Demand growth in the multipurpose and heavy lift shipping sector for the two years to end 2021 is dependent on the containment of the coronavirus outbreak in the fourth quarter of the year. Even then, growth will be weak, said analyst Drewry.

In its latest forecast for the multipurpose and heavy lifting shipping market, Drewry lays out three possible scenarios, depending on how the virus outbreak and the global economy develops in the second quarter of 2020.

In all three scenarios one of the most important factors affecting multipurpose carriers is competition from other sectors such as container and bulk carriers for breakbulk and project cargoes – how much market share can these segments gain during the downturn and will the multipurpose/heavy lift shipping lines be able to regain these losses once the market stabilises?

Drewry’s base-case forecast, which it considers to be the most likely, starts with the caveat that a global economic recovery will not begin until the fourth quarter.

“Any recovery that had been anticipated for Q2 2020 and Q3 2020 is now expected to be delayed as some of the pent-up demand will have vanished due to both the longevity of the crisis and the oil market crash,” said Drewry.

“The two events (Covid-19 plus the price of crude oil dropping below USD30 per barrel) have resulted in predictions of wide-scale unemployment and company bankruptcies, which when occurring together reduce investment and the collective purchasing power of the world’s population.”

As a result, Drewry expects multipurpose/heavy lift cargo demand growth to stagnate in the two years to 2021, growing at an average annual rate of just 0.3 percent.

Increased competition

With regard to the container shipping sector, its recovery will be tempered by continued oversupply issues. As a result, Drewry suggests that container lines will continue to try and secure breakbulk/project cargoes.

Drewry argues that once the shift to containerisation occurs, which requires some investment from the shippers/receivers to enable the stuffing of cargo into containers, some will be reluctant to revert back to multipurpose/heavy lift operators.

Containerisation also requires different cranes, berths and ships to load and carry the cargo, as well as a different way of hiring vessel space, meaning the whole ocean supply chain is shifted slightly. “Some shippers are less likely to move back again without a significant rate difference – that is breakbulk rates being much lower than containers,” commented Drewry.

The best-case scenario has, in Drewry’s opinion, the least likelihood of becoming reality. It proposes a modest but positive GDP growth forecast for 2020. It expects container demand to be weaker in 2020 but nevertheless show positive growth compared to 2019. Meanwhile, bulk demand is hardly expected to slow over the summer months and will show steady growth over the year.

The low-case scenario has an increasing likelihood of becoming reality, in which a global economic recession strikes during 2020.

“Large-scale unemployment and business casualties lead to increasing uncertainty across global markets and a prolonged downturn in freight rates in the dry cargo sector,” commented Drewry.

“For the multipurpose/heavy lift segment this is compounded by weak oil prices … demand for this sector is further squeezed by the container and bulk carriers and market share drops further. This leads to a negative demand outlook for multipurpose/heavy lift vessels.”