Bleak outlook for MPV sector as demand falls and the box lines move in

      07/10/2019

Drewry has lowered its growth forecast for the multipurpose vessel (MPV) sector due to reduced demand, a slump in ship scrapping and tougher competition from dry bulk and container shipping lines.

In its latest report, Drewry says the MPV outlook is “bleaker”, and although it still expects annual growth of 2.1%, this is revised from 2.3%.

“The bedrock of MPV demand is the demand for dry cargo, and within that, dry bulk and general cargo,” said Susan Oatway, author of the Multipurpose Forecaster and senior analyst for multipurpose & breakbulk shipping at Drewry.

“With the ongoing tariff war affecting Chinese steel production, expectations for dry bulk iron ore volumes have weakened over H1 19,” she said, but noted that concerns that the same tariffs on steel in the tit-for-tat US-China trade war had so far “proved unfounded”.

She added: “Clearly US-China trade has decreased over the last 12 months, but imports into Europe and the Far East (excluding China) have improved. Meanwhile the overall situation is improving as new trading partners are sought.”

But with analysts slashing their demand outlooks for the container industry by 1%-3% this year, marketing teams in the major carriers are increasingly turning their attention to out-of-gauge and heavylift project cargo as a revenue filler.

One shipper The Loadstar spoke to at the Multimodal event in Birmingham last month said the carriers were “showing interest again” in his project shipments.

But he added: “We are a little reluctant to go down that route, as in the past the container lines have dropped us like a stone when their normal business returned.

“We would much prefer to support the MPV operators, as we are conscious that it is their ‘bread and butter’, but some of the rates we have been offered by the liners are very tempting,” he admitted.

Ms Oatway told The Loadstar: “It has been very aggressive from the container lines in both the containerisation of breakbulk volumes and the carriage of project cargo, however there is a ceiling for both of these and, as the container market improves, the competition softens.”

She said the first half had been “very poor for the MPV sector”, in spite of the promise seen at the beginning of the year, with average daily hire rates for a 10-15,000 dwt MPV declining by around 4%, to $6,630.

And she said she did not see much possibility for improvement before 2021, unless demolition levels picked up.

In general, MPV owners are likely to take the default option, to comply with the IMO 2020 0.5% sulphur regulations, of bunkering with the more expensive low-sulphur fuel from 1 January, due to the ratio between the $5m or so cost of a scrubber system and the market value of the vessel, given the relatively short service life remaining of what is an ageing fleet.

Moreover, in many shortsea and coastal trades, MPVs are already required to burn low-sulphur fuel, so the IMO 2020 regulations will have “limited impact” on many operators, said Ms Oatway.

According to Drewry, the average age of the MPV fleet is 17 years, and getting older, but while operators can still cover costs – especially in the shortsea business – Ms Oatway said there was “little appetite for ordering new tonnage”.