FEATURE: Credit Managers Turn Wary Eye to Container-Market Failures

by Jack Jordan, Managing Editor, Ship & Bunker
Monday March 13, 2023

Less than a year on from the container market seeing record freight rates and profits, credit managers in the bunker industry are starting to view unfamiliar customers in the boxship segment with more caution after two recent collapses.

The container market saw abnormally strong profits for two years in the disruption to global trade after the start of the global COVID-19 pandemic in 2020. But concerns over a potential impending recession have since taken the heat out of this market, with freight rates in decline for more than half a year now, and a slew of new ships being delivered this year.

Adding to the overall market worries are two recent collapses in this segment. UK-based Allseas Global Project Logistics collapsed late in 2022 -- owing Dan-Bunkering more than £4 million -- and Australia's Focus Container Line was placed into administration at the start of this year.

Credit managers at IE Week events in London last week told Ship & Bunker that, while a new customer in the container segment could probably be relied upon without much scrutiny a year ago, much more caution was now required.

"The top ten lines are still completely fine, of course," one credit manager said.

"It's those that are newer to the market that I'd be worried about."

Another credit manager pointed out the distinction between those container firms owning ships for longer and those rushing to charter more recently in a by-then overheated market.

"The new container business is the bit that's in trouble -- those that chartered at the start of 2022," the second credit manager said.

"Those that owned for longer have made some money, so they're more safe."

Freight Premiums Proved Fragile

Neil Dekker, a senior analyst at Infospectrum, explained the type of companies that may have got into trouble.

"New operators (including Non-Vessel Operating Common Carriers (NVOCCs)) were encouraged to enter the main liner deepsea trades during 2021/early 2022 by virtue of the record freight rates on offer at that time, meaning they could make sizeable profits on any return trip voyage," he told Ship & Bunker this week.

"With no owned ships, they had to compete in the charter market for available tonnage and in virtually all cases, paid the highest ever daily rates - in some cases, over $150,000 per day for relatively small vessels.   

"Even higher premiums were paid for short periods, but in all cases, what really made it far more difficult for the new entrants were the extended periods of 12 to 24 months that owners insisted on at that time.   

"With the benefit of hindsight, most operators entered the markets relatively late in the cycle (not helped by the lack of available tonnage), and so by the time many of them commenced operations, the market already started to show defined weakness by June 2022 after an extended two-year run of record ocean freight rates.

"For any ship owners or marine consumables suppliers with exposure here, the risk was always far greater given that the bull cycle would inevitably weaken at some stage.

"With much weaker market expectations for the rest for 2023, the operating environment for those newcomers left remains difficult – where are the revenue streams to pay for OPEX?"