More Opportunities Than Risks Ahead

The Port of Rotterdam Authority asked research analyst Susan Oatway and industry expert Johan-Paul Verschuure to summarize the past breakbulk year and share their outlooks for the upcoming months. The return of competition is the biggest driver of change, both experts agreed, and both see opportunities for the breakbulk sector which could be beneficial for Rotterdam’s supply chain actors.

Susan Oatway FICS recently joined the Journal of Commerce (part of S&P Global Market Intelligence) as research analyst for project and breakbulk cargo. Previously, she was with Drewry for more than 20 years, principally as the editor of their Multipurpose Shipping Forecaster.

“In 2022, demand growth for multipurpose vessels slowed significantly, while fleet capacity increased slightly,” Oatway said. As a result of that combination, rates fell from the end of the first quarter, a decline that has continued ever since.

In the Port of Rotterdam, cargo throughput increased in all segments: steel, non-ferrous, forest products and heavy-lift and project cargo. The overall growth in 2022 was 10.4 percent and the increase in imports of steel and non-ferrous metals accounted for most of it. The sharp rise in energy prices made European industrial production relatively expensive, which increased imports of steel and non-ferrous metals from Asia, among others. Also, high container rates caused more cargo to be shipped as general cargo in the first half of 2022.

The total demand over 2022 is estimated to be on par with 2021. “This is in line with the slowing global growth,” Oatway continued. “However, as we are talking effective demand – the biggest thing was the return of the competing sectors into breakbulk and project cargo. Over 2020/2021 available capacity for containers and bulkers was limited due to the congestion issues. Those parties were not interested in breakbulk cargo, because that is considered to be complex as compared to the handling of containers or bulk cargoes. This increased the demand for multipurpose vessels over this time.

“However as soon as container rates started to fall, these vessels were once again in the market for breakbulk and project cargo. This led to the fall in rates – although average rates over the whole of 2022 were above average rates for the whole of 2021, by the end of 2022 rates were between 10 and 20 percent down year-on-year, depending on the sector.”

Conversely, traditional breakbulk cargo, such as steel and project cargo, came close to the 2021 record year in Northwest Europe, Johan-Paul Verschuure said. As project director with the port and logistics team at financial-strategic consulting firm Rebel, he, too, closely follows market developments, supply chains and shipping structures. “Although the container part may cloud the figures somewhat, I think there is nothing to complain about. Especially given the growing demand for imported steel and complex projects such as wind farms and other energy transition projects,” Verschuure said.


Biggest Drivers of Change

The unwinding of the supply chain issues in the container industry led to reduced demand for multipurpose vessels. “Pre-pandemic, this segment was in an extended recession as the competition for cargo was driven by the container sector,” Oatway said. “With the rush in demand and then capacity shortage seen over 2021/2022, the container carriers all but left breakbulk and project cargo to its traditional carriers. This has now reverted.”

At the same time, the number of multipurpose vessels being demolished over 2022 was at an historic low. “This sector has a very small orderbook. There is little if any outside investment for these vessels and only a handful of owners are building new vessels,” she said. “However, the few vessels that were delivered over 2022 exceeded the number of vessels being demolished – so the fleet grew (by less than 2 percent) and this increased the capacity for cargo.”

In the mid- to long-term, the fact that the breakbulk sector is more prudent, especially compared with the container sector, will come to the sector's help, Verschuure added. “But in the shorter term, the pressure will increase. Also, as a result of the large number of empty containers which are being stacked at the moment, these might just make it interesting again to ship breakbulk cargo, like steel coils or bananas, in containers again in the near future.”

Even with their extensive experience, both Oatway and Verschuure were surprised by the speed at which charter rates dropped. Oatway said: “We always thought that they would decrease as soon as the congestion started to unwind. And there was some expectation that container carriers would manage their capacity better as the supply chain improved. But with rates in that sector in free fall, it was inevitable that multipurpose vessel rates would go too.”

“What surprised me besides that is the sheer volatility across the sector,” Verschuure added. “Not so much the uncertainty in the market, because that always has existed. What surprised me most is that peaks are extremely high, but troughs can also be gigantically deep. Some breakbulk sectors scored double-digit growth rates in some ports, while others recorded double-digit losses. We saw the same thing in 2020 and 2021.

