The containership charter market has so far weathered the coronavirus storm — but that looks about to change as more ships are idled.

Charter rates could fall between 30 to 40% this quarter compared to the fourth quarter of last year, with a smaller correction for feeders whose earnings are already depressed, according to Maritime Strategies International (MSI).

It points to the sudden and sharp drop in trade volumes as causing cash flow problems for liner operators that lost business during China’s shutdown.

This will propel the rise in the idle fleet which “historically and almost without exception” results in lower charter rates, according to senior analyst Daniel Richards.

Robust until now

The container charter market has remained relatively robust this year, at least for bigger vessels and some feeder sizes.

Average charter rates for containership have dropped by just 10 to 15%.

Rates for 1,700-teu vessels have fallen from $8,350 to $7,100 per day so far this year.

Those for 6,800-teu containerships are down from $25,000 to $21,500 per day, according to Clarksons.

But slackening demand from liner operators is expected to reduce fixture volumes and push up the idle fleet.

“While the rise in the idle not be an overnight process, a leap in the count of idle units could occur quite quickly,” said Richards.

He estimates that around 50% of the containership fleet under 5,200 teu facing time charter expiry before the end of the first half of the year.

That figure rises to 70% for smaller vessels between 1,000 to 3,000 teu.

“There is ample scope for the idle fleet to increase, and to do so quickly,” Richards said.

Major container lines are already talking about reducing their time charter exposure in response to Covid-19, with Hapag-Lloyd confirming this possibility when reporting its 2019 annual results.

Shipbroker Clarksons highlighted “major uncertainties over the sustainability of the charter market.”

It points to a 15% drop in the average number of containership port calls in Germany, UK, France, Spain and Italy in recent weeks compared with last year.

Earnings correction

The idle containership fleet has risen to 10% of the fleet from 6% at the start of the year, around one-third of which was mainly larger vessels undergoing scrubber retrofit, according to Clarksons.

But MSI argues there is scope for further rises as liner companies increasingly feel the cash-flow implications of business lost during China’s shut-down.

“A renewed blow to liner company finances spells trouble for the time charter market, and a near-term earnings correction is now the most likely scenario,” said Richards.

He expects that the volume of the idle containership fleet "will almost certainly rise as liner companies respond to cash flow pressures and trim capacity.

“Spot freight rates, notwithstanding a sudden and unprecedented surge in blanked sailings announcements, are highly likely to retreat and all the more so given tumbling bunker costs," he said.

Richards does not expect earnings to fall as sharply as it did in 2016, when boxship earnings fell below opex.

“This is due to a mix of overall more healthy supply-side developments, a more efficient containership ‘cascade’, and disruptions to the available fleet from delays at repair yards."

And he expects “points to a recovery over the second half of 2020 rather than a drawn-out trough.

“We assume a gradual earnings recovery over the second half of 2020, but not a ‘V-shaped’ rebound.

“The good news is that inventories, once depleted, will need to be restocked and purchases delayed will eventually be fulfilled.

“And if subcontinent shipbreakers are able to reopen, allowing increased scrapping later in 2020, the industry will face the next upswing in trade with a healthier supply-side than nearly any point since the last recession."