MPVs Rue Their Own Mischief-Makers
By Michael King
Stuck In the Middle With You by Stealers Wheel is best known as the soundtrack to a gruesome torture scene in Quentin Tarantino’s 1992 debut film Reservoir Dogs. It might also have served as suitable musical epithet for the multipurpose vessel fleet this past decade, as operators endured a painful cargo squeeze. Instead of Clowns to the left and Jokers to the right, MPV owners had Container ships to port and Bulk carriers to starboard.
As both the container-shipping and bulk sectors struggled with excess capacity and bottom-hugging freight and charter rates in the aftermath of the 2008-2009 global financial crisis, operators targeted whatever cargoes they could find. Frequently offering under-cost rates to fill ships on backhaul trades, they quickly gobbled up large chunks of mainstay MPV cargoes such as steel and forestry products.
“It has been a matter of overcapacity and bad freight rates that has induced bulk carriers, container ships and vehicle carriers to look for non-traditional – for their respective segments – cargoes; project cargoes in particular, which can relatively simply be accommodated,” said Dirk Visser, senior shipping consultant at Dynamar. Their task of securing cargo was aided, he added, by the willingness of terminal operators to invest in mobile harbor cranes able to handle larger and heavier items of cargo.
MPV owners and operators faced a perfect storm: an increase in competition and a decline in global demand as economies went into recession and oil prices fell, and reducing investments in major oil and gas projects. And it was a storm that raged for much of the last decade.
But, and whisper it tentatively, there are signs that the supply-demand balance for MPVs has turned a corner.
For starters, bulk carrier rates have finally recovered to profitable levels. The Baltic Dry Index reached 1,773 points in early August which, although far below the 2008 record reading of 11,793, represents a huge improvement on the 290 points recorded as recently as February 2016. Demand for commodities is strong, albeit with the caveat that looming trade wars could affect all shipping trades in myriad unknown ways in the near and long-term. Owners have also held off from plunging the sector into another recession by ordering huge numbers of newbuildings.
Bulk Boom Here to Stay
Unless ship managers drastically speed up bulk carriers – an unlikely scenario given the current spike in oil and therefore ship fuel prices– higher bulk carrier freight rates could be here for the medium term, as confirmed by BIMCO Chief Shipping Analyst Peter Sand. He told Breakbulk that new bulk vessel orders were at historically low levels and net fleet growth was not expected to rise above 2 percent before 2021.
“As BIMCO sees 2 percent demand growth as the long run average, a fleet growth of 2 percent or less is required to avoid a worsening of the fundamental freight market conditions,” he said. “Considering the current orderbook and our assumptions for actual delivery dates, the dry bulk shipping industry remains on the road to recovery, as demand continues to keep its nose just ahead of fleet growth, while scrapping and ordering remains subdued.”
As Breakbulk went to press, container freight rates and global volumes shipped were also significantly higher than a year earlier. Indeed, spot container freight rates on trades from Asia to the U.S. were up to 30 percent ahead of a year earlier by mid-August with capacity eastbound hard to secure.The focus of bulk carrier and container ship operators on core markets that are now profitable is already proving beneficial to the MPV sector, according to Kyriacos Panayides, managing director of AAL, which operates a fleet of 20 to 30 MPV heavy-lift vessels in the 19,000 to 33,000-deadweight-ton range.
“It’s no secret bulk carriers and container lines have intruded on MPV cargo over the last years in desperation to be employed,” Panayides said.
“But with the rising bulk market, we see bulk operators diverting to traditional bulk commodities, hence driving the MPV sector to gain more market share.
“This has led, of course, to increased freight rates in certain cargo commodities – concentrates, steel, logs timber, forestry products – so this is driving optimism,” he added.
Indeed, improving supply-demand fundamentals are already resulting in tangible returns for many MPV owners. “Looking at charter-rate statistics, as published by the likes of Clarksons and Toepfer, it is clear that MPV earnings have been on the up: by some 17 percent year-on-year ... for multipurpose ships of around 12,500 dwt,” Visser said.
“Multipurpose operators are profiting from the worldwide economic recovery and enjoying an uptick in volumes. Oil prices are increasing – with ups and downs, but to such an extent that investments are being made again – and maintenance of oil and gas installations can’t wait any longer,” he said.
Visser also said that renewable energy and particularly demand for wind turbines was helping bolster MPV demand.
There is growing evidence that the recovery in financial returns for beleaguered owners could further accelerate. On the demand side, Panayides told Breakbulk that a number of major oil and gas projects came to an end in early 2017 and mining and infrastructure business slowed. But he stressed that “O&G will come back next year as evidenced by the number of projects already announced and being budgeted.”
He added: “We also see positive movements in the mining industry and the infrastructure sector will pick up in certain parts of the world, like Europe and the Americas – North and South. Combined with ongoing wind energy growth, it gives our sector the chance to follow a recovery path from next year.”
