Box cargo shifts to bulk vessels to find affordable capacity

Freight forwarders and cargo owners are shifting some containerised cargo to bulk vessels to find affordable and available capacity to move shipments amid the rapidly rising prices and the highly disrupted current ocean freight markets – although this is expected to only have a limited effect on the current capacity squeeze.

Drewry’s latest assessment this month of the charter market for multipurpose vessels – which includes breakbulk and project cargo ships – highlighted a further significant (7.1%) month-on-month rise in prices, which have risen by more than one third (37%) since the start of the year in terms of one-year period charter rates across a basket of vessel types and sizes, as commodities that are normally shipped in containers compete with bulk cargo for space.

ISS Global Forwarding India last week highlighted a solution it had found for the current “high freight rates, space crunch, delays, and booking cancellations”, in the form of “an innovative solution to convert container cargo into bulk and move it from China, Taiwan, Thailand to India and Red Sea countries, with responsibility of origin port to destination door delivery”. 

The solution involved fully chartering 12 bulk vessels, operated from Asia with total volume of 190,000 tonnes, come company said – “in total, 8,000 teu of cargo converted by ISS Global Forwarding into bulk to save almost 25-30% supply chain cost for (the) customer, along with improved reliability.”

A source at ISS noted: “It took us almost two months to convince the consignee to change their age-old transportation model. In that 60 days, freight further increased and reliability of container carriers decreased.

“Once we started, then quickly most in the trade were convinced that this was a viable option. Obviously, it was also the choices we made on the type of bulk vessels we picked up; the team in origin and destination made sure that damage of the bags were minimum; and then finally deliver it to the plants with minimal multiple handlings.

“We are planning three more 25,000-tonne vessels for July loadings with 1,000 teu worth of cargo on each vessel. We could have done more, but sadly (the) bulk market is also increasing and getting congested.”

Global drinks group

The procurement director for one major global drinks group said he was “already working on something similar”, having faced problems recently with finding affordable capacity to ship goods in containers.

Lars Jensen, CEO of shipping consultancy Vespucci Maritime, noted: “This is an interesting development in today’s challenged container markets. In this case, the conversion of 8,000 TEU of PTA powder in 1-tonne bags into bulk shipments – a clear reversal of the 60-year containerisation process, driven by the extremely tight market currently.”

‘Pricing-out’ of containerised freight

He said it was “also an example of the ‘pricing-out’ mechanism currently at play. As long as there is insufficient capacity, rates will increase until one of two things happen: either the supply chain bottlenecks are resolved and free up capacity to again match demand, or prices increase to a point where demand declines – either because the cargo is not moved at all or because, as in this example, it gets moved in a different way.”

A senior executive at a European shipbroker and chartering organisation commented: “

Our volume is up by 40% in the last 13 months as more cargo charterers are seeking substitute options to use conventional reefer vessels for the same reasons – due to disruption to container supply chains. We are fixing cargo/commodities that we haven’t fixed in breakbulk for over a decade from places like Chile, South Korea, Japan, Norway and Brazil.

“Our main problem is the reefer fleet is small – only just over 630 vessels, which means with more tonne miles and a surge in demand that the fleet has gone an average of 60-70% utilisation to almost fully utilised.”

Reefer cargo shifts

Another freight source reported: “Over the past 15 months, there have been a good number of documented cases where reefer cargoes have moved on conventional reefer ships due to lack of reefer container capacity or congestion/delays on container services that would have resulted in loss of product or market opportunity. Rising fuel prices make conventional reefer shipping less viable long-term – there’s a huge economy of scale with big containerships – but as long as capacity and schedules continue to be impacted to the extent seen over the past year, the mode will remain a worthy option.”

Drewry said it expects its Multipurpose Time Charter Index to rise a further 5.2% in July to reach $9,400 per day, noting that rates across all sectors, including the smaller shortsea vessels, continued to rise over June as strong demand outstripped limited supply.

“The pent-up demand for manufactured goods and their raw materials, coupled with continued capacity constraints in both the container and bulk carrier sectors, has produced an ever-expanding call for MPV tonnage,” Drewry noted. “This continued demand uplift is expected to last through 3Q21, although we do think it likely that the rate of growth will slow.

“For the short-term forecast we see little to suggest any sudden change in market direction, particularly as most carriers continue to advise that they are fully booked for two months hence. However, there is a difference between the two sectors of the fleet. The smaller shortsea market remains firm but rate growth has slowed to below 2% month-on-month, whereas the larger more heavylift capable tonnage is reporting rates some 10% above last done.”