«Where are we going?»
The transportation of heavylift and project cargo is a relatively small niche, when compared with other areas of commercial shipping, such as the container business or the bulk freight sector. Nevertheless, tough market conditions are making life difficult for the segment. The big question at the forefront of everybody’s mind in the industry is – have we hit the bottom yet?
The global economic and financial crisis has had direct effects on the business of transporting heavylift and project cargo. Many companies have adapted to dwindling demand in a broad range of segments in many regions of the globe by shelving expansion plans for the foreseeable future.
In addition, the willingness of banks to finance large-scale projects has dropped off drastically as a consequence of plunging demand. Today, the heavylift industry continues to struggle with the fallout. (See also the interview with Tomas Dyrbye, CEO of Hansa Heavy Lift, on pages 38-41 of this issue). Although the global fleet of heavylift vessels is relatively small, competition for available cargo amongst players in the business is cutthroat.
It is common knowledge that the container and bulk freight segments are by no means better off than the heavylift business. The result is that shipowners active in the former segments are increasingly putting their efforts into getting project cargo onto their own vessels. In comparison, these shipments are often considered more lucrative than container and bulk freight consignments.
A glimpse of the future
Susan Oatway, the author of a regular report on multipurpose shipping for the British analyst Drewry, illustrates the current situation. «Competition from the container segment is becoming more aggressive on account of the fact that we are still in a very weak market. The container and bulk sectors are competing strongly for project cargo.»
The heavylift sector experienced a high between 2007 and 2008. As a result, many carriers ordered new multipurpose heavylift vessels, which shipyards have been delivering over recent years. According to Drewry, there were 3,189 ships in the global multipurpose fleet in January, with a total capacity of 28.6 million dwt.
Of that fleet, Drewry says that only 852 of the freighters are specialised in the transportation of heavylift and project cargo. A ship must have its own on-board crane with a lift capacity of at least 100 t in order to fall under Drewry’s definition of a multipurpose heavylift freighter.
Ships equipped with cranes capable of lifting more than 250 t are classified as premium multipurpose heavylift freighters by the analyst. Both of these categories combined comprise a fleet that encompasses approximately 11 million dwt.
According to Oatway «the fleet of multipurpose breakbulk freighters is only increasing moderately in comparison with other types of ships. My latest report shows it growing at an average annual rate of 0.8% to 2016.» Drewry estimates that the total number of multipurpose vessels will increase by 4% per year, however.
Bargain hunting
The demand for tonnage in the entire multipurpose heavylift ship segment is also expected to increase by 4%, according to Drewry’s calculations. «This rise probably will not happen this year, however,» Oatway elaborates. «It is far more likely that we will not see an improvement until the end of next year or the beginning of 2015.»
If the bargain basement prices for new vessels were to prompt shipping lines to go on a shopping spree, then this could well throw Drewry’s calculations off target. «Demand in the heavylift segment can be satisfied with the current level of tonnage. Nevertheless, a number of shippers have ordered new vessels, due to the relatively reasonable prices for new ships, particularly in Chinese shipyards,» explains Guenther Bielfeld, the chief commercial officer for the Asia-Pacific region at F.H. Bertling.
Past no yardstick for the future
This has given rise to the concern amongst industry insiders that what happened with the liquid natural gas shipping segment, for instance, could be in store for this market as well. Following a promising beginning in LNG shipping, the ratio between supply and demand was turned on its head by the high volume of newbuildings.
Another issue that the industry is particularly concerned with right now – apart from the volume of orders for new vessels – is the design of ships. In other segments of shipping, the specifications of the cargo are usually known, at least generally, before a ship is built. This is not the case in the project cargo business.
Furthermore, in most cases load weights can also vary dramatically from consignment to consignment. Close coordination with freight forwarders and others in the supply chain is particularly important when designing a new ship. An analysis of shipments carried out in previous years also plays a critical role. There is a tendency to look to the extreme weights shipped in the past in order to draw conclusions about the requirements of the future.
