Project cargoes may not be the fastest movers on the high seas, but they have proved much less volatile than the U.S. container trades during the coronavirus pandemic.
Singapore-based AAL Shipping, one of the world’s largest marine project cargo carriers with 25 vessels, has witnessed a steady increase in ship sailings involving the transport of large capital equipment from Asia to U.S. ports during the first half of 2020. Between April and June alone, the carrier completed 12 sailings to the U.S.
“This has been driven mostly by our 2020 strategy to increase our coverage of the Asia-U.S. trade lane and commit tonnage and resources to really expanding our presence in the region,” Christophe Grammare, AAL’s commercial director, told American Shipper.
However, he noted this continuation of business during the virus-induced economic upheaval hinges on the nature of project cargo shipments, which by their nature can take years of logistics planning.
“Although some project equipment manufacture was delayed by the COVID pandemic, the movement of these projects continues reasonably unaffected at this stage,” Grammare said.
The AAL fleet consists of 10 “mega-size,” 31,000-deadweight-ton, multipurpose (MPP) vessels, which have on-board cranes capable of handling cargo loads up to 700 tons and are suitable for large capital goods.
“Looking at our cargoes in 2020, we have noticed that the majority of our sailings have been filled with single cargoes, which smaller MPP vessels simply cannot transport in an economically efficient manner,” Grammare said.
Energized by wind
Some of the large-scale project cargo loads transported by AAL to the U.S. during the first five months of 2020 include gantry cranes, transformers, gas processing and mining equipment, and wind turbine components.
These cargoes, which originate in Asia and Europe, generally arrive at the ports of Houston and New Orleans but are also delivered to other Gulf ports such as Corpus Christi, Galveston, Aransas, Brownsville and Freeport, Texas; Tampa and Manatee, Florida; and Mobile, Alabama; as well as the East Coast ports of Savannah, Georgia, and Philadelphia, where they are offloaded and prepared for inland transport by heavy-duty truck or rail.
The U.S. oil and gas sector, which experienced record low oil prices in May, postponed many projects and capital investments during the first half of the year. Grammare expects that with a gradual recovery of oil prices later in the year, these types of project investments will pick up in the fourth quarter of 2020 or the first quarter of next year. “Nevertheless, these projects will not generate cargo movement for another year or so,” he said.
According to the U.S. Energy Information Administration (EIA) in early June, U.S. crude oil production will continue to decline to 10.6 million barrels per day through March 2021 due to ongoing low prices and usage rates during the COVID-19 pandemic.
“Typically, price changes affect production after about a six-month lag. However, current market conditions have shortened this lag as many producers have already curtailed production and reduced capital spending and drilling in response to lower prices,” EIA said.
Fortunately for AAL, the U.S. wind energy sector has remained strong during the COVID-19 pandemic, continuing to import numerous turbine components for ongoing wind farm projects throughout the country.
“The trend here is shifting towards larger and larger wind turbines for which AAL’s mega-size fleet is very well suited,” Grammare said.
The U.S. wind energy sector anticipated a banner year in 2020 for construction of wind farms — combinations of giant wind turbines spread across thousands of acres of open spaces — which is stimulated by a significant federal production tax credit. The electric power generated by these wind farms is fed into utility power grids.
According to the Washington-based American Wind Energy Association (AWEA), the U.S. wind industry installed more than 1,800 megawatts of new wind power capacity during the first quarter of 2020. That is more than double the capacity installed during the first quarter of last year, the association said.
In addition to the federal tax credit, U.S. wind farm development has been stimulated by the ongoing commitment by large American corporations purchasing clean electric power generated by wind turbines. More than 140 companies have purchased U.S. wind-generated electricity. Google (NASDAQ: GOOG) is the top corporate wind energy customer in the U.S., with 2,397 megawatts contracted. Facebook (NASDAQ: FB) is the second-largest purchaser, with 1,459 megawatts, followed by Walmart (NYSE: WMT), AT&T (NYSE: T) and Microsoft (NASDAQ: MSFT), AWEA said in mid-June.
Return to health
The COVID-19 pandemic has, however, put a dent into AAL’s ability to secure “part” or “completion” cargoes to top off some of its vessel voyages. These cargoes typically include smaller equipment and structural steel. “This decrease is directly related to a drop in demand in the U.S.,” Grammare said.
AAL maintains an office in Houston to work with its U.S. customers.
“Generally, we feel that the U.S. trade volumes, especially those outside of capital projects, are very much reduced in 2020,” Grammare said, though he did not provide a figure. “Nevertheless, it is fair to say that the European market is feeling a similar effect, while Asia seems to be less affected — most likely as the virus has hit Asia first and the initial sharp drop in cargo movement we experienced earlier this year is already behind us and Asian economies are now recovering.”
He said smaller project cargoes and other breakbulk shipments will take longer to recover.
“Once the COVID-19 pandemic subsides, we will see an uplift in cargo volumes driven by companies trying to catch up with time lost and stock levels,” Grammare said. “This could be months away and will very much depend on the overall economic impact of the COVID-19 pandemic in the U.S. and ongoing U.S.-China trade negotiations which will hugely affect supply chains.”
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Click to read more FreightWaves/American Shipper articles by Chris Gillis.