Breakbulk Big Boys Club

Breakbulk Magazine cover with eery head overlaid with lights, graphs, etc. "Technology's Heavy Load"By Malcolm Ramsay

With the rate of consolidation in the breakbulk sector running at an all-time high, it can seem as if a new merger or acquisition is announced every week.

However, even with this rapid rate of change the news of Harren & Partner’s takeover of SAL Heavy Lift in July stood out as one of significance for the super heavy-lift segment.

Bremen-based Harren & Partner announced plans to take over SAL’s fleet of 15 heavy-lift vessels and worldwide network of offices and agencies in 25 countries, adding to a portfolio that already includes breakbulk shipping line Combi Lift and a diverse fleet of heavy-lift ships and specialized semi-submersible dock ships.

“With this coming together of the two companies, SAL is now the dominant player in the 900-plus-tonne lift capacity segment with 12 vessels above 900 tonnes and 21 vessels in total. This establishes SAL with an even stronger presence in the business of technical marine projects, while at the same time still allowing SAL to trade competitively in the breakbulk spot market,” Martin Harren, managing director of Harren & Partner Group, told Breakbulk.

The acquisition is expected to complete later this year, pending necessary regulatory approval, and will see Harren purchase SAL from Japanese shipping line “K” Line for an undisclosed sum. Once complete, the deal will see SAL controlled once again by a family-owned company, as it was until late 2014 when it was sold to “K” Line by the Heinrich/Rolner family.


Job Shake-up

Given the difficult operating conditions and depressed freight rates in recent years, key drivers for consolidation across the sector have been the need to shed jobs and to reduce payroll costs. With utilization rates still low, the number of ships sailing on routes under ballast has meant many operators have cut staff counts dramatically. But for Harren the acquisition of SAL represents an opportunity to hire new skilled staff and expand its payroll rather than just making layoffs.

“Within the group’s main bases, Hamburg and Bremen, there will be no compulsory layoffs,” Harren said. “In fact, we are actually looking for professional and skilled people in a number of positions. But there will be the need for some minor reorganization in one or two of our overseas offices.”

The group plans to continue to develop SAL’s footprint in the upper segments as it aims to lead the industry in “pricing discipline, value creation and quality standards,” while it develops its fleet in the lower segment to better facilitate client expectations.

To achieve this integrated vision for growth, the group is planning to focus on verticals that will deliver end-to-end expertise for clients engaged in breakbulk projects.

“We think that there is an opportunity to look at our business model through the prism of vertical strings rather than horizontal ones,” Harren said. “There are opportunities within the verticals which we believe can develop into new businesses and/or bring advantages to our current business.”

With this approach in mind, the combined group aims to improve its market share for transport and engineering services “right across the marine landscape. We believe that this acquisition will ensure that both SAL and Harren & Partner are very well-positioned for the future … we believe this will add strength to SAL and bring with it some much needed pricing discipline,” Harren added.


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SAL Heavy Lift will take over the management of the Combi Dock III.
SAL Heavy Lift will take over the management of the Combi Dock III. Credit: Harren & Partner

Slow And Steady Growth

With extensive investment in its fleet and workforce the Harren Group is betting on a return to strength in the market, and is already eyeing a return to stronger fundamentals as early as the end of this year.

“The good news is that the market looks to have seen the bottom. But it is also likely that the bottom will remain in view for a while – perhaps for the remainder of 2017,” said Justin Archard, corporate director commercial at SAL Heavy Lift. “In 2018, we expect to see slow and moderate improvements to freight rates driven principally by industrial projects that are slowly being revived.”

But Dirk Visser, director of research consultancy Dynamar, is less optimistic. He sees the macro forecast as uncertain due to sustained low prices in the oil sector. And while new mega-projects in offshore wind and other industries promise some demand growth, Visser predicted a delay until the end of 2018 for a rebound. Although he conceded that improvements in containers and dry bulk mean that breakbulk cargoes may become less attractive to those outside sectors and that prospects will improve for backhaul bulk parcels for breakbulk operators.

“With volumes less of a problem, breakbulk carriers can hope for a recovery of freight rates and a noticeable improvement by the end of next year,” Visser said.

Whether freight rates rebound as early as the start of next year or stay flat until 2019, Harren remains positive that an uptick in utilization will help support its bottom line in the nearer term.

“With so much residual capacity available, utilization factors will improve before freight rates do, which in itself is a better outlook as poor freight rates have also been accompanied by smaller parcel sizes which has exacerbated the problem,” Archard said.


Big Four Tighten Ranks

This latest consolidation will create a combined group encompassing 26 heavy-lift vessels, dock ships and offshore construction vessels and is expected to tighten the grip of the big four operators in the sector, making entry for new players even tougher.

“The heavy load sector in which SAL operated consists of only four operators: BigLift, Hansa Heavy Lift, Jumbo and SAL. Considering the current market, we do not expect other companies to invest in the required tonnage to join this little club any time soon,” Visser said.

Visser added that following the SAL acquisition the only merger left in this sector “would most likely be between Hansa and Jumbo.” However, both companies have diversified options outside of this specialist niche, so there may not be much appetite for a marriage.

It its most recent breakbulk fleet classification, Dynamar ranked Harren’s children SAL and Combi Lift seventh and 10th, respectively, by deadweight capacity among the leading heavy-load specialists. SAL represented 169,000 in total deadweight capacity, while Combi Lift was listed with 66,000 dwt capacity.

Given the scale of the combined group, Harren is keen to identify cost-saving strategies that will allow SAL “to spread the costs of some functions throughout the Harren & Partner Group,” while maintaining the team and core expertise of SAL.

“SAL is one of the world leaders in high-quality engineered heavy-lift and breakbulk shipping. But to maintain this quality they have an organization that is too heavy for their size which is expensive,” said SAL Heavy Lift’s Archard. To counter this, Harren will focus on lowering SAL’s operating costs through economies of scale for administration and collective back-office activities.

“So much of what every shipping company does is the same, so it makes sense to share those functions,” Archard said.

Based in the UK, Malcolm Ramsay has a background in business analysis and technology writing, with an emphasis on transportation and ports.

 

Photo credit: Harren & Partner

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