Here’s an interesting chart from a recent presentation by James Leake, managing director of ICAP shipping research (click to enlarge):
It shows, as Leake explained to us, that a correlation between charter rates for dry bulk carriers and container ships only really began to materialise when dry bulk rates began to soar towards their record highs of 2008. As a reminder, dry bulk vessels transport dry commodities like metals, grains and coal while container ships transport pretty mostly manufactured consumable goods.
According to Leake, that’s because at the time it made sense for traders to use cheaper and more innovative options to ship dry cargoes — eg. it became cost effective to fill boxes on container charters with commodities like grains to avoid the additional costs of chartering dry bulk vessels.
The chart is interesting, however, because it shows a major disconnect appearing in the relationship from early-to-mid 2009, at which point the premium to charter dry bulk carriers over container vessel suddenly soars.
Now, that’s either because arbitrage has been extinguished — there’s suddenly no demand for commodities, like grains, that can be shipped on container vessels — while demand still exists for heavier bulk commodities that can only use dry bulk vessels. Or (more likely in our opinion) it’s because container-shipping operators began to turn away full-scale charters in favour of hiking prices on individual box rates, which they can control more effectively.
If it’s down to the latter point, the disconnect in the chart would therefore be reflecting the element of price control that container shipping oligopolies currently occupy in the market.
Although the big question is, can this sort of disconnect be sustainable for long? The sudden dip in the relationship in mid 2009, after all, was met with the following reaction on September 3 from one of the world’s biggest container shipping operators, via International Freighting Weekly:
The world’s largest box carrier Maersk Line has announced a general rate increase on the Mediterranean and north Africa to North America trade. The carrier said it planned to push through a rate increase of US$300 per container from 1 October. It blamed current trading conditions for the increase. “The trading conditions for the carriers operating in these markets are still subject to unacceptable rate levels and the situation is unsustainable in the longer term,” Maersk said.
Presumably, though, there’s only so many price hikes they can make in current market conditions.
Related links:
Prepare for shipping wars – FT Alphaville
Maersk hit by ‘crisis of historic dimensions’ – FT
Maersk hikes box rates, saying current rates “unsustainable”- Lloyd’s List