Mike Morland, General Manager AAL Shipping Americas, is bullish on the expansion of the “project” sector and elaborates on the outlook for MPPs in a Q&A with AJOT.
AJOT: Among the biggest sectors contributing to the “project” business is Oil & Gas. With high energy prices and shortages in Europe, with the Russian gas cut-offs and discussions about new LNG terminals, what do you think the O&G project outlook is in the near term?
Morland: We are expecting bullish investment behaviour on both existing (expansions) and new projects now that the demand is guaranteed to be strong in the near and medium term. However, new Oil & Gas projects typically take a long time from concept to realization, so in our view the most likely scenario is expansions to increase output from already existing projects in the near term. Longer term, there is no doubt there will be a big push for new energy projects to remove the European reliance on energy from Russia. The US has a particularly big opportunity in exporting LNG to Europe as soon as receiving capacity has been improved in Continental European ports.
AJOT: The “construction” sector (which has overlap with O&G and Mining) seems to have some momentum as heavy equipment sales are up. Has the demand in the construction sector improved?
Morland: Looking at the US market there is some optimism as the Infrastructure Bill and the Inflation Reduction Act both promise federal and state funding to a larger extent than the previous years. This might make more projects viable and will make them go ahead. We anticipate that there will be investment in both development of new highways/bridges and also improvements on current infrastructure. The same will hopefully be achieved in the power grid systems if this is not held back at state level over partisan politics.
AJOT: Although COVID is not as big a threat as it was in 2020, nonetheless it is still causing lockdowns in the China and Hong Kong market. How much impact is COVID having on current operations?
Morland: There have been temporary shutdowns in regions of China, which have held back port efficiency and production efficiency to a certain extent. Overall, though, it is not nearly as crippling as we have seen in the past when timelines were significantly disrupted both on the manufacturing side as well as the logistical side, causing severe delays to projects.
AJOT: Although vessel port congestion is generally associated with container terminal operations, has congestion afloat or ashore impacted operations?
Morland: There has been impact to the breakbulk segment as well for sure. Much of this has to do with overflow of containerships and container traffic into traditional breakbulk terminals. Another element is that a lot of the commodities that have come out of the boxes to go as breakbulk or bulk now come into breakbulk ports, which causes capacity issues. For a long time already, many breakbulk terminals have not had laydown area or terminal storage space to receive any more cargo, which causes congestion. We have also seen that cargo has not been removed from the ports as expediently as it should have by receivers, which does not help the situation.
AJOT: In terms of wind-power, there are several offshore wind projects in the US now underway and quite a number in the early planning stages. How does the offshore wind-market look both in the near term both in the US and abroad? Similarly, what are the prospects for onshore wind project cargo market in North America?
Morland: The US has set an ambitious target of reaching 30GW by Offshore Wind by 2030. Currently, the output is below 1GW, so growth will be massive. The goal is very ambitious and has a lot of regulatory, skillset, and capacity issues that must be addressed very quickly (and well) to achieve this goal.
The US could look to European countries like UK, Netherlands, Germany, and Denmark to jump ahead on the learning curve, but current policy is to insist on local content state by state (not country wide) which will slow down the progress in my opinion. It does however seem clear that the “Green Shift” has finally come to the US and there is now funding and ambition to realize the massive potential there is for a more diverse energy supply for the future. Now the big challenge of creating a grid to receive and distribute this power must also be ramped up similarly.
AJOT: Another sector we don’t talk about is the “leisure” sector such as yachts, aircraft and other outsized or out-of-gauge units. How does this market sector function? Does it have a seasonal quality or cargo hot spots?
Morland: For the leisure yacht market, it has been business as usual throughout much of the COVID pandemic. Yachts have been moved from East Coast to West Coast US and back depending on seasonality. Now that the world is normalizing again, the yachts are also moving farther afield. There are also quite a lot of yacht and boat shows where a lot of vessels are moved around to be displayed at such events. There are a few dedicated companies that specialize in facilitating these moves on behalf of owners, which effectively would be our customers.
AJOT: One area that we don’t often discuss is how breakbulk “technology” has evolved and impacted the sector. What have been some of the more recent technological innovations that have been instrumental in handling often oversized and heavy freight?
Morland: The industry is constantly evolving, and new ship designs are key to unlock solutions for industrial clients. New ship designs will allow them to build taller, wider, longer, and heavier at fabrication site and allow for less assembly at destination. We have recently announced our new Super – B class vessels, which will be a gamechanger for many industries and allow for bigger modules and bigger dimensions.
AJOT: In terms of a “project”, the lifespan or duration of a project can be years. Does a project or projects’ lifecycles influence asset planning for an MPP carrier?
Morland: Investment in tonnage, or a series of newbuilds, is a significant commitment financially and has inherent risk. We strive to analyze future demand and we strive to construct ships that will be relevant and efficient vessels for our clients for the future. It is, however, always a risk that the market shifts and changes happen during the lifetime of a ship, which is around 20 years. Having a relevant blend of ships is a way to hedge our interests, but there also needs to be a dialogue with the industry majors to ensure that we get our investment right, and also to create awareness of what is possible in terms of aligning manufacturing with what is feasible from a shipping perspective.
AJOT: Although we have asked this question before it is still interesting. AAL’s fleet includes some of the largest vessel classes in the MPP sector and the route structure is one of the largest. What is AAL’s operating philosophy behind the large vessel classes like the A, Super-B and W class vessels?
Morland: We recognize that we need to stay true to our core strengths. We cannot be best at everything, but we can be really good at some things. Our key focus remains to dominate the “Mega Size” MPP sector, and our recent investment in six state-of-the-art vessels, purpose built for our core clientele, is proof that we intend to remain at the forefront of a segment we know very well, and our ever-growing customer base sees the value in.