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Containers Shouldn’t Dominate Commodity Discussions

By Carly Fields

Big, beefy project cargoes often steal the limelight when it comes to breakbulk moves. Scale and sheer quirkiness allow them to win out over the more mundane commodity side of breakbulk. Moving a large transformer might call for months of preparation to arrange a shipment overland and by sea, perhaps closing roads and shifting obstacles to make the move a success.

By comparison, handling and moving breakbulk commodities is a cinch. But despite its more-demure appearance, commodities remain integral to the breakbulk business. Steel rebar, girders, slabs and coils; paper pulp and rolls; timber; bagged cargoes; and perishables – all benefit from the specialized handling and carriage that breakbulk terminals and multipurpose carriers offer.

However, their importance is being eroded. Without the protection of scale that project cargoes enjoy, breakbulk commodities are particularly susceptible to the intrusion of the container sector, and the box invasion dominates discussions on the future of the breakbulk commodity sector.

Port of Antwerp handles what it describes as the “big five” breakbulk cargoes, namely steel and non-ferro, project cargo, forest products, fruit and perishables, and rolling stock. While volumes dipped slightly – 2 percent – in 2016 compared with 2015, its market share in the Hamburg-Le Havre range grew 2 percent to 27 percent. The losses in the range are almost exclusively attributable to the rising dominance of containers.

Those standardized, secure and weatherproof boxes are undeniably an attractive alternative mode for breakbulk cargo shippers. Wim Dillen, Port of Antwerp’s head of business development, sees the attraction as twofold: low freight levels due to the overcapacity in the container sector and improved inventory management.

“There is no denying that containerization continues in certain domains, especially fruit and perishables. In less than two to three years, our conventional volumes of fruit have dropped by more than 50 percent,” Dillen said. However, that cargo has not left the port completely: the cellular container fleet stills discharges bananas, pineapples, apples and more at the fruit terminals in Antwerp. Other traditional breakbulk volumes, such as forest cargoes and steel, use containers when convenient.

The encroachment of containers is “a matter of comparative advantage and opportunity cost,” pointed out Tim Polson, a shipbroker with breakbulk specialist AIS. When the container-shipping market was at an all-time low, it made sense for container-shipping companies to carry breakbulk cargo because the extra space it occupied and extra time it took to load, lash and secure were worth less than the extra revenue the breakbulk cargo brought, he said.

Chris Smith, Ports America vice president breakbulk, admitted being concerned about the containerization trend. “When container rates are low and there is excess capacity we believe [container lines] will continue to be aggressive and target traditional breakbulk cargoes. Breakbulk terminals need to be continually looking for ways to improve productivity and keep costs down to compete.”

For its part, Ports America has been aggressively deploying its process improvement teams throughout its network to keep costs in check.

A selection of colorful fruit on a white background
“There is no denying that containerization continues in certain domains, especially fruit and perishables.” – Wim Dillen, Port of Antwerp. Credit: Shutterstock

Better Times Ahead

But it’s not all doom and gloom. The recent improvement in freight rate levels for container ships has lured some shippers back to the pure breakbulk sector. In the first five months of 2017, Antwerp saw its breakbulk volumes increase by more than 20 percent compared with the same period last year, with steel performing exceptionally well, as well as rolling stock.

“Now that container rates are higher, space on container ships is scarcer and time is valuable again, breakbulk is becoming less attractive for the container lines, which is of course good for multipurpose ships,” Polson said.

And there is also the question of suitability, which becomes relevant when pricing gains are taken out of the equation. Simply put, multipurpose ships are built to carry breakbulk cargo and container ships are built to carry containers. Polson gives an analogy: 20 maritime lawyers could probably lift a one-ton concrete block onto the back of a truck by hand given enough time, though this would only be viable if there were no maritime incidents to work on. If only three of them had high-paying maritime law work to do, then it would be more viable to just hire a forklift that can lift up to six blocks onto the truck at a time, in less than a minute. “When time and resources are scarce, it makes sense for everyone to stick to their core competencies,” he said.

Andrew Grindley, Peel Ports’ solutions development manager, bulk terminal operations, agreed that the economies of scale are simply not there to switch all breakbulk cargoes to containers. “It really is labor intensive to place 30,000 tonnes of steel coils into containers,” he said. “It works if there are small volumes, but from a container line’s point of view I’d be very surprised if you could find one able to deal with such big breakbulk volumes in containers. Big breakbulk shipments bring the best value and the best economies of scale.”

AAL Managing Director Christophe Grammare believes that the initial craze to containerize everything is finished. “Now, shippers make a cognitive choice on what remains as breakbulk cargo. Everything in the maritime industry is based on cycles, but at the end of the day, breakbulk is a specialty service; it will always be there.”

