Capacity Shift Presents Risks for MPV Sector

(Global) Drewry: Charter Rate Growth to Slow

The strong recovery in multipurpose charter rates witnessed in the first quarter of the year may be threatened by improving capacity and shifting dynamics in global shipping supply chains as economic recovery continues, predicts Susan Oatway of research consultancy Drewry Maritime.

Speaking at a market outlook webinar on the multipurpose and heavy-lift shipping sector, Oatway noted that Drewry’s latest forecast predicts a rise to above U$8,000 in April.

“We are predicting a further rise of almost 7 percent in April. It’s no surprise that markets are awash with predictions of rate rises. What’s happening is the start of the recovery from one of the longest recessions in this cyclical sector,” Oatway said.

Effective Demand

Based on Drewry’s Multipurpose Time Charter Index, rates saw a 15 percent increase in March compared to February, as the index hit US$7,795. This equated to a robust 24 percent rise year-on-year, reflecting the sharp fall in rates initiated by the onset of global lockdowns at the end of the first quarter 2020. For April, the firm predicts that rates will rise a further 6.5 percent, reaching US$8,300 per day.

“With breakbulk demand firm and charter rates in the competing sectors at levels not seen for a number of years, shippers returned to the MPV sector for their transport requirements,’ Oatway said.

The firm’s Multipurpose Time Charter Index tracks charter rates over a one-year period and compares a basket of vessel types and sizes to forecast the market movement over the coming month. This is based on the average of one-year charter rates for three key vessel segments 5,000-7,000 deadweight-tonnes (dwt), 10,000-15,000 dwt, and 15,000-20,000 dwt.  

The outlook for strengthening charter rates was reinforced by consultancy Toepfer Transport which publishes its own index for the multipurpose sector. Its latest research suggests rates will reach US$8,092 in April, up from US$7,520 in March and representing a 17.9 percent increase year-on-year.

“The demand for cargo space is booming and so are the cargo enquiries for the next months. Large operators try to keep the tonnage they have and to add up more, causing only very few vessels to appear on the spot market. Small operators who did not secure tonnage in the recent weaker times, have to pay high premiums to secure the ships they need to fulfil their obligations,” said Yorck Niclas Prehm, head of research at Toepfer.

Toepfer’s index is based on a 12,500 dwt multipurpose /heavy-lift F-Type vessel for a six to 12-month charter period. Headquartered in Hamburg, Germany, Toepfer Transport is one of the largest S&P brokers in the city and its research department has a particular focus on the MPV/heavy-lift market.

Effective Demand Growth to Slow

While the remarkable growth in MPV charter rates has undoubtedly been supported by wider economic recovery, Drewry notes that a lack of capacity across the global shipping sector has been the most signifcant factor in propelling demand higher, creating greater effective demand even as overall volumes have fallen in some areas.

“Clearly over the first quarter of 2021 due to port congestion and supply chain issues, effective demand for MPV has strengthened, but we do expect this to slow as issues are sorted. Even in our downside scenario however growth is still positive,” Oatway added.

Strong competition from container vessel operators is expected to eat into growth rates going forward, as box carriers seek to reclaim some breakbulk cargoes that have returned to the MPV sector in recent months.

“Continers vessel operators have put a lot of investment into their project cargo teams. There will be a drift back because container carriers are keen to carry that project cargo, but there is a ceiling because of the size and weight of some of these pieces,” Oatway noted.

Fragile Recovery

While most forecasts for the global economy suggest robust growth for 2021, Drewry notes that recovery in the MPV sector remains more fragile. The speed at which congestion and supply chain issues in the container and dry bulk sectors are resolved will have a huge impact as will the rate of replenishment of the MPV fleet.

“One of the main reasons recovery is fragile for this sector is the level of overage tonnage in the fleet. Over 50 percent of the total fleet is over 15 years old. Although the fleet contracted in 2020, due to increased demolition with no corresponding new building deliveries, our concern is that increased optimism will lead to new investment decisions, without corresponding cargo commitments.” Oatway said.

Despite the fragility of this recovery, Oatway notes that there are many bright points for new demand, as projects that were delayed from last year resume and steel shipments pickup, mainly on the back of stimulus packages. This is expected to particularly benefit the premium carrier segment, with lifting capacities of more than 250 tonnes, equipped to handle the largest offshore wind cargoes.

“Offshore wind is probably one of the biggest positive stories for the sector … it is definitely one of the big pluses for this sector. One of our concerns has been a potential hole in offshore project due to the fall in oil and gas prices, with investment decisions not coming through but global wind recorded a record year in 2021. Offshore wind, particularly led by Europe and China, is a key area for growth in project cargo sector going forward,” Oatway concluded.
Headquartered in London, Drewry provides maritime research consultancy, market insights and advisory services across the global shipping sector.
Subscribe to BreakbulkONE and receive more industry stories and updates around impact of COVID-19.