Break Bulk Carriers See No End to Rough Waters

When meeting face to face with the break bulk ocean carriers, we usually start with one question; what’s your outlook on the market these days?  The answers are interesting as everyone seems to have a different opinion and timeframe for recovery of the depressed ocean market.  While most have the optimistic vision that “next year” will be the year for improvement, that year has yet to come.  Not only has there been no improvement, it seems as if the industry has hit a new all-time low that most never thought they would see.  With no real signs of improvement, the best guesses are late 2017 or early 2018 for any real rebound in the ocean market. 

The biggest problem impacting the current market slump is pretty simple: more ships than cargo.  With so many ships competing for such few cargos, most carriers are in a race to keep their ships at least moving with the alternative being sitting idle and losing money.  One possible solution is to have the carriers scrap some of their vessels to decrease the available tonnage on the market. But as most of these vessels were ordered to be built before the market downturn, the majority are less than 10 years of age. This means they have not been paid off and that makes scrapping them an unviable option. Another issue is extended customer payment cycles which delays payment to ocean carriers who rely on those funds to perform required maintenance on their vessels.  This lack of upkeep due to the long payment cycle and shortage of funds can lead to mechanical breakdowns of engines and cranes which in turn delay shipments.  Other problems distressing the current market conditions include uncertainties on future bunker costs, unstable political situations globally, and lack of United States exports, which are used to finance roundtrips.

These challenges have caused some major adjustments in the way the carriers conduct business.  With no shift of market conditions in sight, vessel owners have been forced to diversify their cargo portfolios and go after some nontraditional break bulk cargoes to make up for the loss.  Another big hurdle the carriers are facing is staffing. In general, this is one of the biggest costs for a vessel company.  While they are able to reduce liabilities by decreasing staff, they are losing the specialized knowledge that is provided by an experienced crew.

The industry is becoming more aggressive to get as much market share as possible in order to keep their ships moving.  One big positive that has come from the market downturn is that it has forced the maritime industry to embrace more modern communication methods.  The maritime industry has been slow to embrace change but with smart phones and skype, they can cut costs on communication and travel expenses which are big expenditures in any market.

Another question for the break bulk carriers about the market is if they see any mergers in the near future.  With market conditions not improving, some of the smaller vessel companies cannot maintain their services for much longer.  Whether it be a merger or several carriers forming an alliance, it will help the carriers maintain some sustainability by broadening their markets and using the expanded knowledge of specific regions or specialties.  Some of these mergers will be purposed by the carriers and some will be encouraged by the banks. Nevertheless, mergers, alliances, and cutting costs may not change the main issue – oversupply of tonnage versus cargo on the market.

These market conditions affect the break bulk cargo market and other markets as well.  For example, the container market recently saw the steamship line Hanjin Shipping file for receivership after many years of a down market, too much tonnage and not enough cargo. 

 

Allyn Contributors: Brian Odell and Ashley Munks