The multipurpose/heavy-lift (MPV/HL) sector was hit particularly hard by the shipping industry recession of the past decade.
“An oversupply of new tonnage, declining demand for project cargo transportation, and competition from other sectors such as bulkers, ro-ro [roll-on, roll-off] carriers, and even container carriers [has] led to record low freight rates, far below breakeven levels. This consequently led to a number of operators ceasing operations following massive losses, as well as a majority of the fleet defaulting on their financing contracts and becoming financiers’ distressed assets,” Kyriacos Panayides, managing director, AAL, said in a recent conversation with JOC.com, sharing his views on fleet consolidation, the overall market, newbuildings, and the impact of IMO 2020, the International Maritime Organization's (IMO's) low-sulfur fuel requirement.
Recently, consolidation has accelerated, Panayides said, with acquisitions, mergers, alliances, and other cooperations among the stakeholders becoming routine. Although there are now fewer players in the market, as long as the pressure on freight rates remains unsustainable, stakeholders will have no choice but to consider further measures. “With economic forecasts suggesting that 2019 will be another year of peaks and troughs, it would not surprise me to see this wave of consolidation continue — maybe not in the form of further acquisitions but certainly through more alliances and cooperations among the sector’s stakeholders as they seek additional way to gain synergies and cut costs.”
The sector certainly saw some drama during 2018 and early 2019, with the announcement of Zeaborn and Intermarine’s joint venture, Zeamarine, in the spring, and the year-end bankruptcy of Hamburg-based Hansa Heavy Lift, still unfolding.
As of late 2018, there were 900 to 1,000 vessels in the MPV/HL segment with lift capacities above 100 metric tons (110 tons), with a smaller segment of “premium” carriers, perhaps only 550 to 600, able to lift more than 250 metric tons.
Premium players in the specialized MPV/HL market presently include AAL, BBC Chartering, Jumbo, SAL, Chipolbrok, COSCO Heavy Transport, BigLift/Spliethoff, Thorco Projects, and the aforementioned Zeamarine, which incorporates Zeaborn, the former Intermarine, and the former Rickmers-Line.
Record-low orderbook as good news
Panayides considers a record low orderbook to be good news, as there has been a need to reduce tonnage oversupply in the MPV/HL sector. “Encouragingly, a substantial part of the orderbook is planned only for replacement of older tonnage and will therefore not contribute to supply growth,” he said. “To date we have not seen a strong appetite for new orders by existing operators or stakeholders in the sector. I do not expect significant change in the orderbook unless the scrapping of older tonnage takes place first, driven by the need of further capital investment to comply with IMO regulations. Once this takes place, then demand will outpace supply, justifying the investment in newbuildings.”
The sector seems poised to exploit a modestly improving project market as oil prices stabilize — Brent oil traded at/near $59 per barrel in mid-January after plunging $30 in autumn 2018 — energy and petrochemical projects move forward, and IMO 2020 seems likely to further streamline the fleet.
The segment is at the same time positioning itself for IMO 2020, the IMO's January 1, 2020 deadline for most of the world's fleet to shift from fuel with 3.5 percent sulfur to 0.5 sulfur. IMO 2020 will further shrink or restrict the use of the current MPV/HL fleet, a large percentage of which consists of older, inefficient, single-owner vessels unlikely to adapt well to the new low-sulfur era.
Bunker costs will increase because of the higher cost of low-sulfur fuel, while charter rates are expected to rise, due to increasing demand in the face of a smaller, more consolidated fleet.
“I firmly believe that we must all play our part in actively contributing to a cleaner environment. AAL welcomes this measure, and we will be fully complying with this regulation, even before its enforcement date,” Panayides said.
AAL has concluded that scrubbers do not make financial sense for their vessels, so they will switch to consuming low-sulfur marine fuel. AAL hopes to share the additional cost but expects this to be a challenge “in the absence of a reliable freight index in our sector. On a positive note, we do not see any intention yet from our rivals that they would opt for scrubbers, hence we will all compete on similar operating costs and breakeven levels.”
AAL, headquartered in Singapore, is a tramp, project, and liner/semi-liner carrier operating an owned fleet of 14 MPV/HL vessels of 31,000 deadweight tonnage and 19,000 deadweight tons, with combined lift capacities of up to 700 tonnes, and chartered-in additional tonnage.