The market for breakbulk and heavy-lift ocean cargo is emerging from the doldrums it experienced last year. Although a backlog of global industrial projects carried the heavy-lift sector through 2012 and construction of new pipelines and wind farms in the U.S. filled inbound multipurpose breakbulk vessels that year, demand largely dried up in 2013. But the picture is brightening, and the market is positioned for a significant recovery in 2014 and 2015.
“2013 was a lackluster year,” said Bob Sappio, president and CEO of Rickmers Group in the Americas. “While it’s probably not boom time yet, what has gotten everybody so excited is the outlook for 2014 and beyond.”
The excitement in the project cargo business is the sheer number of chemical, petrochemical, refining and other projects being planned for construction along the Gulf Coast from New Orleans to the Mexican border. “The number of projects, whether ammonia plants or refineries or power plants, is monumental,” Sappio said. That’s on the coast alone, and doesn’t include all the breakbulk and heavy-lift cargo that will move through Gulf ports destined for energy-related projects being built in Montana and the Dakotas to handle the boom in natural gas fields being developed by hydraulic fracturing.
Houston is at the center of all the new developments. “It’s truly boom time here in Texas,” said Len Waterworth, executive director of the Port of Houston Authority. Energy and petrochemical companies have announced plans to invest $35 billion in plants lining the banks of the 52-mile Houston Ship Channel and may invest almost twice that as the gas boom develops further. Many of the investments are geared to retrofit those plants, which once processed petroleum imports for the domestic U.S. market, to refine domestic natural gas into products for export. “The industry is excited about the import of components, the machinery and the modules needed to build these refineries,” Sappio said. “If you talk to anyone, like GE or the forwarders, they are all bullish about 2014 and beyond.”
Heavy-lift carriers also are benefiting from investments by foreign steelmakers in the U.S., including Luxembourg-based Arcelor Mittal, which in November agreed to acquire the ThyssenKrupp plant in Alabama, and India’s Tata Steel, which is building a plant in the U.S. to take advantage of cheap natural gas. Tianjin Pipeline, the biggest Chinese investment in the U.S., has started construction on the first phase of a $1.3 billion plant in Corpus Christi, Texas, to build steel pipes for oil and gas pipelines.
Beyond the U.S., the outlook for the global project cargo market also appears to be picking up. Offshore oil fields are being developed in Mozambique. New projects are under way in Southeast Asia and South America. Although the market for breakbulk cargo has dwindled in countries such as Brazil, which imposes high protectionist taxes on imported steel and forest products, this has spurred investment by global steelmakers to build plants in the markets they serve.
The timing for construction of all these projects comes as the breakbulk and heavy-lift carriers come to the end of the multipurpose vessel orders they placed in happier times, when it looked like global projects would keep these new vessels filled.
“When you put that bullish demand projection against what it looks like in the supply of MPVs, all of a sudden from a ship operator’s perspective things are looking pretty good,” Sappio said.
The multipurpose vessel orderbook begins to decline precipitously in 2014 and 2015, so as demand increases, fewer new vessels are being delivered. Supply and demand will come into equilibrium in the latter half of 2014, and after 2014 vessel space may not be enough to meet demand for all these new projects. That will lift freight rates, which have been flat to down over the last year and plunged many ship operators into the red.
“Everybody is getting creamed right now from an earnings standpoint on the breakbulk side,” Sappio said. “The cost of fuel is still relatively high, and up until now demand has been anemic and there have been plenty of ships.”
Rates may continue to be under pressure at the beginning of the year, but in the second half when volume accelerates and delivery of new multipurpose vessels tails off, the sector will recover more rapidly than others.
“Breakbulk people want to make money again, so they are going to wait a while before they start ordering,” Sappio said. “Hopefully, before the industry begins to order again, everybody will allow rates to stabilize and get healthy again. They will allow demand to be firmly in place.”