Further consolidation is imminent for heavylift shipping

Chief correspondent Jason Jiang assesses market prospects for this niche sector.

The year of 2017 is likely to be another challenging one for the multipurpose and heavylift shipping sectors despite some positive signs, according to a raft of analysts and vessel operators canvassed by Splash.

Christian Hoffmann, head of marketing at SAL Heavylift, reckons that there is a continuing oversupply of tonnage right across the breakbulk/MPP/project carrier scene, and with most banks trying to reduce their loan books, it will put some shipowners under extreme pressure and some will find it a real challenge to meet their financial obligations this year as their top line will continue to run on low numbers.

“We have seen a little uplift towards the very end of 2016 and beginning 2017, but it is way too early to predict any particular improvement throughout 2017,” Hoffmann says.

“Currently our view is that gains will be modest. We do however see some projects revived, which indicates that demand growth may turn more positive, and this may give some up rise towards the end of the year. Certainly there are interesting prospects out, noticeably in offshore wind, which helps those operating with premium heavy lift vessels. But overcapacity will remain a challenge for the industry players throughout the year,” Hoffmann adds.

Hoffmann has noticed that the dry bulk and container sectors have moved into the MPP and heavylift sectors. He sees it as naturally a shift in market constraints and believes they will likely continue to have some impact.

“We expect 2017 to be another challenging year, though slightly better than 2016. Our prospects are with a great deal of uncertainty, but with a certainty about continued activity across the shipping scene when it comes to mergers and acqusitions,” Hoffman predicts.

Svend Andersen, CEO of BBC Chartering, also shares concerns on the ongoing oversupply situation of global heavylift and MPP tonnage, and he expects the market will continue to stay under pressure throughout 2017.

However, Andersen sees an ongoing business cycle and good prospects for wind energy and petrochemical projects, while the oil and gas sector may see a slight recovery this year too thanks to a reinstated supply control by OPEC.

“Consolidation is necessary to improve the market, service quality, tonnage control and cost effective pricing, pursuing eco-sustainability requirements, too,” Andersen says. The BBC boss has long been a champion of consolidation within the sector.

“Most of our competitors have suffered severely over the past years while BBC Chartering could further solidify its financial position and market leadership. Today we look ahead confidently and with that take a leading role in shaping the future of our shipping segment,” Andersen concludes.

Susan Oatway, Drewry’s lead analyst for multipurpose shipping, is a bit more optimistic.

“We are much more optimistic about 2017 than we were just six months ago,” she says, explaining: “The fleet remains oversupplied, but as most of the over-age vessels are in the sub-5,000 dwt sector, they will have less impact on the deepsea trades and the higher value cargo. The majority of new tonnage is project carrier design, but it is here that the demand is weakest.”

Oatway believes on the plus side of the supply-demand balance that dry bulk trade growth is weak, but is growing. Expectations for both bulk carriers and container vessels – the two main competitors for this sector, are also improving and the IMO directive for ballast-water treatment systems will hopefully jump-start demolitions.

Captain Heiko Felderhoff, CEO of Combi Lift, reckons the market will start to undergo a consolidation phase in the course of 2017. Some of the companies presently being in financial difficulties probably will not survive, he says.

According to Felderhoff, a first slight consolidation is presently to be seen in regards of the recovery of the oil and gas prices. Many projects are presently still “on hold” but at least not cancelled. The latter also applies for projects in the field of infrastructure investments, mining and power generation. Funding is still difficult for those projects and due to the recent US election and European elections under way no short-term investments are to be expected. Finally the renewables sector may provide some opportunities with a few pending projects but generally lead times are long in this field.

“Low freight rates are the result of the dramatic lack of project cargoes going hand in hand with overcapacity and lack of funding. Therefore a market consolidation seems to be imminent with reduction of older tonnage through scrapping and the formation of shipping pools with the aim to increase freight rates as well as reducing global competition. Nevertheless, rates will only improve towards the end of this process,” Felderhoff says.

The heavylift sector has already gone through unprecedented consolidation in recent years.

In a recent heavylift shipping report by Douglas Westwood, Kathryn Symes, senior analyst of the firm, noted heavylift vessel contractors are still facing a tricky market as the low oil price environment combined with a shift towards subsea installation and deepwater activity has seen fixed platform installations decline globally.

Symes sees offshore wind and decommissioning as two bright spots in the sector.

“Whilst the market for turbine installation is predominantly covered by purpose built wind turbine installation vessels (WTIVs), the installation of foundations and substations is accessible to heavylift vessels,” Symes reckons.

“For heavylift vessels with lifting capacity above 5,000 tons, decommissioning represents a significant opportunity, particularly within the North Sea which is characterised by large platforms,” she adds.

According to the report, the offshore wind and decommissioning markets both have a heavy emphasis on cost reduction, and the resultant requirement for cost-effective heavylift vessel solutions going forwards will be extremely important. As such, in a market where day rates are often driven by tonnage requirements, super heavylift vessels may have a somewhat-limited market reach and vessels that are over specified will risk lower day rates.

Jason Jiang

Jason is one of the most prolific writers on the diverse China shipping & logistics industry and his access to the major maritime players with business in China has proved an invaluable source of exclusives. Having been working at Asia Shipping Media since inception, Jason is the chief correspondent of Splash and associate editor of Maritime CEO magazine. Previously he had written for a host of titles including Supply Chain Asia, Cargo Facts and Air Cargo Week.
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