MPV Orderbook Faces Supply-Side Risk

The multipurpose sector’s vessel orderbook is small, at just under 2.4 million dwt. China’s dominance in fulfilling those orders puts the fleet expansion in a precarious position, according to analyst Drewry, says an article published on heavyliftpfi.

Multipurpose charter rates

Drewry’s Multipurpose Shipping Forecaster report outlined that, with the recent downturn in charter rates, somewhat tight vessel supply has been a positive for multipurpose owners, unlike for other sectors such as container ships.

High vessel utilisation has kept multipurpose charter rates above pre-covid levels, which has encouraged some owners back to the newbuild market.

Most appetising for charterers

Although higher rates may not be most appetising for charterers, a healthy charter market will encourage newbuilding activity, and stabilise rates as cargo demand increases in the long term – something that Drewry expects to accelerate significantly from 2025.

Hence, a larger orderbook is required now to keep pace with the anticipated trade expansion.

Currently, the orderbook is dominated by China – both in number of vessels and total dwt. According to Drewry, there are 23 vessels on order in the Netherlands representing 0.1 million dwt, 15 in Russia at 0.11 million dwt, and 24 in other locations representing 0.17 million dwt. China, meanwhile, has an orderbook of 81 vessels at 2.01 million dwt.

China has also been building all the high-capacity ships of the sector. While this is not a new development, the growing geopolitical tensions between the USA and China could put the multipurpose fleet expansion and charter market in a precarious position, said Drewry.

Trade sanctions or restrictions

Recent China-US tensions in relation to Taiwan, Chinese military activity in the South China Sea and the government’s stance on the Russia-Ukraine war increase the risk of trade sanctions or restrictions between China and the West.

If this situation escalates, delayed vessel deliveries or even complete abandonment of certain contracts could become a possibility, depending on the severity of the situation.

Certain delivery delays

Drewry said: “While building large multipurpose vessels could be transferred to other countries, it would bring with it a significant delay in expanding the fleet from current levels. Only a few yards outside China have experience of building such vessels, and ordering multipurpose vessels in those yards located in Japan, South Korea and various European countries would not only see certain delivery delays but also substantially higher newbuild prices.”

Large multipurpose vessels

While it is possible that rising geopolitical tensions has the effect of lowering international multipurpose cargo demand as exports are shifted to other countries, Drewry expects demand for large multipurpose vessels to be robust in the second half of the decade, mainly driven by energy projects.

“In conclusion, the combination of small orderbook, robust charter market and no newbuild activity outside China could lead to particularly tight MPV market conditions if Chinese-Western tensions escalate,” it added.