Project forwarders and engineering, procurement, and construction companies appear confident about the project market through the end of 2019, but jitters are increasing in the multipurpose and heavylift (MPV/HL) shipping niche.
There’s a growing gap in forward contracts and prospective cargo movement looking into 2020, said Susan Oatway, senior analyst for multipurpose and breakbulk shipping at London-based maritime consultancy Drewry. “Rates are constantly slipping for the sector as a whole,” Oatway told JOC.com.
Business uncertainty, driven by the US-China trade wars, Brexit, and a slowing global economy, is affecting the sector, except for a few pockets of activity, Oatway said. Those pockets include construction in India and the Middle East, some Chinese Belt and Road projects, and a couple of large oil and gas projects in Africa. But those may not be enough to keep the fleet going, she said.
However, several of the higher-end “premium” MPV/HL carriers appear optimistic. MPV/HL carrier AAL recently announced a dedicated Europe-Far East breakbulk service, citing a strong wind energy market in particular. SAL Heavy Lift, BBC Chartering, and Zeamarine have hinted that they are considering ship construction orders.
A disparate sector
The MPV/HL niche is disparate and can be difficult to pinpoint. As Drewry parses the fleet, the approximately 3,000 vessels that make it up range from high-end “premium” carriers with combinable lift capacities of 350 metric tons and higher, to older, smaller ships with no gear or as little as a 50 metric ton lift cap. These ships carry a wide variety of dry bulk, breakbulk, and project cargoes. Some are in short-sea trades and some are ocean-going trampers — sizes range from 8,000 to 17,000 deadweight tons (dwt), with a few ships as large as 30,000 dwt. The market is privately owned and opaque, according to Oatway. “You don’t see rates, and you definitely don’t see forward rates,” she said.
Hamburg-based Toepfer Transport’s multipurpose index, based on information from a panel of owners, operators, and brokers, is one of the only windows into this market’s rates. It is based on an average of six- to 12-month time charters for 12.5 dwt MPV/HL F-type ships with combined lift cap of 240-360 metric tons. In July, the TMI slipped to $7,476 per day, down from $7,529 in June. Average rates are up 3.6 percent since July 2018’s $7,216. According to a recent market report from Drewry, as of mid-2019, average rates for a 10,000 to 15,000 dwt multipurpose vessel, gearing and type not specified, were $6,630 per day, down from $6,650 per day at the end of 2018.
Older vessels weaken the niche
These smaller, older ships are often trading short-sea and in “less pressured” environments, Oatway said. There’s no iron ore hitting the tanks, they are using their own gear for lighter cargoes, and they are not carrying high-value project cargo. Additionally, there have not been any of the dreadful accidents seen with over-aged vessels in other trades, so shippers are not shying away. Meanwhile, the premium ships hit an age barrier when project cargo owners cannot get cargo insurance.
“Once the shippers say, ‘We aren’t putting our cargo on a 20-year-old vessel,’ that leads to higher demolishment,” Oatway said.
While MPV/HL carriers such as Zeaborn and BBC Chartering are talking about building new, more efficient ships, i.e. “eco-traders,” a key question affecting the fleet is what happens to the old ships, Oatway noted. Will they be demolished or sold into the second-hand market?
The breakbulk ‘Venn diagram’
Does this older, smaller wedge of ships hold down rates for the MPV/HL sector overall? Oatway believes they do. The AALs, BBC Charterings, Zeaborns, Thorco Projects, and Rickmers-Line around-the-world services might carry steel, bulk, and project cargo, while the older, smaller ships may only be carrying breakbulk steel, Oatway said, “but they are still competing on a breakbulk level.”
“If you have a shipper looking to put steel pipe on board, he has a whole range of ships to choose from, and if he doesn’t have to put it on a smart ship and pay that price, he won’t,” she added. “So there’s that trickle-down effect.”
Theoretically, premium ships should be in a world of their own — but then why aren’t they getting the rates they want? The multipurpose sector competes within its own fleet as well as with the container and roll-on, roll-off carriers, Oatway said. “It’s like a whole series of shipping Venn diagrams,” she said.