Ultramax and Post-Panamax bulk tanker vessels

I’ve been working on a project for one of my clients recently and came across some information that truly floored me. We were looking at day rates for chartering large vessels – in this case, we were looking at published rates for bulk tankers in the Ultramax and Post-Panamax categories of vessels.

For those unfamiliar with these types of vessels, here are their basic characteristics:

Ultramax – 60,000 – 65,000 DWT (deadweight tonnage), 200 – 210 meters long, 32 meters wide and drawing 10 – 14 meters in depth.

Post-Panamax – 80,000 – 120,000 DWT (deadweight tonnage), 225 - 250 meters long, 32 – 35 meters wide and drawing 10 – 14 meters in depth.

Both types of vessels are commonly used in the marine freight industry for moving bulk commodities like ores, grain etc. A quick google search tells me that more than 150 Ultramax bulk carriers were ordered in 2023 from shipyards. Getting a solid number of vessels operating is tricky but they are very common and travel to every ocean on earth in all kinds of conditions.

The piece of information that blew my mind was the published day rates for these vessels. Here is a link to some published rates. An Ultramax carrier can be spot chartered on a day rate as low as $14,000 per day to a high of $22,000 per day depending on the route, region and particulars of the vessel being chartered. Assuming a two-week shipyard visit per year, that works out to a range of $5m – 7.5m in charter costs per year. Post-Panamax vessels can be chartered at somewhat higher rates but, in my opinion, are exceedingly cheap compared to what salmon farmers pay for vessels. These ships are 10 -15 times larger than an average wellboat, 5 – 9 times larger than the largest wellboat currently in operation and many times larger than any service vessel in operation.

My experience with aquaculture vessels

As a salmon farmer with decades of experience in several farming regions, these numbers are incredible to me. I had always assumed vessels of these sizes would be far more expensive to charter and operate. I live in a port city, see them coming through port every day and had always assumed they would cost $80m to $100m to charter per year. It wouldn’t have taken much research to correct my misunderstanding but better late than never.

Aquaculture vessels are obviously specialized, operate in tricky environments and farmers use a lot of them for many tasks on a farm. Like many of my colleagues, however, I became accustomed to the notion that a boat was a hole in the water into which one threw money and felt, incorrectly, that other industries suffered the same fate.

In the early days of salmon farming, we relied less on specialized vessels – the gold standard at the time was to put the fish in a pen and then try to avoid handling them. As the industry changed, we became much more reliant on specialized vessels – two immediate examples come to mind 1) the elimination of copper-based anti-foulant paint on nets led initially to the need for vessels to wash nets and, over time, to an increase in gill-health related challenges and an additional need to bathe/handle fish to treat that condition. Similarly, in the early days, sea lice were not a problem or if they were a problem, they were handled by in-feed parasiticides. As these products became ineffective over time, and pressures to treat sea lice with non-pharmaceutical methods grew, farmers turned to vessel-mounted systems for treatment. As the use of these systems grew, the costs of excessive handling increased (mortality, sea lice resistance etc) and further created demand for specialized vessels.

An important thing to keep in mind when thinking about aquaculture vessels is that outside of a few basic activities – mooring a new farm, delivering feed. cages and equipment and harvesting – none of the activities performed by service vessels add value to the product of a farm. At best, they preserve value but mostly they are a pure cost – every time a farmer handles fish, they lose growth, cause stress and damage, and kill fish. Sadly, the alternative (doing nothing) is worse. Here is a link to a previous blog post on the costs of mechanical treatments.

Aquaculture service vessel companies

Vessel companies make a lot of money. This article from 2021 provides a list of reported earning by Norwegian service vessel companies. As you can see from the list, most make healthy margins with EBIT values between 25% and 50%. This information is a bit dated and there has been consolidation in the sector, but I don’t believe, for a minute, that key players in the industry are making any less. On a margin basis, service vessel companies make more money than salmon farming companies.

Here are the types of service vessels commonly found on a net pen farm:

Wellboats – historically they would have been used primarily for delivering smolts, harvesting and size grading. In recent years, more of their activities have been focused on treating sea lice and amoebic gill disease. They have become larger and more sophisticated every year. Here’s an article describing the largest of these wellboats. At 12,000 DWT, it conservatively has an annual charter rate of 11m – 12m euros (34k Euros/day). Back to the bulk tanker comparison more than twice the price for 1/4 of the volume. In its 2023 report (the last one before they went private), Froya, the service vessel company earned 95m Euros from its fleet of 19 wellboats.

Service vessels – these vessels provide basic services to salmon farms. Activities include towing and mooring cages, feed barges and other equipment, installing, changing, cleaning and removing nets. With increasing fish health challenges, supporting lice and AGD treatments and other fish handling events have become a much bigger focus of activity. In 2023, Froya had 64 vessels in this category earning an average of 1.2m Euros per year.

Dive boats and crew transport – moving people around safely has become much more expensive as farms have moved into more remote locations exposed to open ocean conditions. For the longest time, salmon farming was a bit below the radar in terms of crew transport but there’s little tolerance in that area today.

Feed transport – every kilo of feed fed on a farm is transported to site, in many cases across long distances. Typically, rates for feed delivery vessels are lower than more specialized aquaculture vessels but still operate at a premium to the bulk tankers I mentioned above. The vessel I used in eastern Canada was roughly 4% the size of an Ultramax bulk tanker and about 60% of the cost.

So what?

So, what’s the point of whining about this? Salmon farmers continue to make excellent profits and have been able to pass along vessel costs to consumers. Aquaculture vessel companies have a specialized skillset, have invested heavily in modern equipment, operate in a highly regulated environment, and, are free to negotiate the best deal possible. Both things are true, but we should not lose sight of the fact that salmon farming, as currently conducted, is a high-cost undertaking and to a certain extent, is that way because companies operating in the value-chain are wringing extraordinary profits from it.

Other marine industries prove that lower costs are possible. If the current paradigm holds, the situation in salmon farming will only get worse. If the industry moves offshore, sea conditions will limit the number of safe working days per year, and vessels will require dynamic positioning systems, even more highly skilled crews, and advanced equipment to provide basic services. I posted a link to an article recently about attempts to recover a vessel sunken in a remote location. In that example, the crane being employed in the recovery effort could not work safely in wave heights over 0.3m. On many of the offshore sites currently being considered in Norway and other regions, conditions would never be below this threshold. Perhaps capable offshore vessels will come from the oil and gas sector, but I am deeply skeptical that any cost-savings will come from that direction.

Land-based farms offer the opportunity to eliminate the need for specialized aquaculture service vessels but come with a host of costs and other issues that more than replace the money spent on vessels. They may shift the paradigm slightly if they are successful and can scale but the essential nature of an industry that has come to rely on extraordinary barriers to entry and high market prices will not change.

Going back to an earlier rant about how existing developments in both offshore and land-based will only serve to entrench current approaches, I think we as proponents and investors in the aquaculture sector should be aware of our pre-judgements on how things should function and ask ourselves if existing ways of doing things are the right ways of doing things. After having my eyes opened about costs in other marine industries, I will be looking for any opportunity to shed cost and reduce complexity.

If you are still reading, I salute you.

Feedback and comments welcomed via info@AlanWCook.com or through my LinkedIn profile.