Ship Capacity Challenges Coming to a Head

By Carly Fields

Capacity challenges in the multipurpose ship sector could come to a head in the medium term, leaving project cargoes scrabbling for tonnage, according to a global freight forwarder.

Speaking to Breakbulk, Andy Tite, vice president of global business development and commercial director for industrial projects at DHL Industrial Projects, said the market cannot get away from looming ship capacity problems.

He added that the below-breakeven freight rates of the pre-pandemic years means that maintenance of MPVs is a known problem. Therefore, investment in the existing fleet is just as important as investment in new ships to increase availability, he said.

“We know that the global fleet has been heavily utilized during the last couple of years. So is maintenance an issue? Is the age of vessels going to be an issue? And are the dockyards going to be full fabricating other vessels instead of MPVs? If we can’t get newbuilds and we have an ageing fleet with increased restrictions, it’s only going to lead to a smaller fleet in the end which is going to maintain or increase freight rates, and that is a genuine worry.”

Tite also addressed “perceived” instability in the freight market, with engineering, procurement and construction, or EPC, companies questioning the higher MPV freight rates of 2022. 

“The whole idea that market freight rates are crazy is only a perception if the rates that you’ve committed to don’t match. The market is just the market. Historically, after high rates there has always been a drop off.”

DHL Industrial Projects is able to commit to freight rates through to 2025, but Tite recognizes that EPCs are looking to capitalize and drive value in a falling market: “It's a balance between committed support and best price and it's important from varying perspectives.”

To help mitigate fluctuations, DHL Global Forwarding recommends earlier engagement with all stakeholders in a project. Further, Tite said DHL Industrial Projects is a supporter of indexation of MPV freight rates using standard routes and vessel sizes.

However, he conceded that there are currently no reliable indexes for this specialized sector and that indexing is a contentious issue.

“From a freight forwarding perspective when the market was unstable and potentially rising, our clients wanted a fixed price, and the lowest possible. Now there's a sense of a declining market and all of a sudden indexing is fantastic.”

DHL Industrial Projects will be exhibiting at Breakbulk Europe 2023, taking place on 6-8 June in Rotterdam.