Undoubtedly, liner companies and charter vessel owners were dealt a favorable hand in 2007, with trade growth surpassing expectations and with fleet expansion being more tardy than projected, particularly in the charter markets due to newbuilding delivery-slippage of mid-size tonnage.  Furthermore, liner operators helped their own cause by playing their cards right.  Whereas in 2006 a trade war amongst leading carriers helped sink freight rates in the Asia-Europe lanes, in 2007 the removal of capacity from the sluggish Transpacific markets and the introduction of slow-steaming in the Asia-Europe trades in November has helped sustain an upward rate momentum and shore up profitability until the very end of the year. 

By year-end, liner freight rates averaged an impressive 11% higher than end-2006 levels, while charter rates had climbed 25% over December-2006 earnings.   Even though rates in both markets had lost a bit of their 2007Q3 luster as we entered the seasonally weak winter period, end-2007 developments were in stark contrast to year-earlier events, when the market went through a significant correction.

Furthermore, continued unprecedented strength in dry bulk markets has seen increased volumes of bulk commodities shipped in containerized mode, while booming dry bulk newbuilding demand has helped underpin containership asset values in newbuilding and in secondhand markets.

However, that it is not to say that all is well for containership owners and operators at the turn of the year.  Liner companies have to deal with sharp increases in operating expenses, and in particular the cost of fuel.  As a matter of fact, the rise of the average freight index in recent months is attributed to a large extent to fuel surcharges, rather than to improving market conditions.   At the same time, the weakness in Transpacific demand has put a dent in the mighty Chinese export juggernaut and raised concerns that the slowdown may spill into other markets.

And in the charter markets, healthy levels of charter rates at the start of 2008 should not obscure the fact that enquiries at the start of this year have been few and far between, especially for large size vessels.  This is in sharp contrast to year-ago developments when robust demand for tonnage to be deployed in new North-South services helped propel charter rates to an upward 2007 ride.

But perhaps most disconcerting for carriers and charter-vessel owners is the looming weight of the newbuilding orderbook.  With fleet growth set to average a 13% annual clip during the next four years, it is difficult not to see attrition in liner and charter rates in the years ahead.  Already several prominent executives of leading liner companies have spoken of a post-2008 challenge that the industry will have to muddle through.  Liner operators made all the right moves in 2007.  It remains to be seen what they will do when the cards are stacked against them.

About Marsoft
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