Breakbulk shipping faces a challenging 2012 with excess capacity capping freight rates as a slowing global economy depresses conventional cargo volumes.
But the project cargo and heavy-lift sectors are more bullish as demand in the oil and gas and mining sectors in emerging markets looks set to outpace faltering growth rates in the advanced industrial economies.
The industry has moved on from the sudden collapse of Germany’s Beluga Shipping, the poster company of breakbulk shipping, whose spectacular growth into a 72-ship business lured a $280 million investment from U.S. private equity investor Oaktree Capital Management. The company was even being rumored to be in the hunt to take over Houston-based rival Intermarine just weeks before Beluga itself tanked, with founder Niels Stolberg facing allegations of financial irregularities.
The project cargo industry’s long-term potential was underscored by Oaktree’s decision not to walk away from the busted business; instead it set up a new company, Hansa Heavy Lift, which took over part of Beluga’s fleet and will be a major player in 2012 with 21 modern vessels, including 10 with an average age of less than two years, worth around $1.2 billion.
Hansa’s chief executive, Roger Iliffe, said Oaktree plans to hold on to Hansa for the next five to seven years and most likely exit through an initial public offering.
Another six former Beluga-chartered ships — four 12,700-deadweight-ton vessels and two 17,000-dwt. ’tweendeckers — are being managed by Danish shipowner Scan-Trans of German Project Carriers, a consortium of German owners.
The largest breakbulk players will survive the market downturn, but smaller operators could go under as rates likely come under further pressure through 2012 with too many ships chasing too few cargoes. Charter rates for multipurpose tonnage were firming toward the end of 2011 but remain well below levels of earlier years. A 17,000-dwt. geared vessel on a one-year timecharter was earning approximately $9,750 a day, about $150 above the 2010 average but several thousand dollars short of the $17,800-per-day average through 2008.
The long-term ambition of the heavy-lift sector was highlighted by the $240 million order by Netherlands-based Dockwise in early 2011 for a vessel with an 110,000-ton lift capacity. The potential of the business is underscored by the company’s signing of two contracts to ship oil platforms from Korea to the U.S. Gulf and to Norway — a year before the Hyundai shipyard is due to deliver the behemoth vessel.
But the industry is far less bullish about short-term prospects. Dockwise expects subdued revenue in the conventional heavy marine transport market to persist into 2012.
Ports have benefited from rising conventional cargo volumes, but traffic could decline through 2012 as the global economy slows. Antwerp, Europe’s top breakbulk port, boosted conventional traffic 16 percent in the first nine months of 2011 from a year earlier to 9.7 million tons. The increase, which outpaced all other cargo sectors, was driven by a 37.3 percent surge in steel shipments to 6.5 million tons, which more than offset a 33 percent plunge in paper and cellulose traffic to 560,000 tons, largely because of a loss of a key import contract to a rival port.
Rotterdam’s breakbulk traffic jumped 24 percent in the first three quarters of 2011, totaling 6 million tons of steel, paper products, metals and fruits; the growth mainly was tied to sharply higher imports of steel slabs from Brazil.
Hamburg’s conventional cargo shrunk by 100,000 tons to 1.8 million tons, as fruit imports slumped 18.9 percent, or 372,000 tons, outweighing a 24 percent jump in steel exports and an 11 percent increase in paper imports.
The underlying strength of the breakbulk market is seen in the proliferation of regular liner services, mainly in the BRIC nations of Brazil, Russia, India and China, as well as other emerging markets benefiting from the global commodity boom that has dampened economic growth in the industrialized nations.
Germany’s BBC Chartering recently established a global project division that plans to operate 22 ships by 2013 out of three global service hubs — its home base in Leer, Germany, Singapore and Houston.
BBC is leveraging a fleet of more than 140 multipurpose ships to spread its global footprint in response to solid demand in the oil, gas and mining sectors. Most recently, the carrier launched a twice-monthly service between Houston and Mobile, Ala., and Venezuela and Trinidad in a joint venture with New Orleans-based Caytrans Project Services. It also established a monthly trans-Atlantic link connecting Izmir, Turkey; Porto Maghera and Genoa in Italy; three Brazilian ports — Suape, Rio de Janiero and Santos; and Buenos Aires. Earlier, it began a monthly trans-Pacific service linking Shanghai, Masan, Kobe and Yokohama and Long Beach, Houston and Charleston.
Meanwhile, Rickmers Linie, whose Pearl String round-the-world service deploying nine 30,000-dwt. multipurpose vessels moves into its ninth year, also is steadily expanding its global coverage. The carrier upgraded its Indian service with the addition of two new vessels and launched a direct east and westbound link with Europe. It also started making regular monthly calls at Bilbao after winning a contract with French forwarder Geodis to ship high-speed trains from the northern Spanish port to Damman in Saudi Arabia.
The German shipowner expanded its portfolio last year by teaming up with Maersk Line to provide a joint breakbulk-project cargo service with two newly built, 19,000-dwt. ships flying the U.S. flag.
Although medium-term prospects for the heavy-lift sector appear promising, companies are facing short-term financial pressures. Only weeks before Dockwise reported an all-time order backlog of $512 million at the end of the third quarter, it announced an agreement with its bankers to ease leverage ratios in loan agreements from March 2012 to September 2013, “to provide additional headroom in the event of extraordinary market circumstances.”
The industry is set for a fresh round of consolidation as smaller, undercapitalized operators, particularly in Germany, likely will run into financial difficulties amid worsening market conditions in the coming 12 to 18 months.
And Hansa Heavy Lift has gone on record as saying it expects to play a leading role as a consolidator as the financial muscle of Oaktree, which has $80 billion of assets under management, puts it in pole position to acquire weaker competitors.
Meanwhile, companies are monitoring the oil and gas, petrochemical and mining sectors for news of projects that will eventually provide them with lucrative contracts if they have the right tonnage to transport equipment for increasingly complex projects in more distant locations.
And the outlook is looking good as the energy and mining industries reboot investments after canceling and postponing scores of projects in the wake of the 2008 credit crunch.
Capital expenditure in the global mining industry was estimated to total $113 billion in 2011, 50 percent higher than in 2010, according to consulting firm Deloitte Touche Tohmastu.
High crude prices have simultaneously boosted oil exploration and production activity to meet the projected increase in demand, and have triggered a boom in liquefied natural gas, which could replace coal as the world’s second-most popular fuel after oil.
The International Energy Agency forecasts that five nations likely will supply the bulk of new supply: Saudi Arabia, Brazil, Iraq, Canada and Kazakhstan. The Middle East and North Africa alone will invest $2.7 trillion in production and exploration over the next 25 years, according to the IEA. And heavy-lift/project carriers can look forward to a share of this spending.
Petrobras, Brazil’s national oil company, estimates it will need 65 deep-water oil rigs to boost the nation’s oil production from 2.1 million barrels a day to 4.9 million by 2020. And the biggest challenge in this $120 billion expansion is the supply chain, according to CEO Jose Sergo Gabrielli.
This is where the breakbulk, project cargo and heavy-lift shipping industry can carve out a profitable future.
Contact Bruce Barnard at email@example.com.