Bigger and heavier
Henrik Pedersen, the vice-president of the shipping company Clipper in Singapore, says that the majority of the multipurpose heavylift ships plying the world’s oceans have capacities of either 5,000 to 20,000 t or 20,000 to 30,000 t. According to him, the lifting capacity of the on-board cranes is generally between 100 and 500 t on the smaller craft, whilst on the larger ships two cranes used in tandem might be capable of moving loads as heavy as 2,000 t. The latter will be in high demand in the future, as players in the heavylift business have noted a clear trend towards larger and heavier units.
This is due to a change in global supply chains. Consolidation of production facilities can be increasingly beneficial for companies that are streamlining their operations. Rather than fabricating parts at different locations around the world and assembling them at yet another location, more and more companies are now carrying out the assembly process at a single location.
A shift in production regions
From there, a more complete unit is transported to the project site. «The project business is constantly changing,» Bielfeld explains. «The boom in the wind power industry in the 1990s, for instance, gave rise to a completely new market for heavylift cargo as a part of project cargo activities.» As a consequence, many shipping lines adapted the space on the decks of their new ships to accommodate the length of windmill blades.
The cargo itself is not the only thing that is in a state of flux. The regions that play an important role in the business are also undergoing change. Northern and Southeast Asia, continental Europe, the USA and the Mediterranean Sea region have traditionally all been key markets for the export of heavylift cargo.
On the import side, the Persian Gulf countries, India, Southeast Asia, West and East Africa, Australia, the east coast of South America and the USA are all important markets. A profound change may now be on the horizon for the latter. «The current shale-gas boom in the United States of America could result in the country becoming a bigger importer of heavylift cargo in the future. Up to now the USA has mainly been an exporter of various products in that sector,» according to Bielfeld.
Another big change is taking place in the Arctic Sea. The opening up of the Northeast Passage in northern Russia has made it possible for ice class 3 ships to serve LNG projects in Siberia. Political changes have had a profound effect on the sector too. Whilst Iraq has seen a veritable project cargo boom following the fall of Saddam Hussein, many shipping lines and freight forwarders are reluctant to serve project sites in neighbouring Iran. Some do not even want to send goods through the country in transit, either out of concern for their relationships with their US customers or due to international sanctions.
At the moment regions such as the Middle East, Australia, Southeast Asia, Africa and Latin America are particularly interesting in terms of their growth potential, according to Bielfeld. Amongst these, Brazil and Mozambique are especially attractive. «On top of this we also need to keep a close watch on how the political situation develops in Venezuela,» the heavylift expert adds.
New challenges
In view of all this, the overall developments in the heavylift sector remain very interesting. At the same time, the requirements transport companies have to fulfil are changing and becoming ever more stringent. «In particular, more and more oil and gas companies have started demanding a greater number of qualifications from us before they finalise their orders,» Bielfeld says. The project cargo specialist adds that the management of health, safety, security and environment standards (HSSE), as well as of compliance, quality and human resources requirements, is developing into an increasingly important aspect of the business for specialised heavylift transport service providers.
Many shipping lines and other companies involved in transporting heavylift cargo are very hard pressed when it comes to personnel. Adequately qualified experts capable of handling highly-complex project cargo jobs are not easy to come by in most regions, a problem which is compounded by the increasingly common practice amongst shipping lines of opening offices even in remote areas.
A look into the crystal ball
The prevailing market conditions are already scarcely bearable for many shipping lines. Very often rates are so low that companies cannot even cover their own operating costs. The situation is unlikely to improve by the end of this year, however. In fact, things could take a turn for the worse.
«In view of the strong competition for cargo from the container and bulk freight shipping lines, I expect the situation in the heavylift and project cargo business to become even more critical in the coming months. However, once the container and bulk markets stabilise, the project cargo market could improve in the medium term,» Oatway predicts.
Naturally, the development of the global economy plays a central role in any such recovery. The first indications of positive developments are beginning to emerge, particularly in the USA. One thing seems eminently clear, however. It is the carriers themselves who will ultimately decide whether to resist the temptation of the relatively low current prices for new vessels and to thus prevent the market from being flooded by excess tonnage.