stated. “This three-year gap contributes to a significant increase in fees. Further, during this three-year period, inflation has raised salaries as well as overhead. Many of the fee increases of more than 10% are simply due to updating fees to reflect current costs.”

Shipping Act codeApplication typeCurrent feeRevised feeChange
502.93(a)(3), 502.94(b)Petitions$306$450+47%
502.271(d)(5)Special dockets$115$187+63%
502.62(a)(6)Formal complaints$288$387+34%
502.304(b)Informal procedures$112$176+57%
515.5(c)(2)(i) – Ocean Intermediaries License$250$1,304+422%
515.5(c)(2)(ii) – Ocean Intermediaries Status change$125$943+654%
520.14(c)(1) – Carrier automated tariffsSpecial permission$307$394+28%
503.50(c)(4), 503.69(b)(2)Docket validation$111$93-16%
503.50(d)Non-Attorney admission$206$95-5%
Source: Federal Maritime Commission

In explaining the OTI fee jump, FMC pointed out that when it issued its 2020 user fee update it was in the process of transitioning from a paper application process to an electronic process for processing OTI applications. “The Commission has completed the migration to an electronic application and now updates the user fees … to reflect the true cost to the agency of providing this service,” the agency stated.

Fees associated with “rules of practices and procedure,” which include filing formal complaints and informal small claims against a carrier or a shipper, will also receive a boost. A formal complaint filing at the FMC will now cost $387, up 34% from $288. An informal procedure/small claims filing fee increases 57%, from $112 to $176.

Also, all claims for relief or other affirmative action by the FMC, including appeals from commission staff action (except when submitted in connection with a formal proceeding), must be accompanied by a $450 filing fee, up 47% from the current $306 fee. And a common carrier or shipper seeking permission to refund or waive collection of a portion of freight charges will now have to pay a $187 filing fee, up 63% from $115.

The only fees being adjusted downward from 2020 are those associated with documents needing FMC certification and validation — dropping 16% to $93, and applications for admission to practice before the FMC (for those who are not attorneys), which decreased 5% to $195.

Despite the increases, the FMC expects the fee adjustments to be noncontroversial, and therefore determined that providing a notice and comment prior to issuing the rule was unnecessary. The changes are scheduled to go into effect June 5.

However, the FMC also acknowledged that “parties may have information that could impact the commission’s views and intentions with respect to the revised regulations, and the commission intends to consider any comments filed.” If it receives “significant adverse comments” prior to April 20, it will withdraw the rule no later than May 5.

Click for more FreightWaves articles by John Gallagher.

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February volumes soften at South Carolina Ports

Although February volumes at SC Ports were down 13% year over year, they still represented the second-highest total for the month in port history.

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Despite a year-over-year decline, last month’s volumes were the second-highest ever for February for South Carolina Ports.

Container volumes at the Port of Charleston totaled 201,418 twenty-foot equivalent units and 111,118 pier containers, down 13% from February 2022, the port said Monday. Volumes also fell from January, when SC Ports handled 215,238 TEUs and 118,179 pier containers.

But despite the dip, February’s container volumes “were stronger than typical.” A slowdown in consumer spending, higher costs for goods and loaded imports, and lighter volumes because of how the Lunar New Year affects manufacturing in Asia were all factors impacting volumes in February, according to SC Ports. 

Meanwhile, loaded exports rose 12% in February, while the rail-served inland ports also posted “strong” monthly volumes for the last three months. Inland ports Greer and Dillon handled 16,198 rail moves in February, with Inland Port Dillon handling 3,664 rail moves. In January, the two inland ports handled 16,222 rail moves, with Inland Port Dillon handling 3,709 of those.

SC Ports also saw 15,824 vehicles roll across the Port of Charleston, compared with 13,361 in January.

“While we are seeing economic uncertainty impact volumes, South Carolina Ports remains well positioned as a well-run port in the booming Southeast market,” SC Ports President and CEO Barbara Melvin said in a news release. “South Carolina continues to attract significant new business and investment. We have invested in port capacity and capabilities to efficiently handle goods for these port-dependent businesses.”

Since the start of the 2023 fiscal year on July 1, SC Ports has handled nearly 1.8 million TEUs and 978,374 pier containers — a 5% decrease compared to last year. 

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Crunch time for trans-Pacific container shipping contract talks

Flexport projects trans-Pacific contract rates will decline around 70% from 2022 levels but still be around 30% above current spot rates.

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The annual contract season is down to the final stretch in the trans-Pacific shipping market. U.S. import costs, liner profitability and service reliability all hinge on where contract prices settle in the next few weeks.

The plot twist this year is that the prior round of annual contracts were signed at historically high levels and the timing of the current contract RFP season coincides with a period of still-sinking spot rates.

