News / Two more years in the doldrums for project and heavylift shipping as competition grows

The heavylift, project cargo and multipurpose shipping sector is set for another two years in the doldrums, according to a new report from Drewry Maritime Research.

Describing the past quarter as one of “the worst the multipurpose and project carrier sector has endured in living memory”, the analyst’s latest Multipurpose Shipping Market Review and Forecaster report predicts there will be no recovery in volumes until the end of 2017.

And, it says, dedicated project cargo carriers will continue to experience cutthroat competition, with operators from other sectors seeing a way of mitigating their own overcapacity issues.

Report author, and Drewry’s lead analyst for multipurpose shipping, Susan Oatway said despite silver linings, competition from increasingly desperate container lines would bring down freight rates and hit project carrier earnings.

However, she added: “While our optimism for the sector remains muted, there are some pockets of growth.

“With oil prices forecast to rise above $55 a barrel next year the project sector is expected to see some renewed interest. There is also some potential spend in the Middle East and Africa. And there has been renewed interest in renewables, particularly wind in the US.

“The main problem remains competing sectors, particularly container shipping, where aggressive pricing is drawing cargo away from MPVs [multipurpose vessels],” she said.

And a threat has come from the bulk shipping sector, the report warns.

“Rates have continued to slide to barely cover operating expenses, as the competing sectors of containerships and bulk carriers have weakened the MPV market ever further in their search for market share.

“The container lines lost billions of dollars as they filled slots no matter what, while the handy bulk carriers struggled, with the Baltic Dry Index (BDI) reaching record lows of below 300 index points on the back of continued oversupply and weak demand,” it says.

These twin threats are likely to propel the sector into period of overcapacity, Drewry argues, and it is expected to coincide with a 1% annual decline in MPV volumes that began in 2015 – although volumes could begin growing again in 2018.

Ms Oatway added: “We are more pessimistic about the near-term outlook than we were six months ago, but we can see recovery for this sector, albeit some way off.

“It is not our view that there will be a run of (or even any more) big carrier bankruptcies in the near term, however, those who hold the purse strings might well be inclined to restrict finance to some of the smaller owners.”

The issue of carrier financial health is more pertinent in project shipping than any other sector. While the collapse of Hanjin has wreaked havoc in container supply chains and many shippers will suffer losses, they ought to be able to eventually recover their cargo. Project shipper livelihoods are utterly dependent on the performance of the particular vessel their cargo is stowed on.

“It is clear that with rates barely above operating costs for many owners, the need to find efficiencies is paramount,” says Drewry. “While a financially stable company is needed in the long term, it is also true that a seaworthy ship is needed in the short term.

“Owners that are being paid less than operating costs are forced to make economies somewhere and that is often on the maintenance budget. Shippers have to decide whether their main driver is price or quality, especially when they are putting high-value cargo on these ships.”