Article - 51 Week 8 Container Prices Have Defied Gravity:

Article - 51 Week 8 

Container Prices Have Defied Gravity:

Strange as it sounds, post turbulence the container prices have scampered up north to a 20-year-high, while the freight prices kept tumbling and shaking all the way down to a 20-year-low. The low demand for freighting in container trades led to new buildings to disastrous ends and destroying the asset value of the old tonnage beyond any sense of dignity. Cold lay-ups led the way to the graveyards. Charter hires came to their historic lows and stayed there living on the oxygen of hope.  This is all well understood, in the backdrop of the great uncertainty in the world economy.  

However, what is not yet understood is the sky rocketing of the container prices to a 20 year high - both new and old. No one knows who ate up the boxes during the 2008 crash. Rumours floated that China's new stimulus package melted a whole lot of containers, creating a severe scarcity. They might as well had melted some old tonnages to buck up the shipping market ! Slow steaming, and cut in production could be the main drivers for the rise in price of containers to such inexplicable highs.

Shipping is a curious business of steel. It's all about the price of steel in ships and price of steel in containers, paramount to the costs of doing business. At this point of time, the price of the steel in ships is abysmally low, while the price of steel in containers in phenomenally high. The resulting freight is derived from the combination of these two components. However, since the freight elements are never separated it is hard to say what contributes to the current freight levels of today - ships or containers! If I want to be a container owner today, I would get much less return on my investment, while under the constant threat that the high prices could tumble any day like a pack of cards. If I choose to become a vessel owner today, I'll get just about sustainable levels of freight now with the current price of acquisition and an undying hope of vessel prices shooting up to historic highs in a 2 to 5 years horizon.

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Capt Rath

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