On the supply side, compliance with a raft of IMO environment regulations from 2020 – including the introduction of lower sulfur caps on marine fuel which entails installing scrubbers or using expensive low-sulfur fuel on all merchant ships – is likely to force owners to scrap vessels rather than plow more money into older ships. “We expect to see a big part of the old MPV fleet scrapped,” Panayides said.
He added that the MPV fleet was unlikely to be flooded by a mass of newbuildings. “Our sector is not facing the same threat as container ships, bulk carriers and tankers because, with only limited orders in yards and some of these replacing older vessels, we expect a very manageable fleet in the years to come. That of course is one of the tools that drives optimism in our sector,” he added.
Dry Trade Growth
Susan Oatway, senior analyst for multipurpose and breakbulk shipping at consultant Drewry, believes MPVs can hold on to an average 15 percent share of the total dry cargo market moving forward, and this could rise to 17 percent to 19 percent by 2020-2022.
“It isn’t about types of cargo but the volumes – dry cargo trade is growing and the MPV market will grow with that,” she said.
According to Oatway, MPV cargo losses to container lines willing to stuff boxes with breakbulk or load project cargo on deck are declining. “Both of these are slowing in that, as the container market improves for the more traditional cargoes, there is less incentive to stuff boxes with cheap bulk and there is less incentive to carry difficult, time-consuming project cargo,” she said. “There is also competition from handysize bulkers, and here the breakbulk cargoes will always move between these two sectors as they are not specifically designed for them – which is where the hybrid project carriers have a bit of an advantage.”
The MPV fleet is no level playing field when it comes to capturing cargo. It is more meritocracy than socialist republic, and the gap between the “haves” and “have nots” is decided, for the most part, by the size of crane onboard.
Analysts use different definitions of how to distinguish between the different parts of the fleet. Drewry, for example, splits the fleet between standard MPVs with lift capability of up to 100 tons; project carriers, defined as MPVs built since 1989 with a lifting capability of 100-250 tons; and premium project carriers, defined as MPVs built since 1989 with lifting capability of more than 250 tons. Yet all agree that a comeback for standard MPV vessels without specialist lifting capacity is unlikely.
“I can’t see the ‘simple’ MPV fleet reversing its decline over the next five years – there is too much competition at that end of the sector,” Oatway said.Bigger And Heavier
Indeed, Drewry’s latest market report on the MPV market, Multipurpose Shipping Forecaster & Annual Review, outlined how the overall fleet was gradually getting bigger and heavy-lift capability becoming a must-have. Newbuilding MPVs with a lifting capability of at least 100 tons totaled 25 percent of deliveries in 2000, for example. In 2007 the percentage climbed to 30 percent, by 2013 it had risen to 52 percent and by 2016 it was 93 percent.
The result, Oatway said, was that in January this year 44 percent of the total MPV fleet was classed as a project carrier or premium project carrier. This translated into almost 900 vessels with a lifting capacity in excess of 100 tons, of which 342 had crane capacity of in excess of 250 tons, and 25 had a lift capability of more than 1000 tons.
The upshot, Drewry found, was that the simple multipurpose fleet – those vessels with lift below 100 tons – has already started to contract at a rate that is affecting the total MPV fleet.
“Some 80 percent of all newbuildings over the last five years have heavy-lift capability, and at least 70 percent of the orderbook has this capability. The project carrier fleet is growing, but it will be some time before it reverses the decline in the overall multipurpose fleet.”
Certainly, AAL has gradually built up its fleet of heavy-lift-capable vessels over the years as the battle for general and breakbulk cargoes was joined by non-MPV operators and it sought profitable niche markets. Now, 14 vessels in AAL’s fleet offer maximum lifting capability of 700 tons. Panayides confidently predicts that standard, older MPVs without specialist lifting abilities will be scrapped in ever-larger numbers in the next few years.
“Heavy-lift capacity gives a fleet additional employment capability, so you can switch to project cargoes but also still load commodities that standard MPVs can accommodate,” he said. “Our strategy has been founded on decades of study of the market and the competition landscape. We saw there were not many bigger MPV heavy-lifters, so our second generation of newbuildings delivered 2011-14 had heavy-lift capability and were of a particular design with, for example, cargo hold segregation to allow maximum intake.”
So, where next for MPVs? Drewry is confident that the sector’s resurrection is built on firm foundations. Its most recent report concluded that the sector was now “ripe” for recovery, a recovery set to last through to 2022, the end of the forecast period.
“This year started with renewed optimism and it is Drewry’s belief that the market has finally turned that corner,” Oatway said. “Rate rises are never stratospheric in this sector, but we believe a steady growth of around 2 percent to 3 percent per year is possible over the forecast period.”
Another Stealers Wheel song, Wishbone, had the anthemic chorus “Wish for anything you want.” MPV owners fervently wish, and hope, that Drewry is right.
Michael King is a multi-award-winning journalist as well as a shipping and logistics consultant.
Photo illustration: CATHERINE DORROUGH / images via SHUTTERSTOCK
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