Multipurpose rates cool as handysize competition rises

Multipurpose rates cool as handysize competition rises

Daily charter rates for multipurpose/heavy lift vessels stood at $7,457 in February, down 1.8 percent from the previous month but up 7.6 percent year over year, according to Toepfer’s Multipurpose Index. Photo credit: Shutterstock.com.

Collateral damage from a sliding Baltic Dry Index (BDI) may be tugging down daily charter rates for the multipurpose sector.

The Toepfer’s Multipurpose Index (TMI) slid 1.8 percent from January to February, the first decline since last July, as day rates fell from $7,593 to $7,457. The index remains up 7.6 percent year over year, however.

The 12,500 deadweight ton “F-Type” ships that make up the TMI are “in the niche,” said Hannes Hollaender, managing director with Hamburg-based broker Toepfer Transport. And when competing segments — handysize bulkers and feeder container ships — struggle for cargo, they can easily slide over and “cannibalize” the multi-purpose vessel (MPV) sector. So, “when the BDI falls, we also fall,” he said.

Toepfer’s index consists of an average of six-month to 12-month time charter rates per day for 12,500 deadweight ton multipurpose and heavy-lift (MPV/HL) F-type vessels, the most liquid section of the fleet. Toepfer collects the data that goes into its transport index from vessel owners, operators, and brokers. The index is one of the only publicly available windows into chartering rates for the privately held MPV/HL market. 

The Baltic Dry Index, based on a daily global survey compiled by the London Baltic Exchange, is a composite index of prices for shipping dry bulk cargoes such as coal, grain, and iron ore. The BDI has bounced from an August 2018 high of 1,773 to a low of 595 in early February 2019 but had recovered to 634 on Feb. 25.

Although bulk rates do not correlate directly with MPV/HL time charter rates, handysize bulkers (the smallest bulker types) and MPVs compete for many of the same minor bulk and simple project cargoes, such as steel and wind blades. When bulk rates are at subsistence levels, breakbulk and project rates are at their most tempting, and this is what is happening now, Hollaender said.

Bulk demand has been affected by the annual business slowdown of Chinese New Year and by the current, temporary peculiarities of the iron ore market, according to Hellenic Shipping News. Iron ore supply globally has been affected by the disastrous Vale dam failure in Brazil, which has taken an estimated 70 million annual tons of iron ore out of the market, according to Mining.com. Vale is a key supplier for China, and iron ore prices are up, for now, but a straitened supply has not triggered more cargo movement, as there was already a surplus of iron ore delivered to China ahead of Chinese New Year. Chinese mills are reluctant to restock iron ore at high prices when demand is unpredictable and prices are likely to moderate.  

If the US and China come to a trade agreement, that could potentially increase production, increase demand for iron ore and bulk rates generally, and thus decrease bulker interest in breakbulk and project cargo. Iron ore tends to move in larger bulk vessels than the handysize vessels that compete with the breakbulk sector, but there is a spillover effect on rates, Hollaender said.

Hollaender said that despite the current BDI-related softness in the TMI, the general outlook for the MPV/HL sector is rising. He believes there is room for replacement in the MPV/HL sector for “rather complicated ships” with lift capacities above 100 metric tons, given the more sophisticated designs available for vessels today, increasing demand in project industry sectors such as offshore wind, as well as the looming Jan. 1, 2020, deadline for compliance with the International Maritime Organization’s low-sulfur fuel regulations.

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