High Vessel Demand Drives Carrier Outlook

By Malcolm Ramsay

As the global economy continues its recovery in the third quarter, the outlook for breakbulk carriers maintains its positive trajectory. 

A mix of factors over the last 18 months has radically changed global shipping, largely combining to benefit breakbulk and multipurpose carriers as congestion and supply shortages drive a resurgence in rates.  

“It is a landscape we have not experienced in the last 13 years, where cargo demand is not being adequately met by available tonnage,” Kyriacos Panayides, managing director, AAL Shipping told Breakbulk. “Based upon current market conditions and transactions on both shipper and carrier sides, the next quarter is forecasted to either remain stable at current levels or grow even further.”

While the most severe disruption caused by Covid lockdowns in 2020 have diminished this year, the aftermath of these supply interruptions continues to support higher rates for multipurpose charter and solid demand for breakbulk shipping services. 

“The outlooks are positive (seen from carriers side), with high capacity utilization on our vessels, and continued great demand which creates longer lead times and orderbooks stretching further ahead, basically leaving little capacity available for the spot market,” said Christian Hoffmann, head of corporate communications at SAL Heavy Lift, and member of the Jumbo-SAL-Alliance.


Extreme Pressure on Tonnage

Although many western economies are now lifting Covid restrictions and citizens are seeing some return to normality, the buildup of cargo and delays in ports look to carry on for the foreseeable future as backlogs become the norm.

Panayides does not see any signs of improvement in the congestion within ports worldwide, noting that schedule disruptions are “putting extreme pressure on available tonnage. Severe delays and long idle times of vessels on anchorage awaiting berth, is still prevalent, while newbuilds that might have taken up some of the strain are slow in coming at least for the short term.

“On the cargo demand side, it is evident that shippers are showing desperation in an effort to secure onboard space for their cargoes and are willing to pay any price – and this goes for all cargo types, not just containers. This will last until there is a change on the demand/supply balance – although there is no indication of that happening just yet."

Time charter rates for multipurpose vessels have rocketed in the second half of 2021, with research consultancy Drewry forecasting average annual one-year period rates for July of more than US$9,000, a rise of 65 percent compared with the same month last year. 

Hoffman emphasized this change, noting that the general trend is that rates only go up at present. “We have seen a rate growth of +60 percent since the beginning of the year. Congestion in main ports especially in Asia keeps affecting operations with delays. Covid-19 certainly adds uncertainty for the next months and we don’t yet know how it will come to affect port operations in case of local lock-downs, as well as how it can affect crew changes etc. “

The second half of the year is therefore likely to be characterized by further disruptions and increased pressure on breakbulk operators to find means to mitigate risks, as the delays that were initially more evident in Chinese and North Asian ports have now become widespread across Europe and the Americas.

“This situation is seriously impacting the normal operations of all sailings and schedule reliability is unfortunately beyond the control of carriers,” Panayides states. “This is a major concern as AAL is particularly known for its schedule reliability, and we are putting all our efforts into mitigating the impact for our customers.”

Continued healthy growth 

In terms of cargo types, the rapid acceleration of energy transition plans around the world continues to support strong demand for wind power cargo, with AAL predicting that wind farm and renewable energy cargoes will show “continued healthy growth for a long while yet”.

Hoffman agrees noting that “general infrastructure equipment and energy equipment counts for the main cargo being shipped and wind equipment continue to take up a large part of the capacity” adding that wind projects are projected to increase 10-fold by 2035.

At the same time, the current rise and growing stabilization of oil prices at higher levels is pushing an appetite for inward investment and capex in the oil and gas sector and this should green light a number of stalled major plant projects around the world – both in new projects as well as refurbishment of existing sites. Hoffman predicts that LNG in particular is likely to be a key driver for breakbulk in the medium term as the investments in upstream oil & gas rebound.

For AAL, the rising demand for container shipping has led to a refocus in recent months to service the back-logged container market. Through careful stowage and voyage planning, the firm has shifted a substantial proportion of its capacity to container traffic. 

“Due to the lack of available space, container shippers have turned to MPP carriers – especially those with large tonnage vessels – and are offering attractive rates to accommodate their cargoes,” Panayides explains. “We are now carrying a significant volume of containers around the world on long haul voyages and across all our core trade lanes – predominantly stowed on deck.  We are extremely pleased that the design and significant cargo intake of our ‘mega-size’ mpp vessels is providing the capability on every sailing to satisfy a regular flow of mpp cargo, project heavy lift components and a top-up of containers.”

Newbuild risks 

In the longer term, the outlook remains positive for the sector with utilization rates unlikely to dip in the next 12 to 24 months. While uncertainty creates issues for scheduling it is also helping to extend the orderbook and fueling interest in newbuild vessels. 

However, Paynides cautions against overcompensating, noting that while ship owners are currently seeking inflated rates and long-term commitments this “will cause major issues” for carriers when the market turns – “and that could happen sooner than we think.”

“With a lack of adequate tonnage in the water, we see once again an aggressive appetite for new building, particularly container and bulkers vessels.  Having been down this road as an industry in the past and seen the terrible impact of oversupply which can absolutely decimate carrier performance for many years, we hope that this does not escalate to the unsustainable levels we experienced in the last decade.”
 

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