Rising bunker prices act as a double-edged sword for multipurpose shipping.
Higher oil prices are good for the sector since they typically lead to an increase in investment and, therefore, project cargo, according to London-based maritime research and consulting firm Drewry. On the flip side, these higher prices eat into earnings potential for carriers.
Because the multipurpose sector does not have as many options for passing these costs on to shippers, carriers are seeing rates rise, but earnings are not rising at the same pace.
Drewry defines a multipurpose vessel as a dry cargo carrier with grain or bale and TEU capacity, as well as a lift capability of up to 100 metric tons. Project carriers are multipurpose vessels built since 1989 with a minimum safe working load of 100 to 250 metric tons.
As of June 1, the global multipurpose fleet totaled 3,191 vessels with a combined total deadweight of 29.5 million metric tons and an average age of 16 years, according to Susan Oatway, senior analyst for multipurpose and breakbulk shipping at Drewry. This was a 12-vessel decline from the end of January, when the global multipurpose fleet stood at 3,203 vessels with a combined total deadweight of 29.6 million metric tons, with the average unchanged at 16 years.
Although demolitions outstripped new capacity, both have remained relatively stagnant over the past few months. During the first five months of 2018, just 165,000 dwt of multipurpose capacity was sent for recycling, while only six vessels have been delivered since the start of the year, Oatway said.
Smaller vessels with less than 10,000 dwt and a crane capability under 100 metric tons are typically the ones being demolished, while it’s the larger, project carrier vessels that are being delivered into the multipurpose sector.
Renewable energy is driving project cargo growth, according to Oatway. “The latest figures I have seen suggest that the growth in renewable power over the next 15 years will be three times as fast as it was over the last 15,” she said. “That’s mainly due to the increasing competitiveness of wind and solar power, but also the global expansion in renewable energy.”
Newbuilding prices for multipurpose vessels have remained static because the orderbook remains low and, with only two orders received so far this year, it is hard to gauge what those prices really are, Oatway said. Between 2014 and 2018, a newbuild, 12,500-dwt multipurpose vessel has hovered around the $15 million mark, with a modest dip in 2016, according to data from Drewry.
In regard to becoming compliant with the International Maritime Organization lowering of the global cap on the amount of sulfur in marine fuel from 3.5 percent to 0.5 percent on Jan. 1, 2020, Oatway said that for multipurpose vessels, especially for the simpler vessels, putting in scrubbers is a huge retrofit and the financing is not there for that option. Instead, they likely will burn the more expensive low-sulfur fuel, which will have a big impact on earnings for the fleet. In addition, the older, simpler multipurpose vessels with an average age of over 20 years, which are not environmentally friendly, will see a slight increase in demolition levels, Oatway added.
Drewry does not believe that steel tariffs will have a huge impact on the multipurpose sector, especially since the 45 million metric tons of steel imported into the United States on a yearly basis represent just 8 percent of the global steel trade, the vast majority of which comes from Canada and Mexico.
Looking ahead at the forecast for the multipurpose vessel fleet, Oatway said, “Demolition candidates are expected to continue to exceed newbuilding deliveries over the year, and that will cause a contraction in vessel numbers. However, given that it’s the larger vessels that are being delivered and the smaller ones that are being demolished, in dwt terms, the fleet is relatively stable,” she said.
While the smaller ships with a lift of less than 100 metric tons are expected to contract at 2.8 percent per year to 2019, the project carrier fleet is projected to grow almost 2 percent per year during the same period.
Drewry also expects global general cargo demand will grow 1.6 percent per year to 2019.
“Overall, our market outlook for multipurpose vessels is improving,” Oatway said.