The multipurpose fleet with the breakbulk sector has had a good run and a seasonal slowdown might be just that. But with COVID impacts and a multitude of other disruptive factors, nothing is a given now.
The breakbulk sector of the dry bulk shipping market has entered the “seasonal” summer of doldrums. Of course, any reference to “seasonal” or “annual” in the shipping markets must be said with post-COVID caution. It takes only a short look back to last year to understand the prudence in ascribing normality to decidedly abnormal circumstances – post COVID rebound and China lockdowns and slowing economy, inflation, recessionary trends in many economies, Russia-Ukraine war and impact on global markets, etc.
The “Breakbulk” sector, of the Dry Bulk shipping fleet is normally considered to be self-sustaining (sometimes called multipurpose ships or MPPs) meaning onboard cranes to handle cargo, vessels in the smaller sizes loosely slotted into the Handysize (up to 40,000 dwt) or Handymax (up to 60,000 dwt) largely for the purposes of establishing freight rates and other baseline shipping data. Within these loose parameters there are many individual ship classes, often dedicated to specialized handling of oversized cargos like wind blades or mining equipment. However, these ship haul everything that can be placed in a ship’s hold and thus compete with other sectors such as ro/ro and even in some circumstances containerized shipping. For those reasons, size and markets, the rate structure of breakbulk shipping has been fairly modest.
Summer Solstice for Breakbulk?
Take for example, Toepher’s MultiPurpose Index or TMI. Toepher Transport is a Hamburg-based shipbroker primarily engaged in S&P (Sale and Purchase) and newbuildings with particular interest in multipurpose vessels – generally smaller sized vessels. The TMI is a barometer of MPP charter rates for the sector but also a guide to the breakbulk sector in general.
The monthly index from July of 2017 until March of 2021, ranged between $6,265 and 7,520 with a high of $7,578 in November of 2019. But there was a steep climb in the TMI from January 2021 until January of 2022, when a slight leveling off began. Over that time the TMI went from $7005 to an astounding $21,863. In the recently released July 2022 TMI the rates were $23,099 compared to $11,225 back in July of 2021. Topher’s market commentary for their July release suggests a seasonal slowdown: “Along with rising temperatures, the holiday mood is increasingly spreading, making people leave for summer vacation and have business activities decelerate. We are back to a more ordinary seasonal slowdown scenario in the short sea sector with TCE’s only marginally sliding on the back of lower but still stable demand. Vessel earnings keep a solid level of more than 50% above those achieved 12 months ago.”
And for the MPP sector that might be so. Historically, the sector has been slow to add new tonnage and only recently – with the rise in charter rates – has renewed interest and money poured into the sector. New MPP vessels are being built and are often a little larger, hitting 28,000 dwt-30,000 dwt, affording more opportunities outside of strictly project moves. Price wise, like with other vessels, the cost of newbuildings has gone up and in a sense, shipowners buying ships, have already experienced “inflation”. While it is expected there might be some fall in shipbuilding prices, COVID, steel and other factors (there is a shipbuilders’ strike in South Korea at this writing) could mitigate any real decrease. And finding a “slot” at a shipyard in Asia could easily become problematical. This could put pressure on owners to find second-hand “new” ships to build a fleet.
Overall, charter rates for the Handy size sector have bounced around over the last year. For example, Hudson Shipping reported that Handy sized daily charter rates peaked at $37,113 back on October 25th, 2021. By February 7th, 2022, the rate was $17,920 and by July 18th back up to $21,368.
There is the expectation that Handy rates (and all the other sectors as well) will decline over the next few quarters. The reasoning is largely that commodity demand – particularly in China (see Buxbaum on China, page 12 is weakening. Future (FFA) day rate assessments for Handy size vessel in 2023 are in the $15,000-$17,000 range – part of an anticipated softening of the overall shipping market.
But the caveat to this forecast could lie within the MPP sector. With inflation and rising oil prices, more energy related projects are likely to become viable. In some ways this seems counter intuitive but the price points on alternative energies, deep water oil drilling and shale oil become more project viable with rising energy costs. In short, the higher prices can act as a trigger to more project loads.
And there are already some strong signs of investments in the MPP-Handy size sector. For example, take the recent deal of Swire Projects, the projects business unit of Swire Shipping Pte. Ltd. Swire Projects was established in October 2020 to provide specialist shipping services to the energy, renewable and infrastructure sector.
In July, Swire Projects announced it had entered into a long-term agreement with Rord Braren, a German shipowner, for the charter of three handysize multipurpose (MPP) vessels. This is the second major plunge into the market as in November 2021 Swire announced the long-term charter of six MPP heavy lift vessels with Nordic Project and Finance. The 28,000 dwt handysize MPPs (or African class) were built between 2010 and 2011 at Huanghai shipyard, China and will be renamed “Pacific Honour”, “Pacific Humility” and “Pacific Hero”, and known as the “H Class” vessels. Swire Projects expects the fleet will grow to 15 vessels by the end of 2022.
Obviously, Swire Projects believes that long-term (at least half the earning lifespan of the ships) that the prospects for the MPP sector, especially in the larger sizes, is good. And with a large number of wind projects underway around the globe to supplement regular business, they very well could be right.