Europe’s breakbulk, heavy-lift and project cargo shipping business is hoping the long-awaited rebound in demand, with volumes and freight rates edging up, doesn’t turn out to be a flash in the pan.
The market has finally turned the corner because of rising demand, a contracting supply of vessels, and a reduced threat from rival sectors, including container shipping, according to Drewry Shipping Consultants.
“Rates are never stratospheric in this sector, but we believe [there will be] growth of around 2 to 3 percent per year,” said Susan Oatway, the London-based consultancy’s leading multipurpose shipping analyst.
But even this modest increase is a boon for a sector that suffered some of the worse conditions “in living memory” in the third quarter of 2016, Drewry noted previously.
The industry is cashing in on the accelerating world economy that is impacting its key markets, notably the oil-gas sector, which is heading toward its strongest financial performance in a decade as crude prices scale four-year highs. The petrochemicals and commodities sectors are also on a roll with increased spending on equipment and infrastructure boosting demand for heavy-lift and project cargo lines.
The breakbulk market took a hit at the start of June when President Donald Trump imposed tariffs on US imports of steel and aluminum from the European Union, Canada, and Mexico, but the impact is expected to be limited to 45 million tons of US imports last year accounted for just 8 percent of the global breakbulk trade, according to Drewry.
Cautious optimism
Leading breakbulk companies are cautiously optimistic. Thorco Projects, which was established in 2003, enjoyed rapid growth in its first four to five years but has experienced “very harsh “market conditions since, according to co-founder Thor Stadil. But the Danish company has seen a general pickup in the market since the end of 2017, which “seems” to have continued into this year.
The improving market conditions are also reflected in steady increases in vessel charter rates over the past 12 months. A 12,500-deadweight-ton vessel equipped with heavy-lift gear was earning $7,247 a day in May for six-to-12-month charters, up from $6,163 a year ago, according to Toepfer Transport, a Hamburg-based shipbroker. And a 17,000-deadweight-ton geared ship is earning $9,100 a day, compared with $8,000 a year ago, according to London-based broker Clarksons Platou.
The harsh business environment in recent years has spurred consolidation across the breakbulk sector and is also drawing new blood into the business, particularly in Europe.
Consolidation hit a new high in May with Germany’s Zeaborn Group, a relative newcomer to the industry, and Houston-based Maritime Holdings Delaware, the parent of Intermarine, a leading project, breakbulk, and heavy-lift cargo carrier, announcing an agreement to pool their assets in a new joint venture (JV), Zeamarine.
The shareholders in Zeamarine, which requires antitrust clearance, have pledged funds to grow the JV, which will have a fleet of more than 75 five ships that is expected to top 100 by the end of the year, making it the world’s third-largest multipurpose shipping line after China’s Cosco Shipping Specialized Carriers and Germany’s BBC Chartering.
“Each respective entity brings unique value to the [JV],” said Ove Meyer, managing partner of Zeaborn, which will have a majority stake in the new Bremen-based company.
“Intermarine has a strong reputation out of the United States into South America and is a leading project cargo player out of Asia. Zeaborn brings a strong presence in Europe and Asia.”
Zeaborn became a major player in the multipurpose shipping sector in 2017, just four years after it was established, with the acquisition of Rickmers-Linie, the heavy-lift/project cargo unit of the financially troubled Rickmers Group that operates a round-the-world service.
Zeaborn accelerated its expansion earlier this year with the acquisition of German ship management company ER Schiffahrt that has put it in charge of a fleet of around 165 vessels.
And there’s more to come, with Meyer saying the company is likely to eventually take full control of Zeamarine.
Europe’s positioning
Europe further tightened its grip on the breakbulk and heavy-lift business last year when Bremen-based Harren & Partner bought SAL Heavy Lift from “K” Line, the Japanese shipowner that had acquired a 50 percent stake in the Hamburg company in 2007 and took complete control in 2011 as part of a diversification program. The deal didn’t work out, with SAL struggling to turn a profit since the global financial crisis of 2008.
Harren & Partner, a privately owned firm, is now a major player in the heavy-lift sector with SAL’s 15 vessels, of which a dozen have crane capacities of between 900 and 2,000 metric tons, and 11 ships operated by its Combi Lift unit.
Despite the industry’s hard times, its potential, particularly in specialized niche sectors, is highlighted by the fact that the owner of Hamburg-based based Hansa Heavy Lift, whose fleet of 16 ships are among the youngest in the business, is Oaktree Capital Management, a US global investment company managing $100 billion of assets.
While leading companies consider further consolidation, they are also forging operating alliances in response to the changing market environment. BBC Chartering and Jumbo Shipping, a Dutch heavy-lift company, formed a strategic partnership, Global Project Alliance, late last year to leverage their respective strengths and assets to jointly bid for specific projects.
