There is optimism in European shortsea sector as summer lull approaches

There is optimism in European shortsea sector as summer lull approaches

Project Cargo Journal — 2023-05-12

Maritime and Ports

European shipowners active in the shortsea sector are still quite positive about the current state of the market, while bracing for the weakening market in the coming weeks. 

In its recent Shortsea Shipping Report, Toepfer Transport notes that in April, freight rates on the usual routes from the Baltic westwards, as well as trades between the North Continent southwards direction East Mediterranean and vice versa, were characterised by a slow but steady downward trend where softer market conditions were prevailing in general for shipowners and operators. As expected, the fertiliser season ended towards the end of 2023 April, while the grain season is still a long way off, which is of course adding to a reduction in demand for tonnage.

Shortsea alternatives, no long-term charters

However, the short sea market offers many alternative commodities such as steels, scrap, pellets and any kind of construction materials as well as the potential to reach adequate rate levels always depending on the position of the vessel, competition around and the ability to keep calm.

This kind of certain optimism is also reflected in the reluctance of shipping companies to charter their ships out for longer time charter periods that are enquired by charterers who still have appetite to secure tonnage for 12 months or more. Of course, they are hoping for a bargain that owners accept given the volatility of the spot market and the expectation of a summer lull, but the majority of owners prefer to continue cherry picking and play all their cards to defend their position despite a ‘charterers’ market, Teopefer Transport’s analysts say.

Ship operators are confident that rates are picking up again latest in early autumn as soon as the grain crop kicks in, a chance for higher profits they do not want to miss. Conventional Damen CF 3850 types are currently fixed at rates around €5,000 for a three months’ time charter, the report reads.

Secondhand market

The secondhand market of the shortsea sector holds no surprises this month. We still see owners asking very firm prices for their tonnage as they are in no rush to sell their assets. In general, there is very little dynamic in the secondhand market right now as potential buyers are starting to not support the high price levels which leads to less deals being fixed. Toepfer Transport’s price assessment of a 10-year-old 5,000 tons deadweight vessel is unchanged at €7.25m.

We also see a lack of modern secondhand tonnage for quite some time now. Most owners are not willing to sell off their modern vessels as they cannot find a suitable replacement in the market,” analysts say.

Healthy newbuild activity

Despite the high newbuilding prices, which derive from surging cost for labour, steel and equipment due to inflation, newbuilding activity in the shortsea sector is healthy. There are some larger series of ships under construction and quite some projects under discussion. This is mainly due to the low entry barrier into the shortsea market. Smaller investors looking for opportunities in shipping are frightened away by the big investments needed for other sectors like Multipurpose or Container.

We believe the window of opportunity is still open when it comes to newbuilding as prices are in our opinion not about to fall in the intermediate future. Prices remain the same for 5.000 tons deadweight vessels with European design built in China at €10.5m.

European shortsea fleet growing

In Toepfer Transport’s 2023 fleet statistic update, shortsea fleet counts a total of 2974 ships (Q1: 2944) or 13.950.155 tons deadweight which is a plus of 1.5% in deadweight terms. In a 12-month-comparison, the fleet has grown by 3.5%.

The fleet growth is owed to an influx of newbuild vessels and a flow of secondhand vessels that have been purchased from remote countries for trading in Europe. For example, a larger number of ships has been acquired by Turkish interests from Chinese sellers.

As of 2023 April, 26.79% of the shortsea fleet has surpassed the age of 30 years (2022 April: 25,56 per cent while the orderbook has grown to a total number of 202 ships (2023 January: 178) or 1.170.656 tons deadweight
(2023 January: 1.062.210 tons deadweight), an 8.39% share of the trading fleet. We still notice a strong interest in new innovative ship designs and the preparedness to establish cooperations that drive new projects. Also cargo owners are pushing for low-emission solutions to reduce their carbon footprint.