Breakbulk freight rates have softened a bit since the beginning of the year, but shippers shouldn't get their hopes up. Even though breakbulk rates have dropped in tandem with the steep slide in dry-bulk cargo rates, they have not fallen nearly as much, nor do they appear likely to decline further in the months ahead.
The reason for the buoyant market is simple: Demand continues to be high and supply remains ever-so-tight. Unlike the dry-bulk market, where shipyards continue to turn out bulk carriers, very few of the specialized multipurpose 'tweendeckers that carry breakbulk cargoes are being built.
"There are few ships and lots of cargo, so all the rates are up," said Roman Zhekov, chartering manager for BBC USA, the Bellaire, Texas-based sales and marketing arm of BBC Chartering and Logistic GmbH, a breakbulk vessel owner-operator based in Leer, Germany. He said demand in China for bulk cargoes is having a "domino effect" on the breakbulk trades, driving charter prices and freight rates higher. "As of now, there is new breakbulk shipping activity all over the world, with more cargo being shipped and little new vessels coming to market," Zhekov said.
"Charter rates are high because of tight supply and demand, so they are double - and sometimes more than double - what they used to be two years ago," said Albert Pegg, multipurpose vessel trade executive at Safmarine in Antwerp. Pegg, whose company operates a fleet of 16 multipurpose 'tweendeckers under long-term charter, said the supply of vessels available for charter is tight, but that Safmarine has long-term relationships with vessel owners so that "at least we have some kind of fallback position. Otherwise we would have been dead in the water."
Safmarine has been able to charter some new vessels as they are built. "There's one now, another by the end of the year, four more to come, and we're looking at more, some for replacement and others to supply the need for organic growth," Pegg said. Vessel supply promises to remain tight because there are so few new vessels being built, and the shipyards are being used for so many other types of vessels, Pegg said.
In contrast to the container industry, which has 1,220 ships on order, representing more than 60 percent of the existing fleet's capacity, the number of multipurpose vessels scheduled for delivery by the end of 2007 is only 176, or 5 percent of the existing fleet. Even when the large number of container ships now on order begins to hit the market in 2006 and shakes loose some of the smaller multipurpose project cargo-container vessels, not enough will be freed up to ease the capacity shortage. And because the world's fleet of specialized multipurpose vessels is aging, many new vessels will be used as replacements. That means capacity is likely to remain tight at least through 2010, effectively putting a floor under current high rates.
Freight rates are following the same trend as breakbulk charter rates, but more slowly in many cases because so many carriers are under long-term contracts with shippers. "We have to sweat it out for a year and then get the freight rates up during renegotiations," Pegg said.
"This year, compared to last year, we have experienced a slight summer ditch in freight rates and charter rates," said Lars Petz, director of chartering for Beluga Shipping, a breakbulk and project-cargo operator and container-feeder-vessel owner based in Bremen, Germany. "But now, we are seeing a slight incline again. Chinese ports have cleared out some of the congestion they experienced earlier in the year, and shipments to China of dry-bulk cargoes such as iron ore are expected to go back up. We expect that to trickle down to our segment as well."
Petz said 2004 had been a "fantastic" year and that 2005 had gotten off to a "very good start." With this summer's dip ending, he expects demand to pick up again, maybe not as much as a year ago, but to 85 to 90 percent of those levels. He said Beluga Shipping already is getting many more firm inquiries than it did a month ago.
Looking ahead, Petz said he believes the market for project-cargo shipments is becoming more specialized in terms of the size and weight of the equipment being shipped. He said shippers of project cargo are demanding more breakbulk services to smaller ports in areas such as Africa and China. Because those ports have little or no infrastructure to handle such large shipments, only specialized, shallow-draft vessels with their own heavy-lift gear can call there. He said Beluga, which currently operates 22 multipurpose vessels in the 12,000- to 14,000-deadweight-ton range, has benefited from this demand because its vessels are small enough to serve those ports yet large enough to serve long-distance routes worldwide.
Safmarine's breakbulk fleet is heavily involved in the trades from Europe, the U.S. and South Africa, carrying heavy oil-drilling and mining equipment to smaller ports in West and southern Africa. "Our customers need it there because they have signed mining and oil-drilling licenses with Angola, Mozambique, Guinea or Nigeria and they have to get cracking," Pegg said. "There's a thirst for more oil in the world, and the oil is still there. Indeed, this is one of the things that's driving our volumes. The same goes for mining. There's a thirst for everything - gold and all sorts of commodities. China, India and Brazil are helping to drive demand."
"While the bulk-carrier market segment has gone down, demand for breakbulk 'tweendecker cargo space has held up well," said Charles Measter, president of MAP Logistics, a ship-broking and consulting firm in New Canaan, Conn. "Specialized 'tweendeckers and heavy-lift cargo vessels are in short supply."
By way of illustrating the disconnect between breakbulk freight rates and dry-bulk rates, Measter pointed to the difference in rates for bagged sugar and bulk wheat on the trade from Brazil to East Africa. Breakbulk shipment of bagged sugar on that route was quoted at $72 a ton at the end of July, down from $100 a ton a year ago. That's a 28 percent decline over the last year. Steep, but nowhere near as steep a decline as the 48 percent drop in the rate for shipping a ton of wheat by dry-bulk carrier on that route, which plummeted to $33 a ton in July from $63 a ton last year.