Average one-year charter rates reached $12,500 per day for a 12,000 dwt MPV in May.
Strong demand and healthy freight rates in the multipurpose vessel and heavy lift (MPV/HL) markets are expected to last through the end of 2021, driven by continued investment in wind energy projects worldwide, a recovering oil and gas sector, and breakbulk-adaptable cargoes “spilling over” into breakbulk modes from the container and bulk segments, according to several carrier executives.
Executives said profitable freight rates should also put a damper on the consolidation activity that has typified the sector over the last few years.
“The market is very strong, and there is a lot of cargo we have to turn down, as we are fully booked until August,” said Lars Rolner, managing director of Germany’s United Shipping Group, parent company of MPV/HL carrier United Heavy Lift (UHL). “We have now crossed $30,000 a day for the 13,300 deadweight ton [dwt] F900 vessels. We do not see that the market will be dropping significantly.”
Lars Feller, global vice president of Hamburg-based dship Carriers, part of the deugro Group, said the strength of the recovery in MPV/HL demand — and rates — took the industry somewhat by surprise.
“Rates started to increase at the beginning of March,” he said. “Since then, there’s been a steep increase and rates are firming up more. Nobody saw the rapid increase coming.”
Feller said dship Carriers expects the favorable market conditions to remain in place “until the end of this year, and maybe a bit longer than that. Ships are full and ports are congested. Big cargo players don’t spend too much time discussing price, as securing sufficient space is the priority.”
Since the start of 2021, MPV charter rates have risen between 57 percent and 68 percent, depending on ship size, according to a May 28 weekly intelligence report from London-based shipbroker Clarksons. Average one-year charter rates reached $12,500 per day for a 12,000 dwt MPV in May, a 68 percent increase from the 2020 average of $7,142 per day. One-year rates for a 17,000 dwt MPV averaged $13,500 per day for the month, up 57 percent from the 2020 average, according to the report.
Pieter Flohil, Spliethoff managing director, said uncertainty about freight rates and vessel availability has led cargo owners “looking for reliability for cover long-term” to fix extended contracts with Spliethoff, an action far less common prior to the COVID-19 pandemic due to a chronic oversupply of MPV/HL vessels.
“They cannot afford to see their supply chain being interrupted, so that’s definitely sort of interesting,” Flohil said during the virtual JOC Breakbulk and Project Cargo Conference in late May.
After several years of mergers and acquisitions among major MPV/HL operators — the most recent example being SAL’s purchase of Intermarine in late 2020 and the carrier’s alliance with super-heavy carrier Jumbo, finalized in May — executives say there is little incentive for further consolidation in the sector, especially given the current strength of the market.
“With the significant uptick in MPV freight rates, I don’t see further consolidation in this market as necessary,” Peter Hansen, president of Cosco Heavy Transport, told JOC.com.
“The number of companies that are left now in the MPV sector can be counted on just two hands,” added Feller.
Cargo 'spillover'
Even as MPV/HL rates climb, they are not skyrocketing as spectacularly as container and dry bulk rates have during the first half of 2021. Kyriacos Panayides, Singapore-based managing director of AAL Shipping, said during the JOC Breakbulk conference that breakbulk cargoes would not shift back to container lines and dry bulk operators as long as bulk and box freight rates are so high.
“With rates climbing, bulk carriers don’t have time to take wind components on deck,” Feller said.
In fact, traditional breakbulk cargoes that had flowed to container and bulk carriers are coming back as those sectors are now far less interested in lower-value cargoes.
“We are seeing a backflow of breakbulk cargo from box carriers to us, including chemicals, food additives, machinery, and raw materials,” Olaf Proes, an executive representing Chipolbrok, the Chinese-Polish joint venture MPV shipping company, told JOC.com.
Proes said that two years ago container lines were carrying marble blocks from Turkey to China at around $900 per TEU. “We [had given] up carrying that cargo because of the [low] price level,” he said. Now, with container carriers pursuing much higher-priced box cargo, the 30,435 dwt MPV Chipolbrok Sun has been contracted to carry 27,000 metric tons of the stone from Turkey to Xiamen at what Proes called “reasonable terms and conditions.”
As port congestion, vessel delays, and landside bottlenecks continue to disrupt container liner schedules and contribute to the spike in freight rates, forwarders and logistics companies have also turned to MPV operators to ship laden containers from Asia to Europe on largely ad hoc charters. While repositioning empty boxes is not an unusual backhaul for many carriers in this sector, moving laden containers is a new development.
