Project and heavy-lift carriers see oil and gas equipment cargoes leading recovery.
The outlook for the breakbulk cargo sector, including vessels that carry heavy-lift and project cargo, appears to be brightening, but the industry is still burdened by an oversupply of capacity.
“I genuinely think the market is more optimistic than it has been for some time,” said Susan Oatway, an associate at the London-based firm Drewry who prepares its annual Multipurpose Shipping Market Review & Forecaster and quarterly updates.
“The demand levels are much more positive than they have been,” she said, although adding “they are not off-the-scale stuff.”
In 2013, Rickmers Linie saw revenues dip 10.5 percent to 190.4 million euros ($140 million).
Waldemar Poulsen, president and chief executive officer of Rickmers-Linie (America), told American Shipper that “within the breakbulk sector, rates deteriorated throughout 2013 due to significant over-supply and soft market demand in key trade lanes resulting in intense price competition. The turnaround we had hoped to see in 2013 did not occur and whilst the market has slightly stabilized now, 2014 looks like another difficult year for this sector. We see a couple of large projects especially in the energy and infrastructure sector which we expect to be moved in the next few months, thus we are confident that during the course of 2015 the demand for project shipments will slightly improve.
“We are beginning to see market improvements to and from Northeast Asia, particularly for imports of project cargo, but also steel. Traditionally the majority of our project shipments are going to the U.S. Gulf, but we also see a higher demand for shipments to the U.S. West Coast as well as to the U.S. East Coast. On the export side we see a slight increase from the U.S. Gulf to the Far East while export from the U.S. East Coast to Europe is still very limited,” he said.
Over the next few years, Drewry forecasts that general cargo will have a growth rate of about 5 percent, compared to 4 percent for the total dry-bulk fleet.
When Drewry released its report in April, it said “global steel production is expected to rise at an average annual rate of 5 percent over the next two years. The outlook for project cargo is more mixed. While the expectation for 2014 remains subdued, there are signs that this sector should begin to pick up further volumes towards the end of the year and grow in 2015/2016.”
Oatway said she had once thought that as the container market improved containership operators would have less interest in moving breakbulk and project shipments.
Maersk, for example, made it clear to her that it will continue to have interest in moving project cargo on its containerships, using equipment such as open-top containers and flat racks.
Companies moving simple breakbulk cargo also face competition from operators of handy-size bulk carriers.
Oatway noted that as breakbulk companies renew their fleets, they are more likely to equip them with heavy-lift cranes or other special equipment that will make it easier for them to compete in the project cargo market.
Joerg Roehl, chief commercial officer for Hansa Heavy Lift, said since the beginning of the year his company has improved utilization and demand for its vessels, and has witnessed a slight recovery on freight rates. “I am actually very positive for the second half of this year and even more positive for 2015,” he said.
Hansa and its 21 ships are owned by Oak Tree Capital. It created Hansa after the company it had chartered its ships to, Beluga, failed.
Hansa specializes in transporting project and heavy-lift cargoes. Twinned cranes make it possible for the company to lift shipments weighing as much as 1,400 tons onto some of its vessels.
Poulsen said “we think that current market rates are not sustainable for the industry, especially considering high investment cost for sophisticated tonnage, rising fuel costs and the high level of know-how that is required to handle the sensitive and high-value project and heavy-lift cargoes. Freight rates will have to increase and in some trade lanes we start to see some necessary rate improvements.”
Brent Berg, managing director-partner at the Houston office of Thorco Shipping America, said “we do see the outlook for 2015 as being really positive. That is mostly being fueled by a lot the EPCs (engineering, procurement and construction companies)… seeing what their projections are for the market, particularly in the oil and gas industry.
“I think 2014 will be a year where people can finally say, ‘hey, it’s not going to be what it was,’ but I think it will show that there can be more stability to the industry on the carrier side with the amount of work that’s coming,” he said.
Thorco has expanded its operations through a deal with Clipper in 2013, which increased the size of the company’s fleet to about 110 vessels.
