Carrier’s Prospects Gives CEO Much to Smile About
By Gary Burrows
Two years ago, AAL Shipping (AAL) CEO Kyriacos Panayides stood among a gathering of AAL leadership, customers and journalists late into the multipurpose shipping line’s reception at the Summersalt Beach Club on a soft, breezy night in Dubai.
Throughout the gathering, at the end of the first day of Breakbulk Middle East 2020 – the last such event held for nearly two years – Panayides did his best to entertain guests, despite a spate of overwhelming challenges facing his company and the market. He and his team had been navigating AAL through a decade-long record trough for MPV shipping – facing a potential pandemic and still looking for a leg up against dire global economic conditions, bulk commodity collapse, low cargo volumes and over capacity.
Two years later, at 2022 Breakbulk Middle East in Dubai, Panayides was smiling like the cat that ate the canary.
“We’d suffered a lot for 10 years,” he admitted during a sit-down in the Shippers Lounge during the 2022 Breakbulk conference in Dubai.
Shipping fortunes had changed dramatically as the globe struggled to revive from the initial onset of the pandemic and supply chain congestion pushing container fixtures to MPVs, along with burgeoning wind business. Since July 2020, when carriers existed hand to mouth, charter rates had skyrocketed 243 percent to February 2022, according to the Toepfer Transport Multipurpose Index.
“Firstly, we have reached a point where we’re building our reserves, which secures long-term financial stability and supports our ambitious long-term business plan,” Panayides said. “Secondly, we are happy to see patience amongst our fellow ship operators, with only few in our segment rushing to the shipyards after a few good years.”
Capacity, Compliance
However, the current industry climate brings mounting urgency to rebuild an aging MPV fleet, with more than half of all vessels passing 15 years old.
While the fortunes over the past 18 months have helped reduce financing issues, it’s still an entirely different environment for fleet renewal than in the past.
“Nowadays, we do not see fresh capital from outside the industry pouring in as in the previous cycle from 2006 to 2010,” Panayides said. “Then, banks were offering up to 90-100 percent loan-to-value and that attracted non-shipping investors looking for quick returns. They ultimately got their fingers burnt when the market turned downwards from oversupply of new vessels entering the market.”
He sees that as a key lesson learnt from the past, “Investment in the MPV sector today is being driven by owner-operators, people who know the sector and its limits. We know how much we can invest into the shipyards and won’t place a huge number of orders that could lead to oversupply, which was the reason our sector suffered for more than 10 years.”
Whilst financing may be on better footing, alternative fuels and its global sourcing, as well as shipyard capacity are key issues slowing fleet renewal beyond the next few years.
“Due to EEXI (Energy Efficiency Design Index for existing ships) and other related regulations on decarbonization coming in existence, operators with ageing fleets may have to scrap their older tonnage and thus supply might tighten further.”
The IMO amended MARPOL Annex VI, introducing regulations 23 and 25 - the Efficiency Existing Ship Index (EEXI) and regulation 28 - the requirement to reduce Operational Carbon Intensity through the Carbon Intensity Indicator (CII).
Customers and especially larger publicly listed and multinational companies have their own emissions targets and are demanding cleaner, modern ships. “In recent years we have seen shippers become very selective with their counterparts and setting more qualifying parameters on their vendors’ approval processes, especially the majors in those industries we serve. Fleet renewal now depends on the needs of the operators and their own business models, in the absence of outside liquidity.” Panayides added.
MPV carriers are at a disadvantage in terms of newbuilding MPVs, due to container ship orders which shipyards prefer due to their simpler, less-complex design, Panayides said. “MPVs shipyards have increased their pricing, resulting in several operators pulling back from ordering as they’ve found prices simply too high.”
Timing is Everything
Nevertheless, AAL Shipping added eight MPVs to its fleet in 2021, purchased from the secondhand market and has now ordered six additional IMO CO2-compliant vessels to be in the water by 2024. These vessels will be 32,000 dwt with 350-tonne heavy-lift cranes for combined 700-tonne maximum lift. Each vessel will be equipped with dual engines and have the flexibility to switch to other biofuels or methanol. The ships will bring AAL’s owned fleet to 728,600 dwt – 82 percent of its operating fleet which will also increase to a total of 880,200 dwt, excluding additional third-party vessels serving AAL on short-term charter.
AAL Shipping has an advantage with the shipyard, CSSC Haungpu Wenchong Shipyard in China. As part of Schoeller Holdings, a major investment company in ship-owning and other shipping-related sectors, AAL was able to leverage its own newbuildings with additional container ship orders for Schoeller’s other holdings.
Panayides said the six new vessels, along with its eight other 25,800 to 33,000 dwt ships purchased on the second-handmarket, fit the carrier’s short- to mid-term portfolio demands, while serving its long-term vision.
“We currently have a fleet that is relatively modern with the last generation of newbuilding activity completed only 7 years ago. We are not under pressure to place further investments and have the luxury to wait and assess market fundamentals.
Meanwhile AAL “has flexibility. We are testing the market, various drivers into decarbonization and new engines – all of which combined should give us a clearer roadmap forward.”
Models and Markets
AAL’s new vessels position the carrier well in the current market and perfectly fit its longer-term service models, as they have been carefully designed to cater for new technological advances and cargo demands, Panayides said.
AAL offers global coverage with a combination of tramp and scheduled liner services. Its liner routes, where it’s A-Class and S-Class vessels sit, currently comprise three monthly liner services:
• Asia – East Coast Australia (AUEC Service).
• North and Southeast Asia – West Coast Australia Service (AUWC Service).
• Europe – Middle East/India – Asia Monthly Liner Service.
The rest of the fleet is deployed on its core trade lanes connecting five continents with regular sailings, though maintaining flexibility for tailoring voyages across major project cargo ports.
Would growing regional markets, such as Africa and South America someday develop into liner trades?
“Today, those are our secondary markets and we’re already there serving certain projects. However, if a project or contract comes along that demands greater regularity, then we will build more frequency and this might well turn into a liner service,” he answered. “This is precisely how we have built liner operations in the past.”
2022 Outlook
Panayides waves off commenting on market forecasts beyond 2022 but sees plenty of positives in the short term.
“We still see significant demand for container transport, but I think that will begin to stabilize. On the back of rising oil prices, oil and gas projects look to be on the horizon and that is a very positive sign – at least for as long as geopolitical relations remain stable. Wind energy volumes are also forecasted to continue growing with the push to zero emissions and that will drive renewable energy projects forward. Furthermore, steel is set to be a significant base cargo, as infrastructure developments worldwide pick up momentum, after a long hiatus during Covid. And, for as long as container freight rates remain high, then the MPV share of the dry cargo business will also increase,” he said.
Beyond that, “it’s hard to tell and no one can accurately predict. … What might be at risk when the eventual correction comes to the container market is older MPV tonnage. We forecast that those vessels might well experience the most jarring impact,” he added.
For now, though, Panayides speaks as though a weight has been lifted, and it’s reflected company wide. “What is really pleasing to see is just how positive our teams are and enjoying a much healthier market landscape. Despite this euphoria, they are all still extremely busy keeping our customer cargoes moving, beset with operational challenges from congested terminals, scheduling delays, low productivity at ports and land logistics issues due to the ongoing pandemic. We certainly cannot afford to take our eye off the ball for one moment.”
Photo 1: Kyriacos Panalyides, CEO, AAL Shipping
Photo 2: A rendering of the AAL Dubai, which is one of six IMO CO2-compliant, 32,000 dwt vessels that AAL Shipping has ordered. CREDIT: AAL SHIPPING
