Not all gloom and doom

The container sector right now can be summed up by the title of a Goldman Sachs report issued on Oct. 9 -- "The Perfect Storm: A Classic Cyclical Downturn" and its central conclusion, "Too many ships ordered during the boom times are now flooding the container ship market with capacity as demand busts."

I attended the 19th annual JoC Breakbulk conference last week in New Orleans and wanted to compare the outlook for containers with that of breakbulk, which encompasses project cargo and noncontainerized commodity cargo, most prominently steel. I spoke with several senior executives from this sector and came away with this basic impression: Despite the global slowdown, credit crisis and collapse of stock markets, breakbulk for the moment is on solid ground.

Major petrochemical, energy and mining projects that drive the multipurpose shipping sector have long since been financed and set into motion, and will not stop now except in extremely rare situations. Freight rates are holding up, although fuel surcharges have slipped along with the price of bunker. To the extent that overcapacity is mentioned, it's not in relation to project cargoes moved on multipurpose ships, but concerns niche steel shipments that also can be moved in bulk carriers, whose charter rates have collapsed since the summer.

The daily charter rate on a Cape-size bulker went from $189,000 a year ago to $13,000 last week, which gets the attention of project carriers that often look to commodities to provide backhaul cargo. Even though ordering of multipurpose vessels has increased, the new ships are barely able to replace 25- to-30-year-old vessels approaching retirement.

"For now, the project market is holding up fairly well. We're monitoring the situation very closely to see where any project has been put on hold, but at this time, we haven't seen it yet," said Per Peterson, vice president at BBC Chartering.

Others agreed. "We haven't as yet felt anything, and I don't expect to either. Ships are full, people are booking, base rates are unchanged," said Steen Obst, president of Nordana.

"I am quite optimistic on the breakbulk industry and breakbulk shipping," said Bertram Rickmers, owner and chairman of the Rickmers Group. "It is a market, not overbuilt with tonnage, that needs knowledgeable, skilled people and where people can't immediately jump into this market."

Breakbulk executives can't help but notice the deteriorating economic climate. I didn't hear anything approaching a repeat of the comment made last year by the CEO of one of the largest project carriers, who confidently predicted that supply and demand would be in the carriers' favor for five years at least. The fact that projects are holding up now does not make them immune from the impact of the world economy; the impact will just be delayed. "The project business has its own lifecycle," Peterson said.

If the global economy slips into a deep recession -- still not a certainty -- it will eventually impact global infrastructure and the shipping industry that supports it. Projects now under way that are completed may not be replaced with others if credit isn't available or demand or market prices don't support the investment. "We can have a recession that we won't feel for two to three years out," said Steve Richardson, director of procurement for Zachry Construction Corp., a large U.S. EPC (engineering, procurement and construction company) based in San Antonio. "It could be that a lot of the (project carriers and forwarders) are still feeling the effects of the rapid economic expansion of the past five or six years."

The breakbulk industry does not come off as one that's nervously scanning the horizon expecting an impending slowdown, even one that might be a few years away. There is a view here that the emergence of China, India and other developing nations is a reality and that, therefore, demand for more energy and the capacity to produce it will not evaporate any time soon. Moreover, many executives here that while the bottom of the downturn may not yet have been reached, governments will act aggressively, as they are already doing, to forestall economic collapse.

There is a sharp contrast, some said, between the bubble of easy credit and gyrations of financial markets on the one hand, and the rock-solid stability of the world's major governments and their willingness and ability to intervene in whatever ways are necessary to turn things around, on the other. The Breakbulk conference, overall, was a respite from the doom and gloom.

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