Charter Rates Surge as Carriers React to Disrupted Asia to Europe Services

In recent weeks, analysts and brokers have been observing a significant uptick in charter rates, driven by carriers’ efforts to address disruptions in their Asia to Europe services. After experiencing a decline in early December, rates have swiftly rebounded, catching many in the industry by surprise.

Linerlytica’s charter index saw a notable 5% increase last week, with larger vessels experiencing the most substantial boost due to limited supply. Analysts point out that major players like Maersk and CMA CGM, along with smaller carriers such as SeaLead and Tailwind, have been particularly active in securing additional tonnage for Mediterranean routes.

London-based shipbroker Braemar reported a staggering 46% surge in its container charter market index, Boxi, since mid-December. This surge coincides with the onset of missile attacks by the Houthis in the Red Sea, Bab al-Mandeb, and Gulf of Aden. Carriers scrambled to deploy tonnage on diverted routes, especially those circumventing the African Cape, necessitating additional vessels to maintain weekly schedules.

Redefining Forecasts Amidst Geopolitical Uncertainty

Initially, brokers forecasted a downward trend in charter rates for 2024, expecting an average of 80 points with a low of 70 points. However, the Red Sea crisis disrupted these projections, leading to a sharp increase in rates from 90 points in January to approximately 130 and still climbing. Braemar revised its forecast upward, now anticipating an average of 130 to 135 points, with a high point of 145 to 150 points, attributing the shift to geopolitical tensions.

Struggle Between Owners and Charterers

Alphaliner reports a struggle between owners and charterers, with the former seeking longer contracts while carriers opt for shorter deals due to market volatility. Larger vessel markets have plateaued, prompting attention towards medium-sized vessels (4,000-5,000 TEUs) and smaller sizes. Fixing activity has been particularly active in the past fortnight, especially in the 1,000 to 1,900 TEU range, with SeaLead emerging as a key player.

Rising Fixture Costs

Braemar highlights a surge in fixture costs, particularly for vessels in the 1,700 TEU range. Originally estimated at US$9,000—US$10,000/day, rates have been revised upward to US$14,000 to US$15,000/day. The ongoing Israel-Hamas conflict and persistent Houthi attacks suggest that the Red Sea avoidance situation may persist throughout 2024, prompting liner companies to plan long-term strategies to minimize service disruptions.

Revised Estimates on Vessel Oversupply

In light of ongoing geopolitical tensions, Braemar has revised its estimates on vessel oversupply for 2024, lowering it from an expected 19% to 10%, effectively halving oversupply for the year. This adjustment reflects the industry’s adaptation to uncertain market conditions and the proactive measures taken by carriers to mitigate risks.

In conclusion, the shipping industry is navigating turbulent waters amidst geopolitical unrest and disruptions in key trade routes. The surge in charter rates, coupled with shifting market dynamics, underscores the need for agility and strategic planning to ensure continued operations and service reliability in the face of uncertainty.

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