Carriers, Shippers Weigh in on Rates, Capacity

Shippers, EPCs Have Booked MPV Contracts into 2023

By Lori Musser

Heavy cargo demand, crippling port congestion, and lower fleet utilization are plaguing ocean carriers. While overflowing container supply chains may be the main culprit, the trickle-down effect is wreaking havoc in multipurpose and heavy-lift vessel operations, and along their supply chains too.

Global carrier and shipper experts discussed the impact of “sky-high” freight rates during a recent Breakbulk Americas session.

Michael Morland, general manager Americas for AAL Shipping, said there is no sign of the container boom subsiding. “Container lines have signed long-term contracts on our multipurpose vessels … Our fleet is fully booked in 2021. 2022 is starting to get good cover and even the beginning of 2023 looks good.”

Jumbo-SAL-Alliance President Anders Hyrup said, “We’re done for this year. 2022 is the same. There is a reduced number of ships and rates are going to be high. Most multipurpose ships are now trading containers.” He said that newbuilds are not an option because of the current construction backlog and lengthy timeframe.

Lana Warren, regional head of special projects logistics in North America for Maersk said, “Since pre-pandemic, we have increased our capacity by 40 percent. It is as if we have been in peak season for 14 months straight. Planning looks like a war room. And we don’t see this ending this year or next.

“Just adding ships doesn’t fix it,” she added. It is a complete supply chain issue, needing more port capacity, labor, truckers and warehousing. “We have even invested in our own warehousing to provide storage that our BCOs [beneficial cargo owners] don’t have.”

‘Not Good for Any of Us’

Typically, an era with new and healthy revenue streams would delight the MPV and heavy-lift vessel carriers, but the upside has a glass ceiling. Years of poor markets stifled fleet development – these aging fleets were already facing capacity shortages before the container chain crisis. MPV orderbooks are nominal and financing for vessels is hard to come by for an industry that has suffered for profitability for years. While the container industry has suffered low rates in eight of the last 10 years, heavy-lift and MPV carriers say the market has been off for closer to 13.

Unfortunately, in the long term, “An imbalanced market is not good for any of us – carriers, shippers or forwarders,” said Andy Young, logistics manager at Bechtel Global Logistics.

With high MPV rates and little available capacity, project supply chain managers must innovate to stay on target with existing projects or fail. Projects that were priced very aggressively or scheduled tightly are going to challenge supply chain managers.

Breakbulk industry participants have fine-tuned and overhauled tactics to stay on top of the volatile markets. Carriers have focused on optimizing loading to take advantage of every square inch of space. They’ve also sought out other operational efficiencies too, but the tight labor market on land and at sea limits some of these efforts.

Project contracting is going through a metamorphosis. With MPV charter rates climbing, and container rates skyrocketing, EPCs are unearthing new ways to meet client commitments and budgets, Young said. “We rely on partners and forwarders and carriers to help us here,” and must constantly track the market in the effort to mitigate project risks caused by plummeting capacity and unprecedented rate hikes.

Instead of fixed prices, there are more project contract commitments with a carrier clause to be specified at a later date. Cost-plus contracts, ties to indices, better communication, working in lock-step with the client, and more frequent rate reviews make sense in an unpredictable rate environment where the year-over-year hike for MPV charters in August 2021 was more than 76 percent, according to Susan Oatway, a multipurpose analyst for Drewry.

Jake Swanson, global head of sector strategy with DHL Industrial Projects, said he has seen 60-percent rate hikes in recent months. “We struggle with that … If you are making a fixture you have to move quickly. Next week that rate has gone up or that ship is no longer there,” Swanson said. Getting fast decisions from a customer has never been so important. Booking capacity early is key.

Demurrage rates are also high. Swanson has seen rates of $40,000 per day.

The supply chain rate and capacity shortage issues are escalating project risk. Unfortunately, the issues will not be corrected in the short term. Managing unpredictability, according to Young, has become the hot new skill set in the industry.