For now, vessel operators face downturns in oil, gas, and commodities, competition from containership operators

Hansa Macao docked at the Port of Prince Rupert, BC
Hansa Macao docked at the Port of Prince Rupert, BC

Crashing oil, gas, and commodity prices have put a dent in the cargoes available for many multipurpose vessels and fleets. But multipurpose and heavy-lift operators alike continue to see a bright spot in the movement of equipment and components for power generation, both conventional and alternative.
The global multipurpose fleet changes a number of challenges. Besides a very shaky oil and gas sector, an iffy global economic picture has meant slow growth in the container sector, motivating container and project carriers to increasingly try to compete with the multipurpose fleet. The IMF (International Monetary Fund) has downgraded its expectations for both GDP and trade volume growth for 2016, and container shipping demand closed out 2015 with its slowest rate of growth since 1979 (with the exception of the recessionary 2009).

Recent research from the London-based maritime consultancy Drewry shows that although demand growth for multipurpose vessels is expected to recover this year after a very poor 2015, and supply growth is likely to be minimal, competition from other sectors will maintain pressure on the breakbulk shipping market.

Specialized Carriers

Specialized heavy lift operators such as Hansa Heavy Lift seem to be having an easier time navigating these choppy waters.

“We expect further container shipping penetration into the project market and handy bulk carrier penetration into the breakbulk sectors,” said Susan Oatway, a senior associate at Drewry. “These factors will result in reduced market share for the multipurpose shipping fleet.”

“Oil, gas, and mining are really down compared to previous times,” noted Gerhard Janssen, director of global sales and marketing at Rickmers. “As a result of issues on the container side and the bulk sector we face a lot of competition from those areas as well. Economic problems in places like Brazil are not exactly giving breakbulk and project carriers any tailwinds, to put it mildly. We are being squeezed from two ends and it is a big challenge for us.”

In contrast to the perspective of a multipurpose carrier like Rickmers, a heavy lift carrier like Hansa Heavy Lift is not feeling the same level of distress. “Super heavy carriers like us are not dependent on the commodities that the multipurpose operators rely on,” said Joerg Roehl, Hansa Heavy Lift’s chief commercial officer.

Roehl has seen quite a few oil and gas projects postponed “but not many cancelled yet,” he said.

One bright spot for Rickmers has been in the area of power generation. “Everybody needs power and electricity and demands for that is still increasing, be it conventional or wind power,” said Janssen. “There is still action in that area. It is a sector that we are taking a look at and trying to be competitive and very active.”

Roehl agreed that “the power industry is still in the market” and that Hansa Heavy has been active in that area. Last month, Hansa Heavy Lift delivered a unit weighing 698 metric tons from Vietnam to Portland, Australia, where the unit was lowered onto the seabed to convert wave energy into electricity.

Janssen reported that Rickmers has carried wind power generation equipment in many global trade lanes, recently supplying components to a Siemens wind project in Egypt. “There is a lot of activity in the wind sector from Asia to South America, as well as in Europe and India,” said Janssen. “So there is still cargo moving in this area. It is just a very competitive environment.”

Partnerships

In an effort to enhance competitiveness, carriers like Rickmers have entered into partnerships with others in the sector, in the case of Rickmers with Swire Group. The agreement covers cargo moving between the Middle East and India to Australia and the islands. “This is the kind of activity we’d like to pursue,” said Janssen, “and will probably have other similar arrangements with other carriers very soon.”

The effect of these kinds of agreements is not to reduce capacity or hike rates, Janssen noted, but to provide additional options to customers. Rickmers historically has not served the Australian market.

The good news for multipurpose carriers, according to the Drewry research, is that demand is growing. Dry cargo demand is expected to reach average annual growth of three percent in the period to 2018. But due to competition from other shipping sectors, the multipurpose fleet share is only expected to reach average annual growth of 1.4% over the same period.

“Our view is that improvement in this sector is still some way off,” said Oatway. “Overcapacity coupled with low freight rates is still a challenge for the profitability of dry bulk and container shipping sectors, and this is increasing their competition for both project and breakbulk cargoes.”

Meanwhile, the project carrier fleet is growing at a much faster rate than the simpler multipurpose fleet and vessel technology is improving every year, whether in terms of lift capacity or design. This sector’s ability to innovate, for example with the recent delivery of vessels equipped with dynamic positioning systems, according to Drewry, will be critical to its future in the face of continuing market share erosion of conventional commodities.

Rickmers’ strategy, despite the tough conditions that it faces, is in maintaining the same level of service in order to retain market share for a time when conditions improve. “We are keeping our schedules,” said Janssen. “We are maintaining our service integrity and not pulling out tonnage. We are keeping our round-the-world services going. At the same time, we are trying to be as aggressive as possible on rates and to make sure that we keep service levels to keep our customers happy.”

And Janssen does believe that conditions will eventually improve. “Over time there will be a need for consolidation in our business such as we have seen on the container side,” said Janssen, “There will be some better times ahead. Iran presents new opportunities. Brazil and China will sort out their problems and will be powerhouses in the global economy. Times are tough right now but that doesn’t mean it’s going to go on forever.”