Sea freight monthly review: March 2020

In a marked contrast to recent years, the charter market throughout January was not only active, but also firm. Led by strong demand from the Med banana charterers and supported by interest in additional tonnage from Chilean table grape shippers, the month ended on a relative high in TCE terms and with the fleet fully employed.

What made it doubly satisfying for reefer operators is that analysts and carriers had predicted that the introduction of IMO 2020 low sulphur bunkers in January would spell the end of the specialized mode. The reefer is smaller and significantly less fuel-efficient that the ever larger container ships with which it competes for cargo. A high fuel cost therefore puts the reefer at a significant cost disadvantage.

Poor availability of LSFO bunkers in some ports was a factor in the supply of tonnage: liner schedules were affected by delays of up to 3-4 days in some instances and operators had to charter in to maintain service string integrity. Meanwhile, heavy storms in the Atlantic impeded liner schedules from Ecuador and Central America, but the position had normalised by the end of January.

While it would be an exaggeration to say that the coronavirus outbreak that spread rapidly across the globe in February and March defined the reefer charter market in Q1, the collateral effect of the disease had, and continues to have, a devastatingly negative impact on container shipping. Whether, or by how much, the reefer will benefit from the misfortune suffered by the carriers, remains to be seen. There were certainly more enquiries for reefer capacity in the period, but in the end it was only US citrus marketer Sunkist that chartered in tonnage to cover transpacific reefer box capacity losses.

If the reefer didn’t see a dramatic uplift in either spot demand or capacity utilisation, the mode certainly benefitted from LSFO bunker costs that ended March approximately half the cost of HSFO bunkers on the same date in 2019! The slump in demand for oil as a result of the global lockdown coincided with a battle for market share between Russia and Saudi Arabia, the combination of which drove the oil price as low as US$20 per barrel.

The picture was not so bright for the small segment, which spent January in the middle of what operators had expected to be nothing more than a short-term blip. The principal cause was that the fish catch in Mauretanian waters, the bread-and-butter business for small reefers, was poor. Competition for orders was complicated by the arrival of independent owners, and the rate on the benchmark Mauretania to West Africa voyage remained under pressure until late February, when the catch improved and when demand from other sources led to more of a balanced market. Although the squid catch inside the Falkland Island exclusion zone was larger than last year, it was nowhere near the expectations that had been building since the last bumper catch in 2015. It currently looks as if the number of vessels employed this year will be double last year’s total.

sea freight - monthly spot average march 2020

sea freight - small reefers march 2020