Heavylift / Breakbulk
The expectation that the heavylift market will remain mediocre through to 2017 was confirmed recently by Drewry. There will nevertheless be some opportunities, as Kyriacos Panayides, managing director of AAL, told Christian Doepgen.
How would you sketch the current market situation, Mr Panayides?
We MPP / heavylift operators have digested the fact that we’ll have to carry on navigating in a perfect storm of negative market influences, at least in the short term. What we’re experiencing today can be seen as a stressful context or a worst-case scenario projection.
What are the causes, in your opinion?
The MPP / heavylift cargo pie has shrunk significantly recently, driven by low commodity prices, which have led to the cancellation or postponement of many new projects in the oil and gas industry as well as in the mining sector.
We’re also seeing cargo volumes going to bulkers, such as steel and other light MPP cargo – even windmill components. As for ro-ro carriers, they’re aggressively targeting lighter-lift out-of-gauge machinery. Moreover, container lines are investing in modifying their hardware, to accommodate MPP cargo. This extremely aggressive competitive environment leads to freight rates becoming unsustainable to cover the MPP infrastructure and the cost of our vessels.
Is it possible to quantify the impact of these «intruders» from other segments?
It’s always been hard to quantify the impact in detail. Light-geared or low-lift multipurpose vessels have felt the hardest impact, whereas heavylift vessels – with their unique capabilities – are competing effectively. We’re also seeing that due to a lack of liquidity and greater demand for early and guaranteed returns, project underwriters and financiers are being much stricter and far more cautious.
Their heightened demands have put pressure on firms operating in the engineering, procurement, and construction segment (EPC), and on forwarders, who in turn call for ever-more detailed engineering and technical plans. It’s here that specialised multipurpose vessel owners can be most effective – as we have the hardware and expertise required.
How has AAL reacted to this situation?
We have a flexible business model in place and the infrastructure to promptly cope with adverse market conditions. This provides us with the ability to shift our business focus from one industry to another, or indeed from one region to another, in order to best exploit opportunities as they arise, and by-pass under-performing regions or sectors.
What does such a shift consist of?
We’ve taken some measures. We’ve adjusted our fleet size and profile, reduced our exposure to third-party charters and made sure we have a flexible and efficient fleet size. We’ve also removed vessels with low lifting capabilities – which now face direct competition from bulkers – from our fleet.
Are you going to adjust your services?
We’ve remodelled our liner services division, to cope with changing trends in various trade lanes, whilst our tramp and projects division’s strategy has shifted to more voyage charters. This was down to our flexible business strategy. We’ve always focused strongly on meeting our customers’ varied requirements. We did so proactively, rather than chasing the market.
Where have you seen new opportunities arising?
Although we remain cautious about the short term, we see plenty of opportunities on the horizon, and expect to see a growing number of wind-energy projects coming online worldwide. The renewable energy sector worldwide, and not just wind energy, is being driven by strong political support and favourable legislation.
In addition, the lifting of sanctions on trade with Iran will help to kick-start new undertakings in the petrochemical and oil and gas segments, as well as valuable infrastructure projects. And finally, it’s only a matter of time before some of the larger proposed oil and gas projects come back online, as global demand grows.
Where do you find new projects?
Our strategy will continue to be to seek new markets in every corner of the world – from a local perspective and using local expertise, intelligence and languages. Our local know-how helps us to get closer to our customers and understand their needs – not as incoming outsiders, but as long-term partners.
How do you implement your model?
We’ve opened numerous dialogues and formed new cooperation agreements with a number of stakeholders, which enable us to react suitably to new demand as it arises. We use this model and a flexible and adaptive business strategy to cope with today’s conditions and to improve our performance in these rather challenging market conditions.
Although we witnessed widely changing market conditions in 2015, we nevertheless managed to significantly improve our gross margin.