DynaMarkets Monitor - Few reasons for reefer optimism
After a stellar start to the year in which the conventional reefer segment reminded the market of its importance and key attributes, namely speed and flexibility, the seasonal downturn in cargoes well and truly hit through September and October.
As was reported in the September edition of the DynaMarkets Monitor, “earnings for conventional reefers continued to move downwards after the improvements seen in the first half of the year. There remains a dearth of activity in the chartering markets on the back of low cargo availability and the return to some sense of normality in the containerised sector. There is a more general sense of positivity regarding the end portion of the year as some seasonal cargo opportunities come available. Overall, September proved to be a weak, slow month in the reefer market”.
And later in October, “October proved to be a very quiet month in the reefer market. Chartering activity had dropped off considerably from the levels seen earlier in the year, although a great deal of this relates to the seasonal drop in cargo availability. The market should pick up in the coming weeks as the Faroe Islands fish catch continues to gain momentum, while the catch off Mauretania is finally improving. Elsewhere, the Moroccan citrus volumes should start to hit the market alongside Algerian potatoes”.
With some operators now struggling to cover tonnage and others sounding alarm bells about their ability to continue operating under current market conditions, 2020 could shape up to be a defining year for the segment. A year through which it proved its worth in the face of cold chain disruption and problems in the sourcing of reefer containers, but it may not be enough to redeem the ailing segment.
Despite the challenges that the conventional reefer market has faced over a number of years, namely high fuel costs, highly seasonal cargo flows and the erosion of market share by the container sector. The conventional reefer segment has proved to be highly resilient, fighting for its share of the niche trades such as fish and, so far in 2020, citrus fruit. On a yearly basis, it is reported that charter rates hit rock bottom as seasonal cargoes dry up and the fleet waits for new streams to come available. However, through 2020, the value of dedicated, point-to-point reefer shipping became apparent. With reefer container transport ultimately dependent upon the demand for wider container shipping, the sector’s exposure to market force, not necessarily those tied to the supply and demand for refrigerated cargoes, were widely exposed. After the number of blanked sailings increased dramatically through the end of the first quarter of 2020 and into the second quarter, delays at ports and coronavirus related container handling issues, reefer containers became an increasingly rare and valuable commodity. As such, some shippers, notably South African citrus exporters turned to the conventional segment, while major reefer ports such as Antwerp reported a sharp rise in the number of conventional port calls. The market was further aided by the low fuel costs driven by the underlying dynamics of the oil markets and the failure of the IMO 2020 regulation to bring the expected spike in such costs.
With 2020 proving to be more positive in comparison to previous years, it begs the question of whether this is a short-term blip in the downward spiral of the conventional segment or a defining moment in which the segment’s value is truly realised and proves its worth to shippers, potentially attracting new business opportunities. In the times of COVID, it is often folly to make grand predictions about the future of the market and it is not the aim of this post, however, there remains value in looking forward. While talking of what may yet come to pass, it is important to note that Siem Shipping (Star Reefers) has poured doubt upon its ability to continue operating in the conventional reefer segment due to the increasing volatility of having to rely on spot market cargoes rather than long-term contracts of affreightment. The pool of conventional reefer operators, while dwindling, has been buttressed by the presence of a small number of notable players, with Star Reefers being one of them. If one of said players were to exit the market, it raises the prospect that others could follow, as the market dynamics could well be the same for others.
There will no doubt remain a place for conventional reefer tonnage, but despite a more positive year, it still feels as though the noose is tightening somewhat. Cold chain logistics is becoming an ever more important buzzword for ports and logistics service providers, carriers have been active in securing new refrigerated boxes and the increasing scale of container shipping in general could see, in absolute rather than relative terms, the number of available plugs on major trades continue to increase. Additionally, the almost non-existent reefer orderbook could mean that, if scrapping were to pick up, the pool of vessels will decrease further. Such predictions were made for 2020, but due to the unprecedented impact of the coronavirus, it did not come to pass, but it remains on the cards.
In conclusion, while there was greater reason for optimism in the conventional reefer segment through much of 2020, it remains short-term optimism. The sector has definitely proved its worth to shippers but it is yet to be seen if this will make a lasting impact when the costs and availability of reefer container shipping settle after an historic year. If the conventional segment is to maintain its current market share and arrest the somewhat inevitable drop into a real niche trade, shippers may have to provide a lifeline in terms of long-term, stable contracts, to provide hope for operators such as Star Reefers.