Ageing reefer fleets ripe for renewal

The last major reefer building spree occurred in the mid to late 1990s and since then there has been only spasmodic activity in this sector with a couple of notable exceptions with the last mainstream conventional vessels entering service in 2001. Deliveries of newbuildings during 2000 accounted for 13 ships with about 6.3 million cu ft while in 2001 this dropped to four ships with about 1.3 million cu ft. These were the lowest figures seen since 1959. In 2002 there were only three new units delivered representing a total capacity of some 1.2 million cu ft.

One of the main causes of the decline in the pure reefer ship tonnage is that the availability of palletized perishable goods has shrunk while reefer containers have increased in popularity to the extent that it now represents about 50% of the total of seaborne refrigerated cargo space. The reefer trade has always been seasonal and, because there is a heavy trade between the northern and southern hemispheres, the specialist reefer ships generally operate as tramps rather than in the liner trades. Their cargo base is, however, increasingly being penetrated by large container ships, which are offering more slots for refrigerated boxes and often have a larger reefer capacity than the traditional reefer.

Even allowing for the fact that transport by container is an operation requiring considerable investment and needs on average a minimum of three sets of refrigerated container units to assure a regular service, it is alarming to see so many boxship newbuildings coming onto the market each with, on average, around 400 reefer plugs.

Against this, orders for pure reefer ships are non-existent since the return on investment in this market over the last five to six years has been very poor.

In terms of quality, however, nothing can replace the specialised ships of the last generation which offer good transit-times, the possibilities of additional spaces for containers on deck, and a great operating flexibility. No doubt the big container operators will try to increase their share of the market in sectors where products can be conditioned and packaged in small quantities, but the traditional owners of reefers should be able to compete on base products transported in big volumes such as bananas and other everyday perishables.

New breed

Despite the foregoing, there is an air of cautious optimism within the reefer shipping business at the moment but this has yet to be translated into orders for new ships. Industry sources suggest that a number of owners are beginning to evaluate the newbuilding option and this renewed activity is focused on the large size vessels measuring 150 metres long with over 500,000 cubic feet capacity and a higher service speed of between 22 and 24 knots. The new vessels are also likely to be multi-purpose with container and RoRo capabilities which will make them a more attractive investment proposition.

Others in the industry suggest that the design of the next reefer newbuildings will not depart from the best of breed that already exists. No doubt the debate will continue as alternatives are being evaluated and, to an extent, decisions will depend on the intended deployment. For example, a fixed route deployment means that gearing can be optimised and it also makes a relatively high container intake more likely because the boxes would probably be used relatively intensely on a liner service. In addition, outside this trading pattern, the full potential of the highly containerised vessel might not be used, and there is a similar issue for large, fully palletised vessels. These vessels might make best use of their specifications only at the peak of the fruit season. All this space might not be used at other times, which could limit interest in going down this route.

There are not many large, fast and highly containerised reefers in the current fleet and it seems probable that the big fruit majors and larger pools will be looking to build these vessel types as a matter of priority when, or if, new contracts are placed. Controlled atmosphere systems are now being marketed and are likely to displace the less sophisticated systems that use reduced oxygen, increased nitrogen and balance the two with carbon dioxide although the industry remains skeptical that such systems are commercially viable.

To build or not to build

With shipyards in the Far East sitting on full order books for container ships, bulk carriers and tankers, the earliest possible slots for new reefers are now in 2007 and 2008. This long lead-time is making owners hesitate as they debate whether to take the plunge into fleet renewal programmes. Shipbuilders in Europe and the former Soviet Union might be able to take advantage of this situation since several yards, such as IZAR in Spain, 61 Kommunara Shipbuilding in Ukraine and Estaleiros Navais de Viana do Castelo in Portugal, are all capable of tackling reefer newbuildings and can offer earlier delivery slots of 2006. The market, however, might not be able to sustain the price of newbuildings from these yards particularly for a short series of two or three reefers.

This lack of newbuildings has led to a sharp increase in second hand reefer prices especially good quality tonnage with container capability such as the modern, late-1990s ?banana? ships. These are very much in demand, but there is also interest in the older ships, particularly from the Russians. Vessels built in the late 1990s could increase in value over the next few years to the extent where they could become more expensive than the cost of an equivalent sized newbuilding. Industry sources believe that even if 50 ships were ordered for delivery by 2010, it would not compensate for the tonnage scrapped.

One of the additional problems associated with the reefer trade is the risk from climatic changes, natural catastrophes or epidemic diseases which are factors that dissuade investors to enter the market and, instead, go for trades which are more certain. It all boils down to confidence and the point at which new reefers must be ordered is getting closer particularly as the pace of scrappings has doubled last year with 34 ships compared to 17 in 2002.

New ships will have to be ordered within the next five years even though containerisation has gained the upper hand while the relatively young age of the conventional reefer fleet, 50% of ships of more than 300,000 cu ft are still under 15 years-old, would appear to make a decision in this direction risky.

Prospects

It is probable that owners will generally opt to go for large reefers in the 500,000 to 800,000 cubic feet for fruit transportation in order to compete with containerships. These vessels should be capable of a high service speed of at least 23 knots, a higher quality standard in terms of transportation efficiency and cargo-mix facilities for containers and pallets, and good cargo handling facilities. Among reefer ship operators, the mood is generally optimistic although there is a long haul ahead to make the business really viable.

These are challenging times for the traditional reefer shipping industry with owners having to make difficult commercial and technical decisions but the rewards for the courageous and innovative players may prove to be worthwhile. There are exciting opportunities and success in the future may well depend on carriers appreciating that, although market conditions are still depressed, now is the time to take a positive approach to the business, otherwise they will not be ready when the recovery comes. n