Tough Times

TOUGH TIMES FOR MPV MARKET

With the current multi-purpose vessel fleet ageing and little newbuilding activity, Drewry asks the question who is going to carry the wind blades of the future? Felicity Landon reviews the premier findings of a recent Drewry webinar assessing MPV market prospects

The war in Ukraine, the knock-on effect on food and energy, and high inflation are feeding into a weakening multipurpose and heavy lift shipping market, according to a recent webinar organised by Drewry.

Susan Oatway, Senior Analyst, Multipurpose and Breakbulk Shipping, said that despite weakening rates, there was – in the short term – some positive news for both carriers and shippers. “For carriers, although rates are weakening, they are still very high. For shippers, there are weaker rates but also more capacity and better relationships, so the pressure is slightly less there.”

… where is the investment in a potential new fleet – who is going to carry those ‘‘ wind blades of the future?”

Other than this, it was hard to find an optimistic note. The global economic position is worsening as Covid-19 lockdowns in China and the conflict in Ukraine continue, said Oatway. Meanwhile, more than 40 per cent of the current multi-purpose vessel (MPV) fleet is over 20 years old and scrapping is at an all-time low. “Where is that ageing fleet going and where is the investment in a potential new fleet – who is going to carry those wind blades of the future?”

Drewry’s multipurpose time charter index showed a continued decline in September, losing 10 per cent in value since the peak of the first quarter 2022. The decline was at a much faster rate than had been predicted.

“Rates fell over our basket of investors by some 5.4 per cent and that took the index to an average US$10,075 per day. Our prediction for October is more of the same. Increasing global uncertainties and continuing small shifts in demand are expected to further weaken the market – our current prediction is a further five per cent decline over the coming months.”

She pointed out that global growth projections had been revised down by almost two per cent per year over the past 12 months.

Having bounced back in 2021 with 4.5 per cent growth, dry cargo demand (including bulk, container, general and project cargo) is expected to see slower growth of one per cent over 2022. It is still averaging two per cent growth heading into 2023, so there is still positive growth, said Oatway. The specific MPV market share rebounded strongly in 2021 with seven per cent growth – that is expected to slow to nearer four per cent in 2022 and 2.25 per cent in 2023.

“The MPV market benefited from the desperate search for space which led to cargo coming out of containers to MPV/ breakbulk; that effect has already started to slow and will continue to weaken into 2023. MPV demand is expected to grow at an average rate of 2.1 per cent from 2018 to 2023, she said. Growth for 2023 is forecast at three per cent - “still growth, just slightly weaker than we had previously been expecting”.

Time charter rates, having risen by 148 per cent from the low point in June 2020 to the high point in March 2022, fell by about five per cent in the following six months. “Although rates are weaker, they are still at historical high levels in all sectors.”

Drewry expects period charter rates for the MPV sector to continue to weaken into 2023, albeit at a slower pace. “This is a function of the market share being eroded, increasing competition, and capacity increasing. We expect that to continue over the medium term as well, but we do expect rates to remain above pre-pandemic levels, even as they are weakening.”

GLOOMY OUTLOOK

Oatway’s analysis of the key risks to the outlook were not cheerful. “There is little to any upside to our base case scenario. Any upside would rest on some fairly dramatic geopolitical events,” she warned. “Unfortunately, we are much more able to imagine a worsening forecast, with increasing uncertainty due to high inflation and commodity prices, reduced investor confidence, weaker demand and increased competition for cargo. All of these could take rates back much closer to 2019 levels in the longer term.”

MPV Order Book reflects the market and remains slim

In reply to a question as to why the fleet is under-invested, Oatway said: “This sector was in decline for some ten years prior to the pandemic; rates in 2019 were barely above operating costs. The Beluga case and the withdrawal of the KG schemes have meant that there is little, if any, outside investment for this sector.

“Operators have had 12-18 months of high rates – it is not long enough to finance a building boom – but for some of the larger carriers, the few newbuildings we have seen are linked to long-term cargo commitments, specifically in the renewables sector. That is likely to be the way forward for operators in this sector, to look at longer-term contracts that offer shippers schedule reliability and stable rates and give the carriers the incentive to modernise their fleet.”

MPV fleet supply graphs show a clear bulge in newbuildings across the sector between 2007 and 2013. Then the lack of recent deliveries is clear, said Oatway, especially in the project carrier and heavy lift vessel segments. “In this sector there is barely anything in 2017-21, then we have maybe half a dozen newbuildings in 2022, but it really is very thin on the ground. The orderbook schedule picked up in the third quarter 2022 but represents just four per cent of the operating fleet.”

Although the MPV fleet has been in decline, due to low scrapping levels it actually grew in 2021 and that will happen again in 2022, she said.