Jefferies has lowered its outlook for charter rates in the container market as liner operators face the challenges of oversupply and less demand.
The move came after one-year charter rates for narrow-beam panamax boxships averaged $11,000 per day for the 10 years leading up to 2020 and then rose to an average of $79,000 per day in 2021 and 2022, but the US investment bank noted that Clarksons Research has recently assessed them at $19,000 per day.
“We expect these rates to ease further and are now modelling $15,000 per day versus $20,000 per day previously,” Jefferies analyst Omar Nokta wrote in a note on Wednesday.
Since 20 August, the Freightos Baltic Index, which tracks freight rates, has fallen 23.6% to 1,177 points on Wednesday.
Container shipping entered its peak season in August as holiday shopping approaches, but he said liner operators will have a tough time keeping freight rates up as the sector faces oversupply.
“Now the hard part begins,” he wrote. “Operators are facing the difficult task of absorbing the large influx of newbuildings while at the same time managing tactical capacity.
“Liners have responded recently with aggressive blank sailings, but rates remain very soft.”
He said the market will have 150 newbuildings of at least 12,000 teu in capacity over the next 15 months, plus another 90 of them by the end of 2025.
“Liners will be busy slotting in the majority of these as replacements for existing vessels while at the same time attempting to manage deployed capacity based on shifts in demand patterns and seasonality,” he said.
“The initial phasing-in of the newbuildings is likely to be difficult given the choppy demand picture and excess retail inventories that continue to persist.”
Operators will need to accelerate scrapping to offset the pending wave of newbuildings and keep rates elevated. Time-charter rates have already weakened on less demand, but he wrote that they are staying above pre-2020 averages for now.
“This seems likely to change as newbuildings deliver and liners increasingly redeliver existing ships back to their owners,” he said.
High retail inventories in the US and Europe will also make it difficult for liner operators to keep rates firm by softening demand.
He said retailers have slowed monthly inventory growth to 1.5% in July and August from 6.4% in 2021, 17.4% in 2022 and 5.4% for the first half of this year.
“US retailers continue to destock, which has kept ‘regular way’ volumes more limited,” he said.
Jefferies has lowered liner operators’ earnings estimates for the fourth quarter of this year and all of 2024 and 2025 as a result of destocking and expected trade growth of 0.1% for 2023 and 3.6% for 2024, according to Clarksons Research.