In May, Houston-based Intermarine said it will add 15 new vessels to its fleet with long-term charters on a series of new vessels to be built by Sanfu Shipyard & Huanghai, two Chinese shipbuilders. The ships, the first of which will enter service next year, “will form the core of our future fleet,” said Alfred J.V. Stanley, Intermarine’s CEO.
Rickmers has two newbuildings of about 20,000 deadweight tons on order for delivery in 2015 that will be able to lift weights of up to 900 metric tons with their two cranes.
Roehl said Hansa is also looking at a program to build new ships, but added the company does not want to flood the market with even more capacity and is not in a hurry because its fleet is so young, averaging less than four years.
Berg said the industry has benefited from oil and gas activity in Australia, East African countries such as Mozambique and Tanzania, as well as in the United States because of the boom in fracking.
West Africa has had a large oil and gas industry for many years and continues to be important to heavy-lift carriers.
On June 6, Intermarine signed a joint venture with an Angolan company that will allow it to carry oil and gas equipment to partners of Sonangol, the national oil company of Angola.
The joint venture “was necessary to expand our existing West Africa liner services and will open up opportunities for us to help customers in Europe, the Middle East and South America with their West African shipping needs,” said Michael Dumas, Intermarine’s chief financial officer.
A few days later, Intermarine said it would offer regular service from the U.S. Gulf and East coasts to the Mediterranean and Persian Gulf.
Berg said the industry is waiting to see what will happen with political unrest in countries such as Iraq, and the possibility that sanctions might be drawn back on Iran.
Oatway explained there’s also a great deal of mining equipment being brought into East Africa and cargo for new ports and other construction activities occurring there.
In terms of recovery, she said South America “is still not quite there,” but she believes the continent is “going to be ‘the’ place for project cargo over the next five years, with demand for material for new port facilities, inland construction and new plants for products such as biofuels.”
She said while there is a steady movement of project cargo in the Far East, it is less noticeable because much of it is moving short distances.
Intermarine grew through its 2012 merger with Scan-Trans, and Thorco through its 2013 acquisition of Clipper, but Oatway said the breakbulk industry is still fragmented.
“We’ve been talking about consolidation in this industry for some time and it’s taken all this time and financial loss for anyone to decide that’s the way to go,” she said. “You’ve got your top 10 players but then you’ve got so many smaller companies. There might be a number of possibilities for consolidation. It’s just whether shipowners are prepared to do that.”
“There is definitely a need for consolidation in the heavy-lift /project carrier sector but we only see limited ‘real’ opportunities at this stage,” Poulsen said.
He noted “we have recently seen some newbuilding activities and the average combined crane lifting capacity is still increasing. However, the multi-purpose fleet in general still has some scrapping potential, partly due to age but also due to some new environmental regulations that will become effective in the U.S. and Europe in January 2015. Therefore, we believe that overall the supply side in this sector will remain fairly balanced in the years to come.”
Oatway pointed out another way for companies to cooperate is through pooling of ships.
In June, the German shipowners Briese Schiffahrt in Leer and Harren & Partner of Bremen said they were consolidating 15 ships into a pool. They said BBC would provide its worldwide network for multi-purpose and heavy-lift shipping while the company Combi Lift “adds its unique project competency.” The shipowners said the “pool vessels shall hereby benefit from an above average employment, as well as profitable individual trades.”
Svend Andersen, CEO of BBC Chartering, said the pool “is an interesting consolidation concept, representing a straight forward strategy for today’s shipowners. At the same time, our freighting services are becoming more attractive for our clients due to the bundling of knowledge and competencies, as well as the advantages of a larger fleet.”
Most of the five vessels, the majority of which are part of the BBC Europe series, are 7,500 deadweight tons and include two cranes, each with a 250-metric-ton lift capacity. The company said pool capacity may increase as other shipowners join.
Oatway said if there’s going to be more consolidation among heavy-lift and project carriers “that might be the way that they go. But some of them — Thorco, Intermarine and Rickmers — they’ve now all got very big fleets, which is enough to be able to give them flexibility in any chartering situation that they need.”
This article was published in the August 2014 issue of American Shipper.