News / APL’s recovery is hobbled by losses from 12-year charters on surplus panamaxes

first_imgBy Mike Wackett 11/06/2014 The extent of the decline in containership time charter hire rates in the past 10 years has been highlighted again with the sub-let of a trio of surplus panamax ships by APL, the loss-making container arm of Singapore’s Neptune Orient Lines.According to analyst Alphaliner’s latest charter market report, P3 members MSC and CMA CGM have taken advantage of the depressed market and sub-chartered the 4,700teu sister ships APL Atlanta, APL Los Angeles and APL Denver for 11 months, with a two-month option, at a low daily hire rate of $6,350.APL signed a 12-year charter party with German shipowner Hanseatic Lloyd to commence on delivery when the ships – along with a fourth sister vessel – were ordered from a Chinese yard in 2004.On commencement of the charters to APL in 2008, the daily hire rate of $27,500 was slightly below market, but after the financial crash stymied global trade, charter rates for containerships plummeted. There was a brief recovery in 2010 to release pent-up demand after inventory levels became dangerously low, but charter rates were back in steep decline a year later, following a spate of overzealous ordering.APL’s financial officers must still wince at the sub-let deals, which sees the carrier still having to find nearly $8m per year per ship in charter hire – albeit that the sub-lets to MSC and CMA CGM are saving it $2.3m per unit.For APL, with another six years of the time charters to run, mitigating its loss by sub-letting was the only sensible option – laying up the ships would have added $30m in charter hire to the cost of the carrier’s operations.Of course, APL is not the only ocean carrier paying considerably more for its long-term charters than the rate available in today’s market. Being unable to compensate for falling freight rates by reducing charter hire costs is a constant thorn in the side of global container lines operating fixed-rate charter ships as they struggle to emerge from the red.For example, CMA CGM has several panamax ships on long-term charter from vessel owner Global Ship Lease, paying considerably more than the current rate, although the French carrier does have a significant stake in GSL which makes the differential easier to bear.Providing vessels are kept employed, the rate of daily hire remains a paper cost to most carriers and is not crystallised, but the current bout of cascading caused by a flood of ultra-large containerships being deployed onto the Asia-Europe tradelane is exposing the degree of charter rate erosion.Even though the value of their ships will have depreciated considerably along with market charter rates, containership owners that fixed long-term charters with blue-chip ocean carriers are insulated from the freight rate volatility across the tradelanes of the world.Moreover, owners can take comfort that, rare exceptions aside, the signing of a charter party is still regarded as sacrosanct in the shipping world.last_img read more