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Project cargo market heading for patchy recovery

10 May 2017 IHS Markit Maritime & Trade Expert

This story originally published on

The weakness in oil and other commodity prices until late 2016, combined with geopolitical instability, saw the volume of capital projects dwindle over the past one-and-a-half years and charter rates for multipurpose heavy-lift ships slump to historic lows.

"We have seen companies drastically cutting back on capital spending," Allison Aschman, director of US consultant IPA Capital Solutions, told conference delegates at the Breakbulk Europe exhibition, held between 24-26 April in Antwerp.

Last year, the number of capital projects (industry, energy, infrastructure etc) with a value of in excess of USD10 million, which were completed dropped to just 195 globally, the lowest level since the 1990s, Aschman explained. A number of very large complex projects are currently delayed or slowed down, she pointed out.

Meanwhile the influx of mega projects worth billions of dollars basically came to a halt since contracts for manufacturing and logistics got placed for three large steam power plants in Egypt and for Gazprom's Amur gas processing plant in Russia at the start of 2016, sources in the project forwarding sector told Fairplay. Aschman warned that investment sectors across the globe remain in a state of "high uncertainty" despite the upward revision of the International Monetary Fund's (IMF) world economic forecast.

The Fund now predicts world GDP growth of 3.5% for 2017, against just 3.1% in 2016. More importantly for shipping, global trade growth is forecast to increase to 3.8% this year and to 3.9% in 2018, following a meagre 2.2% in 2016. According to IPA's analysis, project investments could now begin to recover gradually, led by further investment growth in power generation and public infrastructure across the globe, the continued strong capital spending in the upstream shale oil, gas and petrochemical industries on the US Gulf Coast and some recovery in mining investments following a multi-year hiatus of capital spending.

"The whole power generation market including transformators and generators is buzzing," project forwarding veteran Claus Krüger, business development manager for industrial projects with logistics service provider Geodis, confirmed. Other industry verticals returning to strong capital spending included the pulp industry in South America, he pointed out. Following the recent award of logistics services for a number of midsize projects with total shipping requirements of in the region of 150,000 freight tonnes in South America and Southeast Asia, Geodis hired five more staff for its industrial projects desk in Hamburg, thus expanding the team to 25, Krüger explained.

Alex Karakassis, co-managing director at ocean carrier Hansa Heavy Lift (HHL), remarked that multipurpose vessel operators have probably the worst year on record behind them. But there are silver linings on the horizon for 2018, including a few planned iron ore mining projects in Australia, further investments in LNG production in and off the coast of Mozambuique, planned component shipments for the construction of FPSOs and high activity in the wind energy sector. "The near future looks a bit better, not significantly, but it's certainly a ray of hope," Karakassis stated.

The multipurpose tramp and liner markets have recently recorded slight improvements both in cargo volumes and freight rates, various brokers and carrier representatives confirmed to Fairplay. The timecharter index for 12,500 dwt F-class multipurpose ships by Hamburg shipbroker Toepfer Transport increased to USD6,160 per day for March, from a trough of USD6,017 in February. London-based Clarkson Research also lifted it period rate assessments for 12,000 dwt and for 17,000 dwt mpp ships to USD6,700 and to USD8,000 per day in April - up from USD6,550 and USD7,650 per day respectively.

Apparently the increases in the market are based to a large extent on positional tonnage shortages in Europe, the Mediterranean and on the East Coast of South America. "A lot of heavy cargoes out of Europe go back [from containers] into breakbulk, because the container carriers are rejecting heavy boxes," explained Janusz Kuzmicki, commercial director with breakbulk and project liner Chipolbrok. Commodities include granites, marbles and steel products.

The overflow of cargoes from the container lines to mpp operators has been sparked by priority evacuation of empty containers from Europe back to Asia in time for the launch of the new container line alliances (Ocean, THE Alliance) and by a rise in export volumes from Europe, according to agents. Kuzmicki noted that the rise in volumes makes it easier for Chipolbrok to fill its vessels deployed on the Asia-Europe run. However, the effect is too small to have any significant impact on roundtrip results, which is why Chipolbrok would continue to look for alternative employments such as voyages and timecharter trips outside its liner schedule for its large heavy lift mpp ships this year, Kuzmicki said.

The world's largest tramp project carrier, BBC Chartering, said it has been surprised by a sudden rise in tonnage demand in Europe and the Mediterranean region. Cargo owners there would have to wait at least around four weeks for a shipping opportunity with BBC which operates around 180 vessels on part cargo parcelling routes worldwide. "It will take until the end of May for our next ship to come open in Europe. We haven't seen this [kind of forward demand] for several years," the company's chief executive officer Svend Andersen told Fairplay. There is also brisk demand for tonnage in the ports of Argentina and Brazil, mainly for shipments of pipes and tubes to supply the burgeoning US oil and gas sector, he noted.

Currently, BBC is scheduling between 8 and 9 mpp sailings each out of both countries, three times as many as during normal times, Andersen said. The downside for tramp mpp operators is a continued oversupply of vessels in the all-important Far Eastern market which keeps charter rates in that region down. Andersen therefore remains sceptical as to whether the latest positional improvements mark the beginning of a positive trend. "90% of all our cargo fixtures today are on spot basis," he cautioned. "It's impossible to plan ahead more than two or three months."



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