The rapid recovery in earnings for multipurpose vessels is expected to slow from the second half the year as capacity constraints and supply chain disruptions in competing sectors ease, according to Drewry’s Multipurpose Shipping Annual Review & Forecast.
In March, Drewry’s Multipurpose Time Charter Index showed that one-year time charter rates for multipurpose tonnage – incorporating both breakbulk and heavy lift ships – reached their highest level in almost six years. However despite this rally, earnings remain low by historical standards, off 40 percent from their all-time peak of 2007.
“The recent rally in multipurpose earnings represents a climb out of one of the longest recessions in recent history in this cyclical market,” said Drewry’s senior analyst for multipurpose and breakbulk shipping Susan Oatway. “And make no mistake, this recovery is fragile, as it is on the back of capacity issues in the competing sectors of dry bulk and container shipping, rather than any fundamental change in the multipurpose segment.”
Nevertheless, there are reasons to be optimistic. Drewry’s forecast for effective cargo demand for the multipurpose fleet is that it will rise at an average annual rate of around 5 percent from 2020 to 2025. Although, the analyst warned that there are still caveats to this outlook given the continued levels of uncertainty around the global economic recovery, vaccine roll-out and trade development.
“One of the main reasons recovery is fragile for this sector is the level of overage tonnage in the fleet,” added Oatway. “Over 50 percent of the total fleet is over 15 years old. Although the fleet contracted in 2020, due to increased demolition with no corresponding newbuilding deliveries, our concern is that increased optimism will lead to new investment decisions, without corresponding cargo commitments.”
Indeed, there is the potential for the booming dry bulk and container shipping markets to lead to equally rash newbuilds, which risk upturning any supply-demand balance currently in place. Although the possible market slowdown will take a couple of years to materialise, it is a real factor in the longer-term health of the multipurpose market.
The multipurpose market will, in the short term, continue to benefit from booming competing sector charter markets, as cargo owners seek to find capacity anywhere for their cargo. Based on this, Drewry expects rates to continue to accelerate through the second quarter of 2021.
However, as the capacity issues right themselves this growth rate will slow, added the analyst. Drewry forecasts that average annual one-year charter rates will climb 10 percent in 2021 and continue rising thereafter but at a much slower pace.
“Our optimism therefore remains cautious for the longer term, given that current high charter rates are relative to a prolonged market trough and could prove short-term due to the contributing factors. While lack of investment has been an ongoing issue in this sector for a number of years, any rush to build would risk delaying sustained recovery,” concluded Oatway.