Import demand remains weak due to bloated inventories, with inbound volumes reminiscent of spring 2020, when the culprit was COVID lockdowns.

The risk ahead: If shipping lines cannot obtain enough contract business at rates sufficient to cover costs as a result of weak demand and falling spot rates coinciding with the 2023 contract RFP season, the lines could take drastic action and cut much more capacity in the trans-Pacific, reminiscent of what they did in 2020.

If shipping lines cut more capacity at the same time import demand recovers in the second half after inventories wind down, spot rates would rise and shippers that secured cheap annual contracts starting May 1 may ultimately find their contract cargo bumped by carriers moving higher-paying spot containers, a replay of what happened three years ago.

The complexities surrounding the 2023 trans-Pacific RFP season were addressed by digital freight forwarder Flexport in a presentation on Thursday. For additional perspective, FreightWaves interviewed Nerijus Poskus, Flexport’s vice president of ocean strategy and carrier development.

‘Next two weeks are crucial’

“Most fixed contracts will have to be finalized by the first week of April,” said Poskus. “Some of the big BCOs [beneficial cargo owners] have already signed and I think we are going to be next.”

According to Anders Schulze, Flexport’s global head of ocean, Flexport currently predicts trans-Pacific contracts rates will be around 70% below 2022 base contract rates (not including premium surcharges) “and will settle around 30% higher than current floating levels.”

“Current spot rates are unsustainable because carriers have higher costs than pre-pandemic due to higher charter rates and bunker costs,” Schulze noted.

Poskus told FreightWaves, “I am hearing that the big BCOs are signing rates proposed by carriers that are higher than the spot market.

“The next two weeks are crucial,” he continued. While the final outcome of rate negotiations won’t be known until April, Poskus expects contract rates will be around $300 to $500 per forty-foot equivalent unit above current spot rates.

Inventories are still too high

The pandemic created unprecedented market dynamics in container shipping, leading to a massive spike in consumer goods imports.

The aftereffect of the COVID-era buying spree is a collision between sinking spot rates and high prior-year contract rates just as the current contract RFP season reaches its conclusion.

The surge in spot rates in 2021-2022 and the collapse in service reliability compelled U.S. importers to sign annual contracts at extremely high rates last year. It also convinced them to bring in far more cargo than they actually needed, leading to a massive “bullwhip effect” that has inflated inventories in 2023.

“We’re hearing cases of importers with enough inventory for the next six months who are only importing to keep their suppliers alive,” said Poskus. “There is also an extreme case where a client said it has enough inventory for one year.”

During Thursday’s presentation, Flexport polled shipper attendees on their inventories and 62% said they had too much. That’s effectively unchanged from December’s poll, when 63% said they had too much.

RFP backdrop: Falling spot rates

Excess inventories explain why trans-Pacific spot rates continue to fall. Carriers have already cut capacity, but not enough to offset lower import demand due to high inventories.

Freightos Baltic Daily Index (FBX) trans-Pacific spot assessments continue to decline. The FBX put Friday’s Asia-West Coast rate at just $1,017 per FEU, a new post-pandemic low.

FBX Asia-West Coast assessments are down 20% month on month, 26% year to date and 94% year on year (FBX included trans-Pacific premium surcharges in addition to base rates in 2022).

The FBX assessed Asia-East Coast spot rates at $2,129 per FEU on Friday, down 16% month on month, 26% year to date and 88% year on year.

a chart showing trans-Pacific spot rates; current spot rates are negatively affecting contract rates
Spot assessment in USD per FEU. Blue line: China-West Coast. Green line: China-East Coast. (Chart: FreightWaves SONAR)

The worst-case scenario for shipping lines was for the annual trans-Pacific contract season timing to coincide with a backdrop of falling spot rates — which is exactly what happened.

The conundrum for ocean carriers is that it does not make financial sense to sign annual commitments at current spot levels.

Xavier Destriau, CFO of ocean carrier Zim (NYSE: ZIM), said during a conference call on March 13 that shippers are pushing for “significant [contract] rate reductions compared to last year and we understand that,” but “we have set a limit in terms of where we are not willing to go, in terms of a floor.”

“If we don’t get the rates we believe make sense for us to continue sailing, we will stop sailing. And if we stop sailing, it may have a drastic effect on the ability of customers to secure their supply chains.”

Second-half risk to spot players

The current consensus is that imports will pick up in the second half as inventories come down, leading to at least some semblance of a traditional peak season. This should finally stop the bleeding for spot rates and push them upward.