“We realize that the world of project shipping is changing rapidly and that our organizations need to focus on building strategic assets that will enable them to create value in the future,” said Svend Andersen, CEO of BBC Chartering.
The market consolidated further in April when Rotterdam-based RollDock and SAL Heavy Lift launched the world’s first pool for dock vessels to target roll-on, roll-off (ro-ro) and float-in, float-out heavy-lift cargoes. The alliance is aimed at boosting the utilization of the fleet of five RollDock ships and one SAL vessel that is being managed by the Dutch company and offering more options to customers.
Even as demand rises, the breakbulk shipping industry has to continually look over its shoulder at rival shipping sectors including container ships, ro-ro vessels, and bulk carriers. “The fly in the ointment is always the competing sectors, but here, too, things are looking better. So there is definitely scope to get this [multipurpose] market off rock bottom,” according to Oatway.
The threat from container carriers, which were targeting the breakbulk and project cargo sector with near-zero rates a couple of years ago, has eased as the demand in their core liner markets has picked up and idle tonnage has shrunk to just 1 percent of the global fleet. However, ro-ro operators are steadily increasing their presence in the sector as they deploy larger cargo-hungry vessels.
Wallenius Wilhelmsen Logistics (WWL), the world’s largest ocean car carrier with a fleet of more than 130 ships and a 20 percent market share, claims that ro-ro is the safest and smartest way to ship breakbulk cargoes. “With the world’s most breakbulk capable ro-ro vessels, even experienced logisticians can be surprised by the cargo we can carry,” the Oslo-based company said.
WWL’s largest vessels can accommodate cargoes up to 6.1 meters (20 feet) high and 12 meters wide with a weight up to 400 tons.
The Norwegian-Swedish company said its ro-ro liner service operates with a frequently scheduled timetable unlike lift-on, lift-off (lo-lo) routes that can be postponed or diverted at very short notice. It also claims that many customers discover that savings from low ocean rates offered by some lo-lo and container carriers are quickly wiped out by extra costs such as container hire, storage, additional labor, and equipment rental. Shippers using a regular ro-ro service don’t need to hire port warehousing for crating, packing, and loading, which keeps a lid on costs.
WWL may have to focus more on breakbulk cargoes if Trump carries through his threat to impose tariffs of up to 25 percent on auto imports.
Mediterranean Shipping Co., the world’s second-largest ocean container carrier after Maersk Line, is also targeting the market with a recently launched Europe-North Africa service operated by two ro-ro vessels with a capacity for 6,700 automobiles that are also touting for breakbulk and project cargoes. The Swiss-based carrier is also launching a twice-weekly service for containers, project, and breakbulk cargoes between the port of Trieste on Italy’s Adriatic Coast and Izmir, Turkey, with two container/ro-ro ships.
The carrier is set to boost its breakbulk operations amid reports it is about to acquire a 49 percent stake in the Genoa-based Messina Group, which operates eight 45,200-deadweight-ton container/ro-ro vessels, two of which MSC has chartered for the Italy-Turkey service.
Fleet size decisions
Despite these intrusions from “outsiders,” the leading European breakbulk operators continue to boost their fleets as their markets pick up. Thorco Projects acquired several vessels, mainly in the 12,000-25,000 deadweight ton sector, including a ship with two cranes with a lifting capacity of 450 metric tons, in the first quarter.
“The project market is off to a good start, and we have been able to find some new and interesting ways to expand and strengthen our fleet. We have worked up an appetite and are keen to maintain momentum,” said Thomas Mikkelsen, CEO of the Danish line.
While project cargo remains its core business, the company has also expanded its market reach, creating a new dry cargo unit in December and moving into the 20,000-35,000 deadweight ton segment. “The establishment of this division allows us to explore the synergies between the multipurpose and smaller Handy markets, which have been continuously overlapping in the past few years,” Mikkelsen said.
Other bullish lines include Amsterdam-based Spliethoff, which has six 18,000-deadweight-ton multipurpose ice-class vessels on order in China, the first of which is scheduled for delivery by Zhejiang Ouhua Shipbuilding next January.
The supply-demand balance in the multipurpose shipping sector is also improving, albeit modestly, as smaller, older vessels and those without less heavy-lift capacity are being scrapped with the new International Maritime Organization emissions and ballast water regulations increasing demolition of a fleet with an average age exceeding 20 years.
For now, multipurpose shipping, particularly the heavy-lift and project cargo sectors, is basking in a relatively positive environment after years of sliding demand and falling freight rates that threatened to become the industry norm.
However, many operators are facing financial challenges, and further consolidation through mergers and acquisitions, coupled with bankruptcies, is anticipated.
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