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Buoyant feeder orderbook – but are more mergers on the cards?

Thu 03 Aug 2017 by Barry Luthwaite

Buoyant feeder orderbook – but are more mergers on the cards?
Mega-carriers, including Maersk, are due to take delivery of their own feeder newbuildings

The feeder market is bullish with a strong orderbook and good opportunities created by the deep-sea liners; but the time could be ripe for consolidation

 

Feeder ships continue to enjoy good rates as they continue to mop up more business, in contrast to the difficulties that have faced the deep-sea liner business.

There is a feeling of saturation around the 4,500-5,000 TEU capacity range – some owners are considering giving up and selling for recycling as rapidly advancing technology dictates competitiveness.

Mid-size 2,000-3,999 TEU range feeder vessels also struggle, due to banks seizing a number of vessels when loan covenants could not be met or such vessels, dominated by German managed and owned tonnage, were KG-owned. An owner can find such vessels impounded overnight with little or no warning leading to a nightmare scenario: an unwelcome situation that is far from over.

However, coming into the spotlight this year are the smaller sizes from 750-1,250 TEU. Those owners who trade in the lowest size are being paid for their patience by gaining good rewards for an almost niche market now that previously dominant German multi-purpose tonnage his disappeared from the scene.

Although patchy, there have been some signs of better times with deep sea ships but this could be disturbed as commissioning of a further14 18,000-plus TEU units occurs this year. In all, 62 ultra large container carriers (ULCCs) are on order. With trading still fragile, especially on the lucrative Asia-Europe route, feeders have been in demand as the bigger ships rotate port callings on a demand business. Below a certain capacity, boxes will be dropped at a nearby destination and feedered to the next liner service port.

Predictions of the demise of Panamax-beam vessels have proved to be false. After a burst of activity earlier in the year, scrapping slumped to a new level in June when only two container ships were sold for demolition. This is partly due to the welcome news for shipowners of the postponement of compliance date for the Ballast Water Management Convention to September 2019.

The collapse of Rickmers sent shock waves through the industry but trading continues for some vessels in the fleet, although the Rickmers empire is now more. All nine vessels from its Singapore trust Rickmers Maritime were earlier committed in a separate en bloc deal to the Navios group, underlining Greek ambitions of late to break into the feeder business and capitalise on COSCO’s takeover of Piraeus port and hinterland. Creditor banks, however, have ruled out a whole-fleet sale for the balance of the Rickmers deep sea fleet.

Asset play is very much in evidence with distress sale acquisitions still very much the order of the day. One newcomer is Norway’s Arne Blystad, who struck deals at previously low levels but has since seen their values rise considerably.

Songa Container has been newly established to pursue this project and four vessels have so far been bought, the first of which at 3,421 TEU has appreciated in value from US$7.9M to an estimated US$11.8M today. Rising second-hand values are due to a bullish feeder business and higher spot and time charter rates. But charterers are shrewd, offering lower period rates to begin with but with options attached for extensions at higher levels. It is noticeable how period fixtures are lengthening among owners. Some business is being fixed at two years firm trading. All this augers well but a careful eye has to be kept on newbuildings.

With a major shakeup of the deep sea service alliances, there are danger signs for feeders but events produce a double edged sword. Owners with the smallest feeder tonnage are reaping benefits with most operating door-to-door services between two ports. Mid-size and higher still face problems from saturated tonnage looking for work which drives down rates.

In deepsea trades, mergers are on everyone’s lips and such moves towards consolidation and power have not ceased yet. The latest has seen COSCO merge with OOCL and the big three Japanese owners of NYK, K Line and MOL coming together to form a joint company.

Curiously, that merger will not affect Japanese ports and infrastructure, only overseas operations. This could pave the way for more feeder operations within Japan. The three Japanese majors are suffering big losses and something had to be done: these accelerated losses by the major operators are forcing employment of more feeder ships.

South Korea is another country badly hit by financial problems after the collapse of Hanjin Shipping and troubles of Hyundai’s box division. Smaller domestic yards have profited from orders for feeder ships for the domestic mercantile marine or foreign owners against South Korean charters. Korea Marine Transport Co (KMTC) is one company benefiting from a mix of newbuilding and newbuilding charter tonnage.

There was scepticism when smaller builders, such as Daesun, started offering 1,000 TEU feeder designs, but such vessels are now earning good money for European and Asian owners. The general consensus is that feedering will continue to grow in the next two years and attract excellent rates from US$6-10,000 a day, especially for period business. There is still a lack of availability of the smallest sizes, boosting rates and vessel values in the 1,000 TEU range while mid sizes suffer.

In a stroke of irony, there is further encouragement from the plethora of ULCCs due to commission in the next three years. They will demand more feeders as they seek to cut losses and achieve economy of scale. One cloud on the horizon is that the majors have seen the advantage in owning their own feeders, with the likes of Maersk, Evergreen and CMA CGM all due to take delivery of theor own newbuildings, but in a niche size of around 3,700 TEU. Deliveries have only just started so it will be interesting to judge how successful or detrimental this move will prove in feeder trades.

The balance between supply and demand has narrowed considerably and is likely to hit a surplus for feeders soon on many routes and continue for two years ahead. This bullish consensus is reached by major feeder operators as they build up bigger fleets to cement their strengthening positions.

A buoyant orderbook reveals 243 feeders on order aggregating 517,352 TEU, of which only 16 are under 1,000 TEU but 102 fall in the 1,000-1,999 TEU capacity range, underlining optimism and future vision from owners. The totals of feeders are driven by Europe, Asia, Middle East and Mediterranean growth. The announcement of plans for more self-sufficiency in cabotage by Indonesia and Malaysia will further boost the market.

Over six months, the feeder order backlog has reduced from 271 vessels aggregating 554,192 TEU in February to a cellular figure of 243 units totalling 517,352 TEU. With the current controlled orderbook, this partly explains the optimism for a balanced trading pattern in the future.

There will be more consolidation on a smaller scale as strong feeder owners and operators flex their muscles to acquire ex-KG tonnage and smaller companies finding the going tough. The latest takeover involved the acquisition of Nor Lines from Norway’s DSD group by Samskip, increasing the latter’s fleet disposition and logistics chain. A bid by Eimskip failed. The Nor Lines brand will continue however. This could herald the start of a series of mergers especially for companies operating mixed fleets where cash flow is tight.