DEMAND :
The demand side continues to improve on a global scale. The winter weakness in the US and still-sluggish demand in Europe has been offset by continued strong demand on North-South trades in the Atlantic basin and improving conditions on the ever-strong intra-Asian trading lanes. Demand-side growth is outstripping supply-side growth now, which is something that improves the fundamental balance in the market. This difference is 1-2%, not a landslide change from one day to the next, but a most welcome move in the right direction.

It should be borne in mind that the container shipping industry is still carrying around huge overcapacity. Some of it originates all the way back to 2009, where the difference between supply and demand was enormous. This put the fundamental balance off by a 9% contraction of demand, primarily on the long main lane hauls, while at the same time, the supply side grew by 6%.

As operators on the Far East to Europe trading lanes treads very carefully in order to avoid putting too many ships into service on that market, freight rates have responded positively to the effects of slow-steaming, blank sailings, and outright cancellations. The spot freight rate average of 2014 (January-August) is USD 1,281 per TEU, 19.5% higher than the USD 1,072 per TEU recorded for the same period last year. On trans-Pacific to US West-Coast, rates have fallen 14% over the same period.

The time charter market for Panamax sized ships and those smaller in capacity and with a beam less than 32.25 metres is not doing well at the moment. The prospects of any significant change are not good, as cascading takes its toll and more efficient and cost-effective ships make their way down through the trading lanes. Current daily charter rates are between USD 4,600 and USD 9,400 per day for ships with a capacity ranging from 700 TEU to 5,300 TEU. For the larger ship sizes, wide-beamed 5,000 TEUs and those with higher capacity, charter rates are stronger, but still not impressive.

SUPPLY :
The optimism in the freight market is reflected by the redeployment of idle ships into active service, in particular those with a charter party attached. When looking at the supply side growth in 2014 so far, the reintroduction of tonnage must also be considered as part of the equation. This has added another 540,000 TEU to the newbuilt deliveries before subtracting ships sold for demolition. According to Alphaliner, 119 ships with a combined capacity of 230,900 TEU were idle as at 28 July.

For the full year 2014, BIMCO expects ships with a combined capacity of 500,000 TEU to be sold for demolition. This is why BIMCO believes that idling is a very effective, but also temporary, tool to adjust the deployed fleet growth up as well as down. Year-to-date scrapping amounts to 305,000 TEU.

(Source : BIMCO)