“And it seems that that may continue to do so for some time, especially given the uncertainty regarding the energy transition and a possible new surge in commodity prices following a longer period of low investments, the need for new supply chains for some commodities, and new raw materials needing to be mined.”


Future Challenges

On the port side, Verschuure believed the challenge is to deal with this in a correct, flexible and sustainable way. “This entails risks for all parties in the market and in particular for the breakbulk parties, as they operate on a thin market with a shorter horizon when it comes to investments. How the sector deals with this increased volatility will certainly remain a crucial challenge for the coming years.”

Secondly, the energy transition will require a lot more port space to handle and store alternative fuels, but also to deal with increased flows of breakbulk and project cargo. For the breakbulk terminals it will likely mean that they have to squeeze more capacity out of the same terminal area.

Future bunkering solutions will also be a hurdle for some ports. “Especially for multipurpose vessels, it is always a big question what the ship of the future is going to look like and what will be put on her,” Oatway said. “Multipurpose vessel owners often point at container carriers, but it will mainly be the ports that play a vital role in this.”

As far as sustainability and low carbon bunker fuels are concerned, Verschuure still sees differences between the breakbulk sector and other sectors: “Container liners are mostly driven by the IKEAs and Walmarts of this world– where shippers dealing with end consumers play a more important role. These end consumers seem the most engaged group. As a result, they are much more likely to take action in the energy transition and follow requests from end consumers.

“In contrast, the breakbulk sector is more driven by industry and commercial interests. The link to the end consumer is less strong. On top of that, margins and balance sheets are smaller in the breakbulk sector. That makes investing in propulsion on alternative fuels financially more challenging. The sector will have difficulties leading the way. However, financial support to overcome these challenges and reducing uncertainties to the pathway of alternative fuels can assist in transitioning the breakbulk sector in a greener direction.”

Oatway agreed: “Multipurpose vessel carriers are very much adopting a ‘wait and see’ strategy to see what the container carriers are doing regarding new energy sources and energy transition. Some have gone for dual fuel for their newbuildings – but without the infrastructure it is difficult to see a clear pathway. And the container carriers are the ones with the political and financial power to influence that. Moreover, most of the breakbulk fleet is on a tramp basis, so they cannot easily switch to cleaner fuels. Certainly not if supply uncertainty remains. Thereby, again, what happens at the ports remains decisive.”


Medium Term Horizon

Looking ahead, both Oatway and Verschuure expect that the global market will continue to slow, hampered by falling container rates. However, there are areas keeping rates from pre-pandemic levels.

“There is some roll-on, roll-off spillover for breakbulk. For example, high and heavy cargo for mining, construction, and the agriculture sector is booming and demand is in excess of the roll-on, roll-off’s fleet capacity,” Oatway said. “This cargo is being lifted onto bulkers and breakbulk multipurpose vessels. On the other hand we see rates for heavy-lift capable vessels held up by project cargo.

“As long as crude oil prices stay above around US$70 per barrel it is enough to encourage investment and, in spite of the need for the world to move away from this, it is unlikely to decrease in terms of percentage of energy investment any time soon.”

Overall, the outlook is positive. “We are still noting economic growth, against expectations,” Verschuure added. “If that growth continues and leads to less negative sentiment and even at some point to confidence, new investments will have a positive impact on the breakbulk sector, for example in mining and infrastructure and the energy transition.”

In addition, he expects that parts of the market will be more willing to pay higher prices and have longer contracts if there is more reliability in return: “Sometimes things just have to go wrong in order to recognize that everything has a price. With more reliability, resilience increases, and breakbulk players are enabled to operate more flexibly or provide a higher service level. Ultimately the entire supply chain benefits.”

“The bottom of the market is still not reached, but it is coming into sight. Congestion is gone, plenty of projects are underway and investment decisions have been made. These are sure to lead to a boost later this year and in 2024,” Oatway concluded. “With the expected recovery of the global economy, later this year and in 2024, the new projects, and the energy transition, there is a lot in the barrel. It is going to be a bit shaky before we get there, but there are definitely opportunities.”