Some importers are happy to take that future spot risk and forsake contracts in 2023 given what they’re saving in the spot market in the first half. Poskus said that around 60-70% of trans-Pacific volumes moved on annual contracts pre-pandemic and the ratio should be lower this year, with more on spot.

According to Kaitlyn Glancy, Flexport’s vice president of North America, “A number of our clients are playing the spot market and that is working really well. [Spot rates] are getting lower every day — almost concerningly low.

“There’s a risk that spot rates might go higher in the back half of the year, but for some clients, the priority right now is managing costs and maximizing margins where you can. If you’re still sitting on a lot of inventory and you paid a lot of money to get it here, cost is king and getting your costs under control in the first half is your top priority.”

Second-half risk to contract holders

Shippers that secure low contract rates for May 2023 to April 2024 face second-half risks if carriers make much larger cuts to capacity.

Poskus believes the most likely scenario is for contract rates to marginally exceed spot rates at the beginning of the contract period, then for spot rates to rise and reach more of an equilibrium with contract rates in the second half.

However, there is a possible scenario wherein spot rates jump higher than fixed contracts. “That can happen if carriers pull too much capacity out, and in that case, allocations under fixed contracts are at risk. This is not completely unlikely — it’s what happened in 2020.”

He told FreightWaves, “I am worried that carriers will take drastic action in terms of capacity and there is a comeback in volume in the second half.

“If contract rates are at unsustainable levels, carriers will just stop sailing. Service reliability will not be there anymore. It’s best for everybody if shipping lines are just slightly profitable because you’re still getting a great deal on rates and service is more or less sustainable.”

Poskus warned during the Flexport presentation, “Your service level is going to be considerably better if you’re paying [contract rates] that are basically the average of what carriers load on a vessel. If you’re paying under that, guess what happens? Your cargo is probably going to leave on the next sailing. If you’re paying $50 or $100 [per FEU] more, your cargo will be treated better.

“We’re not talking about what we saw in 2021-2022, when people were paying $20,000 or $30,000 [per FEU]. In this case, $100 can meaningfully change your loading priority. And at the end of the day, that doesn’t materially change your cost.”

Click for more articles by Greg Miller 

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New FMC rule expands shippers’ eligibility for carrier refunds

Federal regulators have codified provisions of the Ocean Shipping Reform Act that may extract more compensation from ocean carriers for rule violations.

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WASHINGTON — A new rule requiring ocean carriers to refund importers and exporters for illegal overcharges and potentially for other violations of the U.S. Shipping Act will go into effect next month.

The changes, set out in a final rule scheduled to be published by the Federal Maritime Commission on Monday, are in the form of amendments to the FMC’s Rules of Practice and Procedure governing the assessment and collection of civil penalties. They codify provisions included in the Ocean Shipping Reform Act (OSRA) of 2022.

FMC’s rule explains that before OSRA 2022, any person violating the Shipping Act — or a regulation or order of the FMC issued under that law — is liable for a civil penalty.

OSRA 2022, however, changed the language in the Shipping Act governing potential liability of a violator by adding the phrase “or, in addition to or in lieu of a civil penalty, is liable for the refund of a charge.”

Accordingly, the rule states that “the commission may now order that a person is liable for ‘a civil penalty or, in addition to or in lieu of a civil penalty, is liable for the refund of a charge’ for any violation of the Shipping Act, commission regulations, or commission order.”

Customer refunds are also included in a new provision enacted by OSRA 2022 — section 4130 — that addresses the issue of charge complaints, such as inappropriately charging or overcharging for demurrage and detention.

“That provision specifies, among other things, that upon a finding by the commission that a carrier’s charges do not comply with the Shipping Act, the commission shall promptly order the refund of those charges paid,” the rule states.

Carriers now risk having to pay refunds to customers not only if invoices contain inaccurate information, but also if they do not include the following minimum information, as determined by the FMC:

  • Date that container is made available.
  • Port of discharge.
  • Container number.
  • Earliest return date (for export containers).
  • Number of allowed free-time days for holding containers.
  • Free time start and end dates.
  • Applicable detention or demurrage rule on which the daily rate is based.
  • Applicable rate or rates per the applicable rule.
  • Total amount due.
  • Contact information for questions or requests for mitigation of fees.
  • Statement that the charges are consistent with any of FMC rules with respect to detention and demurrage.
  • Statement that the common carrier’s performance did not cause or contribute to the underlying invoiced charges.

According to OSRA 2022, in determining the amount of a civil penalty or money refund to be paid by the carrier, the FMC will consider:

  • The nature, circumstances, extent and gravity of the violation committed.
  • The degree of culpability, history of prior offenses and the ability to pay.
  • The amount of any additional money to be paid by the carrier as ordered by the FMC.

Click for more FreightWaves articles by John Gallagher.

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