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‘No respite for multipurpose vessels until 2018’

By Sulaimon Salau
13 July 2016   |   3:21 am
A new report by a shipping consultancy firm, Drewry indicated that the demand outlook for the multipurpose vessel (MPV) fleet is set to remain unchanged until the end of 2017 due to persisting weakness in break bulk and project cargo sectors.

Cargo-Ship

A new report by a shipping consultancy firm, Drewry indicated that the demand outlook for the multipurpose vessel (MPV) fleet is set to remain unchanged until the end of 2017 due to persisting weakness in break bulk and project cargo sectors.

The Multipurpose Shipping Market Review and Forecaster report also stated that the demand for MPV fleet has not improved since the first quarter of 2016.
Meanwhile, it noted that the supply of MPVs is under control, with an order book equivalent to just five per cent of the operating fleet and growth estimated at less than a half percent per year between now and 2020.

Drewry said the oversupply of the competing fleets continues to erode the market share available to the multipurpose sector and in turn any positive growth.

The improvement in this sector is under way but it is still some way off – and that is being optimistic.The multipurpose shipping community can do little to improve the demand for these vessels, at a time when projects are being cancelled and steel production halted, but there is something to be done on the supply side, the consultancy said.

“While it is true that most of the damage is being done by the oversupply of bulk and container vessels, there is still a view in the market that the problem is not ‘ours’,” it stated.

There are over 600 vessels trading that are over 25 years old, which is 20 per cent of the operating fleet in number terms 13 per cent in dwt terms as the majority are less than 10,000 dwt.

Although these vessels only compete in the break bulk trades, that is where the cargo is at the moment, and so, they compete across the majority of the fleet.Lead analyst for multipurpose shipping, Drewry, Susan Oatway, said: “This competition will impact rates across the sector as high spec project carriers will need to carry any cargo to fulfil their investors’ requirements,”

Meanwhile, container freight rates are forecast to rise modestly over the next 18 months from the all-time lows reached recently, but this will not be sufficient to rescue the industry from substantial losses in 2016.

“Liner shipping has had a torrid time so far in 2016 with spot freight rate volatility reaching unprecedented levels, while unit industry income has fallen to record lows. There are distinct parallels between what is happening now and the depths of the 2008/09 global financial crisis.

“Drewry estimates that container carriers collectively signed away $10 billion in revenue in this year’s contract rate negotiations on the two main East-West trades. With annual Transpacific contract rates as low as $800 per 40ft to the US West Coast and $1,800 per 40ft to the US East Coast, carriers have done exactly what they did back in May 2009 in a desperate attempt to retain market share.

With first quarter headhaul load factors at around 90%, there was no logical reason for carriers to sign so much revenue away in one fell swoop. While spot rates on the core trades have significantly improved after the 1 July GRIs, it is still too early to say if carriers have suddenly changed their approach to commercial pricing.

The recent decision by the G6 lines to take a weekly loop out of the Asia-North Europe trade is a positive move. But similarly pragmatic and pro-active measures will be necessary across other sick trades if recent improvements are to gain momentum. While the new alliance structures are bedding-in between now and April 2017, this work will take some time yet.

Drewry’s director of container research, Neil Dekker, said: “For 2017, Drewry anticipates a slightly brighter picture with global freight rates forecast to improve by about eight per cent. Carriers are expected to take some action to address overcapacity as cash flow attrition becomes more urgent and BCO (beneficial cargo owner) rates rise from this year’s lows. But once again, this cannot be seen as a genuine recovery since these so-called improvements must be set in context against the unnecessarily big rate declines seen in both 2015 and 2016.”

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