Related Story: A Question of Size

Dealing with Pressures

There are other pressures that are specific to breakbulk commodities that don’t involve a box. For one, steel volumes fluctuate on the back of anti-dumping measures, particularly in developed countries.

“Coming from the Australian market, we’ve seen anti-dumping measures on a regular basis for the last 10 years,” Grammare noted. “Now, every country is trying to protect their economies. This has an influence on the sourcing of cargoes and the effect can be quite interesting.”

Usually specific suppliers are targeted, which necessitates the sourcing of new suppliers, either in the same country or from alternative countries. For example, shippers that were sourcing from China now source from Korea, Vietnam or Thailand.

“So, the anti-dumping measures are actually changing the geography of the trade,” Grammare said. However, that change is often temporary as over time the replacement suppliers may well get hit by anti-dumping measures, leading the whole sourcing merry-go-round to start again. Indeed, the initial supplier may eventually come back into favor as anti-dumping measures soften or as additional costs are built into the price.

“It tends to be a bit of a cycle: there’ll be four or five years of peace and then suddenly an anti-dumping action will come which will disrupt the supply chain,” he said.

Grammare raised another challenge: the shrinking availability of specialist breakbulk terminals. The industry has been reducing its facilities “for breakbulk because it has been seen as a bit of a dying industry.” This decline in specialist terminals will be the “biggest issue we have to deal with in the next 10, 15 years,” he said. To overcome this, large manufacturers and buyers are investing in their own wharves or port facilities to ensure that they can continue to move their cargoes in breakbulk form as ports increasingly favor container over breakbulk services.

Ports America’s Smith bemoans the aging infrastructure at many breakbulk terminals, warning that will continue to be a challenge for the industry. He also anticipates consolidation on the port servicing side, mirroring the amalgamations taking place on the carrier side. Only “the strongest companies will survive,” he said.

Green needs are moving the goalposts further. “The world is demanding greener supply chain solutions at lower prices,” said AIS’s Polson. “Companies are under increasing pressure to deliver triple bottom line results, that is not just pure economic profit, but also the lowest possible societal and environmental impact.” For project cargoes, modular construction reduces the carbon ton-miles used to deliver cargo, making breakbulk shipping a significant enabler. “Windfarm towers can be shipped directly from the manufacturer’s berth at say, Esbjerg, Denmark, then shipped as close to the windfarm site as possible in say, Geelong, Australia. If it were to be broken down and shipped piece by piece then it would take more trucks, more handling equipment, more voyages, more traffic through major cities as well as many other factors. Even if more economically viable, the modular and therefore breakbulk solution would be the winner in triple bottom line terms.”

A warehouse full of steel coils
“It really is labor intensive to place 30,000 tonnes of steel coils into containers.” – Andrew Grindley, Peel Ports. Credit: Peel Ports

Value-add Benefits

Breakbulk commodities also offer ports an additional revenue stream that give them a welcome edge: value-add creation.

“Antwerp has always cherished its breakbulk segment, as it accounts for much more added-value creation than the container segment,” Dillen said. “Apart from the actual stevedoring activities, Antwerp is home to seven steel service centers, three vehicle processing centers, numerous state-of-the-art cold stores, a climate chamber for testing offshore equipment, and many, many more.” He believed that ports that provide a climate for that value-add creation will overcome the threat of decreasing breakbulk trade.

Evolving vessels types also offers opportunities: Antwerp noted a trend towards more specialized, niche vessels, such as wind turbine component carriers, larger roll-on, roll-off vessels and heavier gear. Ports America’s Smith also noted a tendency towards higher volumes of steel being transported on ro-ro vessels, a development that he expected to continue.

Yet, while he believes there will always be a need for breakbulk cargo and its supporting industry in the future, the road ahead will not be easy. “Certain cargoes have a natural fit for breakbulk such as project cargo, structural steel, heavy coils, and bulk, and will continue to be shipped in traditional breakbulk ships. But as long as container line capacity continues to exceed demand and there are low freight rates, the breakbulk industry will have to fight for every ton of freight.”

And as the conversation returns to containers, it’s evident that the breakbulk commodities sector will never be able to shake off the omnipresence of boxes. But moving commodities in breakbulk still has efficiency, sustainability, flexibility and effectiveness on its side, ensuring that there will continue to be a place for the sector, regardless of the pervasiveness of containers.

 Carly Fields has reported on the shipping industry for the past 17 years, covering bunkers and broking and much in between.

Photo Credit: Peel Ports


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