Second-hand multipurpose/heavy-lift sales gaining ground

Second-hand multipurpose/heavy-lift sales gaining ground

The SAL Svenja discharging offshore wind tower sections to an installation vessel. Photo credit: SAL Heavy Lift.

After a lengthy frozen stretch, the second-hand market for multipurpose vessels (MPPs), also referred to as multipurpose/heavy-lift (MPV/HL) ships, saw an active first half in 2019 that involved about 50 ships, according to Hannes Hollaender, managing partner at Toepfer Transport. 

MPP assets had been illiquid through summer 2017 and exiting was more difficult than in other shipping segments, Hollaender said at ocean carrier SAL Heavy-lift’s fourth annual industry seminar last week in Hamburg, Germany. However, the sector has seen a record number of transactions since that point. Ship sales and purchases are made by private companies, so there is no public reporting, Hollaender said, but vessel prices, although below historical averages, are improving. Toepfer interprets this growing liquidity as a strengthening belief in the market.

Hollaender has noted a two-tiered sales market: ships built in 2004 or earlier aren’t selling, and sales are strongest for ships out of European yards. Financing for the MPV/HL fleet also continues to be an issue. However, the German KG system for financing ships, gutted during the lengthy shipping downturn that followed the financial crash of 2008-09, may be seeing new interest from Northern European investors, Hollaender said. 

The MPP segment still suffers from overcapacity ordered during the hot speculative market that existed before the Great Recession. Ships ordered then were still being delivered as late as 2014, Yorck Niclas Prehm, head of research with Toepfer, told the SAL audience. Many of those were old-fashioned and clunkily designed — some were even originally designed as container ships, while others were poorly built and may not last even 20 years, Prehm said. “We are still suffering now” from an overhang of badly designed ships, Hollaender said. 

Maintenance has been neglected on many MPP ships, another stumbling block in the second-hand market, Hollaender said. It’s been “a decade of no money to invest into ships,” he said, whether for ship construction or for maintenance. Owners can have trouble employing vessels older than 15 years, as cargo owners’ insurance restricts the ships they can use. Additionally, older ships need ballast water treatment systems (BWT) installed, which can cost as much as $500,000. Some owners are trying to sell rather than finance a new BWT or address maintenance issues.

TMI transparency causes pushback 

Toepfer Transport publishes the monthly Toepfer MPP Index (TMI), which provides one of the few windows into chartering rates in the notoriously opaque market. The TMI is an average of six- to 12-month charter rates per day for 12,500 deadweight ton (dwt) MPP F-type ships. Index data is collected from vessel owners, operators, and brokers. The TMI has triggered pushback from some carriers that dislike even this small window of transparency into the sector, Prehm said.  

The world cargo fleet consists of about 60,250 vessels now trading, Hollaender said, equaling just under 2 billion deadweight tons. About 18 percent of that is general cargo ships, including the multipurpose and heavy-lift fleet. The segment relevant for Toepfer is much narrower, consisting only of vessels built in 1984 or later with a lift capacity above 100 mt and a minimum deadweight of 2,500 tons. This narrows the field to approximately 1,100 ships, or 2 percent of the global fleet. 

Toepfer sorts the MPP fleet into five categories: large liner MPPs of 22,000 dwt and above, typically used in liner services (222 ships); medium-sized MPPs of 10,000-21,999 dwt (296 ships); E- and F-type MPPs, the ‘workhorses’ of the fleet, used to calculate the TMI (110 ships); super-heavy lifters with 800 mt lift capacities and higher (70 ships); and small MPPs of 2,500-9,999 dwt (332 ships). 

In the E- and F-type MPP category, newer “F-500” ships use less fuel and have improved stowage capabilities, allowing them to command rates that are as much as 2.5 times higher than older versions, Prehm said. But they are not included in the TMI because there are not many of them and including them would skew the index.  

Consolidation and ship construction    

There are about 100 potential vessel operators in the sector, Hollaender said, but not all of them are active. The top 20, including BBC Chartering, COSCO, BigLift/Spliethoff, Zeamarine, and AAL control 68 percent of the segment’s tonnage, as “consolidation is in progress,” he said, noting that actual vessel utilization by the various operators is very difficult to assess due to the opacity of the segment. 

The MPP fleet is in the “sandwich position,” Hollaender said, faced with competition from container carriers; roll-on, roll-off (ro-ro) carriers; and bulkers. The bulk market is improving, which should percolate down to an improvement on the MPP side. Container carriers come after breakbulk cargo when business is down, but “[if] earnings go up, they will stop. They’d rather earn more on containers.” 

Toepfer clients who want to get into the MPP business find it uniquely difficult to navigate, Hollaender said. A Greek oil tanker operator or owner might need a staff of only four people to control a fleet, while an MPP operator will need engineers and other staff for a relatively small number of ships. “You need a method statement for a big piece of breakbulk cargo,” he said. “You don’t need that for carrying crude oil.”  

For more than a decade, little has changed in MPP ship design, but now real innovation will change ship construction, Hollaender said. However, the shipyards are receiving quote requests but no orders. Owners appear to be waiting until the effects of the IMO 2020 mandate on total costs are understood, as well as for clarification on long-term decarbonization requirements and what that will mean for propulsion systems.

Despite a lack of orders, shipbuilding prices are not falling, Hollaender said. Meanwhile, there is no yard space open for installing scrubbers or BWTs. Regulations requiring retrofits might trigger more scrapping, he said. Meanwhile, the orderbook stands at a slim 2.1 percent of the MPP segment, according to Toepfer. 

As to whether cargo rates might be affected by bunker clauses, effectively giving carriers an excuse to raise pricing via fuel surcharges, Hollaender said this was unlikely. “Bunker surcharges are based on bunker cost increases and there’s not a lot of earning possibilities for operators. If the bunker surcharge is too high, people will go elsewhere,” he said.

Demand indicators

Key demand indicators for the MPP sector are positive, with many large industrial projects tendering or close to it, Hollaender said. Global electricity consumption is expected to double by 2050, and much of the related equipment will have to be carried from manufacturer to installation sites around the world, particularly China and Southeast Asia. 

The Baltic Dry Index is at a five-year high, which means bulkers are busy in their own segment and not competing for breakbulk and project cargo. MPP charter rates are stable and slowly rising, implying some trust in the market. Vessel operators are taking long-term charters — as long as 24 months for F-type ships — at spot market prices, Prehm said. 

Negatives that could damage the outlook include political uncertainty and war risk, rising trade tensions, and a macro-level slowdown in GDP growth. 

All things considered, Hollaender and Prehm told the conference they are cautiously optimistic about the sector. 

Contact Janet Nodar at janet.nodar@ihsmarkit.com and follow her on Twitter: @janet_nodar.