The global market for breakbulk and project cargo, long considered somewhat immune to the economic cycles, is facing some of the same headwinds affecting other cargo sectors in 2013.
The transportation of project cargo to the sites of large mining, oil-exploration and industrial projects is usually contracted out years in advance, giving the carriers that serve those markets a cushion of orders and stable rates that often even out the cycles.
But demand for project cargo in particular, which is heavily influenced by the amount of foreign direct investment around the globe, began to recede after the Great Recession of 2008-09 dampened foreign direct investment, which has declined about 25 percent on average since the heyday of 2007-08. And mounting competition is putting pressure on rates, especially in the breakbulk sector of the trade.
“U.S. exports of project cargo have been a rare bright spot in a sector of the trade that is certainly challenging,” said Bob Sappio, president and CEO of Rickmers Americas, the U.S. subsidiary of Germany’s Rickmers-Linie. “There are reasons to be cautiously optimistic, but it’s a volatile trading environment.”
Europe’s sovereign debt issues, the economic uncertainty in the U.S. and slowing growth in China are clouding the outlook. But Sappio sees a brighter outlook for U.S. exports to emerging markets in South America, Southeast Asia and the Middle East, especially for supplying projects financed by the U.S. Export-Import Bank. “That’s particularly good news for U.S.-flag vessels,” he said.
Rickmers operates two U.S.-flag multipurpose vessels in a joint venture with Maersk Line Ltd., the U.S. subsidiary of A.P. Moller-Maersk. These ships have been busy transporting project cargo to several big Ex-Im Bank-financed projects in the Middle East.
“There’s nothing that’s causing us to say that 2013 is going to be a banner year,” Sappio said. Demand for vessel space varies according to the trade lane. Rickmers has been experiencing healthy utilization on multipurpose vessels bound for the Middle East and “reasonably good” utilization on ships coming to the U.S. from the Far East. But U.S. exports of breakbulk and project cargo to the Far East has been a “mixed bag.”
One reason Rickmers may be experiencing slower demand for U.S. exports to the Far East and other emerging markets, where industrial projects, oil exploration and mining are growing at a rapid pace, is that the sourcing of both breakbulk and project cargo has shifted to China. “The trade now is pretty much between China and the BRICs and the other emerging markets,” said Janet Plume, senior editor and director of Breakbulk magazine, a sister publication of The Journal of Commerce. “We have the south-south trade between Africa and Latin America and almost everybody trades with China.”
But the outlook for trade with China is clouded by its economic slowdown. China’s construction market is already well below forecasts and doesn’t appear to be headed for a turnaround any time soon because of its tight credit policy and economic slowdown. Increased government spending topping $150 billion on new rail and building projects, as well as resumption of work on projects suspended last year, will benefit copper and cement consumption, but saturated steel and aluminum markets are likely to remain weak.
Unlike other shipping sectors where the glut of vessel capacity has depressed rates, the multipurpose fleet hasn’t been hit by too many new ships. Carriers have placed orders for about 300 new multipurpose vessels, representing 12 to 15 percent of the current fleet, including two that will be delivered to Rickmers in 2013.
“That’s a somewhat healthy order book, but if you look at capacity, the real story is the ship-financing crisis,” Sappio said. “Not a lot of banks are willing to finance new buildings, so shipping lines have to find new sources of ship finance.”
But the same factors affecting other shipping sectors, including high fuel prices and mounting costs, are hitting the breakbulk-heavy-lift industry. The sector also is getting more competitive, as container carriers, hit by weak demand on many trades, are going after breakbulk and project cargo and putting pressure on rates. “They are getting very aggressive in seeking breakbulk cargo for the open tops and flat-rack business,” Sappio said.