“Due to the global shortage of containers, we see an increased interest from the market to use our multipurpose ships for container transport,” Hans Gunnar Mo, project cargo director for G2 Ocean, told JOC.com. “Over the last six months, we have shipped an increasing number of containers, mainly on a spot basis.”
Rolner agreed, noting UHL is “still receiving inquiries for containers at very high rates.”
Project recovery
Offshore and onshore wind cargo and cargo related to a recovering oil and gas sector are also vying for space on breakbulk and HL ships.
“Our vessels are nearly fully booked with project cargo — wind farm and modules — for the next 12 months,” said Cosco’s Hansen. “There are now more opportunities from the offshore wind energy market. We have seen an uptick in the [oil and gas] offshore market as oil prices have improved. We also see more drilling activity.” Cosco Heavy Transport operates a fleet of nine semi-submersible HL vessels.
Clients are trying to secure vessels much earlier than in the past because they are concerned about vessel availability, Hansen said, adding that he has not seen a significant increase in HL rates.
Rolner said UHL, which tied up with Intermarine to pursue US-based opportunities in April 2020, is also busy with cargo from the promising global wind energy sector. The US has pledged to install offshore wind farms capable of generating 30 gigawatts (GW) of power annually by 2030, the EU has pledged to install 300 GW offshore by 2050, and mainland China, Taiwan, and other regions have also promised large investments.
“In 2023, offshore wind will take off, and a lot of tonnage with a single hatch and a large, unobstructed deck will be needed in order to accommodate nacelles weighing around 650 metric tons, blades of up to 120 meters in length, and of course the towers,” Rolner said.
Onshore wind projects are also a big volume driver in the MPV sector. “Onshore components are becoming larger, and as such [these] volume[s] will grow as well,” Rolner said.
While newbuild wind farms are a significant factor driving renewable cargo volumes, Spliethoff’s Flohil also highlighted the potential volume from existing wind energy facilities being retrofitted with larger capacity turbines.
“We are now seeing the first replacement projects,” he said during the breakbulk conference. “It’s a market which feeds on itself. The more wind turbines that are built, the more replacements they will have. It’s hard to see how these markets can quickly go away.”
A lack of new tonnage
For owners and operators, that means capacity is getting more difficult to secure, even at elevated rates.
“There are not many vessels left, unfortunately,” AAL’s Panayides said during the virtual event. “There is a big lack of supply. Especially in our case, when we go after the bigger ships [of about 30,000 dwt], there are hardly any vessels.” As a result, MPV/HL carriers are now competing for tonnage to charter in, with each other and even with container lines, he said.
Panayides said the situation has been compounded by a lack of new MPV/HL vessels on order. A decade of both weak demand and overcapacity caused by an ordering spree during the last, pre–Great Recession boom, has translated to a consistently low orderbook for the segment. Now, as the market improves, that lack of investment may be coming home to roost.
Analysts Susan Oatway with Drewry Maritime and Yorck Niclas Prehm with Toepfer Transport said during the conference that the sustained weak market has meant MPV/HL owners have not had the cash to invest in new ships beyond bare-bones replacement levels. Only now, when higher rates mean owners and operators are making a margin beyond covering their operating expenses, can further investments be contemplated.
However, vessel owners and operators remain extremely cautious about ordering ships. “For 10 years there’s been massive overcapacity in the MPV fleet, and that’s not going to disappear,” Feller said. “Now owners and operators are making money, [but] whether they invest in new vessels depends on whether owners have forgotten about the last 10 years.” dships Carriers operates a fleet of 18 MPVs, with one newbuild due to be delivered later this year from China’s Taizhou Sanfu Shipbuilding.
“We don’t have any concrete expansion plans,” Feller said. “The way we’ve developed over the last three and a half years means we have a healthy base.”
Cecilie Koch-Hatlebrekke, head of sustainability at G2 Ocean, told JOC.com the MPV and bulk carrier is “comfortable with our fleet size” of 89 open-hatch ships from joint owners Gearbulk and Grieg Star and “15 to 25 vessels” chartered in from the market.
“Increases, at least in the short to medium term, are more likely to come from short-term period or trip charters,” she said. “However, we are constantly evaluating opportunities for fleet expansion and fleet replacement.”
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