Shipflation! A record year for the Reefer Market
Shipowners in the conventional Reefer market had an exceptionally good year last year. This upturn in fortunes is reflected in our in-house ISB Seafield Reefer Index* which closed 2021 on a six and a half year high of 1,841 points, an increase of 104.9% year-on year. The index averaged 1,517 points/week during the year, up 43.6% from the previous years’ weekly average.
The index mirrors the rise in both spot and period reefer freight rates that we have observed across all of the primary reefer market segments including the sub segments which we are also specialising.
Notably from our own primary markets we have observed the following rate changes for reefer cargo on the following trade routes:
◦ Pacific to Atlantic (West Africa) (400-550k,cbft) 103% +
◦ North Europe to South Atlantic Africa (400-550k cbft) 101% +
◦ North Atlantic – West Africa (200-400kcbft) 63.5% +
◦ Intra- West Africa (200-400k) 76.5% +
◦ N.Atlantic – Baltic (200-300k) 97.0% +
The continued intensification in demand for conventional reefer capacity was driven by the ongoing problems in the global container shortages which in turn has been compounded by major disruptions to supply chains caused by the global pandemic. According to recently published data global supply-chain disruption in the container markets saw container shipment rates soar by an average of 200% over the 2021. The surge in demand contributed to widespread displacement of empty reefer containers from key loading ports. Faced with rising costs and lack of equipment, many reefer cargo shippers turned to conventional reefer vessels to fill the gap.
According to the United Nations (UNCTAD), Shipping freight costs have contributed 1.5% towards global inflation over the past 12 months. Shipping has become a major push factor now in driving inflation due to the shift change from a reasonably low and steady cost to an unprecedented explosion of freight charges.
In the smaller handysize reefer segment (100k-350k cb.ft. vessels), time charter equivalent returns for Owners averaged $1.00/cb.ft/month, a 62.8% year-on-year increase as enquiries from meat exporters in South America, amongst other non-core trades, took-up the slack from what was a quieter frozen fish market out of the key Moroccan/Mauritanian fishing grounds (22% volume contraction year-on-year).
In the larger reefer segment, the market was also characterized by a lack of reefer container capacity in South & Central America, South Africa, New Zealand. Squid catches in the South-West Atlantic, often the bellwether for the larger reefer vessels market’s direction during the first quarter, – recorded a substantial improvement, with our records indicating a 90% increase in reefer capacity deployed in the trade during the 2021 season, setting a firm platform for upside in freight levels during the remainder of the year.
The larger reefer vessels are mainly trading in fruit / banana trades and as such the primary operators in these markets a sizeable increase in demand for reefers in the larger reefer segment (350k+ cb.ft. vessels), where TCE returns averaged almost USD 0.90 during the year, a remarkable 109.7% increase year-on-year. This conversely has impacted the costs for the primary fruit / banana traders and producers
The sharp rises in dry container freight levels and shortage of equipment also pushed some of this volume towards using breakbulk vessels. 5k-15k dwt , which drove up freight rates in these segments. Reefer vessels, due to their multideck, multipurpose configuration meant that they were also perfect substitutes for this cargo.
Despite booming freight levels, the conventional reefer fleet continued its contraction in 2021, with a net loss of 2.95 mn cb.ft. capacity (down minus 1.6%) as rising demolition prices saw many owners of 1970’s & 1980’s-built handysize tonnage cash-in.
Fleet capacity (for vessels > 100,000 cb.ft.) stood at 185.75mn cb.ft. (576 vessels) by the year’s end, with an average age of 28.5 years.
Our outlook for 2022 is that the fleet utilisation will remain at close to 100% this year as increased demand due to lack of reefer container capacity will continue, coupled with longer voyages and increased tonne miles per vessels.
Source: Irish Shipbrokers & Chartering Ltd.