In the Handysize sector, one bulk shipping company is plotting its own distinct course.

Turn the clock back a decade. Bulk carriers were getting bigger and demand from China where a string of hulking new ports were under construction was starting to change the dry bulk trades in a way that seemed certain to consign Handysize vessels to the history books — obsolete except in the back alleys of Asia’s domestic trades, where modern vessels and quality management are not strictly required.

Fast forward to 2014 and bulk carriers have indeed hugely increased in size on average, mainly driven by China’s immense appetite for imported raw materials. But despite the rush to supersize, Handysize vessels remain a key part of the bulk carrier fleet, performing a key role in the minor bulk trades and offering niche services to a wide range of global industries.

Over the last decade, as many of its peers were concluding that bigger was always better, one operator has stood apart. Rather than selling or scrapping its fleet of Handysize vessels, Hong Kong-listed Pacific Basin instead has instead been expanding its fleet of smaller bulkers, primarily in the Handysize class but increasingly also in the Handymax sector.

The consistent view taken at Pacific Basin has been that the Handysize sector represents good value due to the high average age of the fleet — in part linked to the reluctance of yards outside Japan to build vessels below 40,000dwt — and the ongoing need to offer bespoke cargo services to minor bulk

shippers globally, and serve ports with limited infrastructure. Much the same strategy remains in place today. The ageing demographics of the Handysize fleet are still viewed as a positive, and expansion while asset prices are at historic lows remains on the cards.

Earlier this year, Pacific Basin secured financing for 12 Handysize and six Handymax vessels due for delivery from Japanese yards between mid-2015 and mid-2017. Orders for seven newbuildings at a cost of $170m were placed earlier this year — again with yards in Japan — and a handful of secondhand vessels have also been purchased taking the combined Handysize active and newbuilding fleet to over 183 vessels.

“We are the world’s largest Handysize owner and operator with over 160 Handysize vessels currently on the water,” said Mats H. Berglund, chief executive officer.

The company also has a sizeable share of the Handymax market, with over 70 vessels currently under operation and a further ten on order. “We are in the process of building this fleet up by buying more vessels,” said Berglund.

“In total we have brought in 50 ships in the last 18 months — 32 secondhand ships and 18 newbuildings all in the Handysize and Handymax sectors — and we are still in buying mode.

“We do not try to diversify our fleet too much, we focus on our core segments rather than spreading ourselves too thinly. We don’t charter our ships out, we win cargo contracts, and to win them you need fleet scale and uniform ships that can be substituted for each other.

“A focused fleet is also cheaper in terms of administrative costs such as shoreside staff — if you cover more segments you need more people so your costs are higher than if you focus on core activities.” “By being focussed and with good cargo contracts we are able to achieve higher utilization rates than the average for our fleet. And as we control cargo in one direction, this means we can be more aggressive on the backhaul.”

He points out to the Handysize sector’s demographics as another major positive. “Scrapping is higher in the Handysize than other segments due to its age profile,” said Berglund. “It’s logical. This meant that, while the Cape fleet tripled in the last ten years, the Handysize fleet only grew about 20%.

“It’s a more normal age profile for Handysizes so we are happy with the supply side.”

After posting a $1.5m profit on revenues of $1.7bn in 2013 despite the weak market, the company claimed to have outperformed the Handysize market by some 22%.

Berglund told DCI that so far this year the demand side had been relatively positive for the smaller classes of bulkers, although the ban on mineral exports from Indonesia had hurt the Handymax sector and reduced overall demand for bulk carriers as China instead pulled down stocks of bauxite and nickel ore.

“We did numerous repositioning voyages in the first quarter, primarily moving ships from the Pacific westwards,” he said. “The overall market is still weak but we anticipate a stronger second half of the year.

“We believe minor bulks will grow faster than major bulks. Minor bulks tend to peak later in economic cycles and they are not only infrastructure driven unlike steel and iron ore. We carry what people eat and other cargoes such as copper and nickel ore that go into finished products. A lot is destined for China and, with urbanization, demand for this type of cargo will continue to grow.”

He said volumes of grain into Asia were continuing to rise as the middle class expanded and dietary requirements evolved. “It’s not just from Australia, it’s also from the Americas and it will grow in the long term I think.”

Geographical diversity of demand as well as the wide range of cargoes, and therefore customers, is another factor that tends to limit the volatility of the Handy markets, at least when compared to highly volatile Capesize and panama sectors. “There are more types of industrial business for Handies, so there is less volatility due to the number of different cargo flows,” he explained. “It’s not like iron ore where you are at the whim of Chinese demand and may only have three customers. We have a lot of customers and North America is our second-biggest market after China. This is why we have a wide network of offices and a lot of experience so we know how to carry the different cargoes.

“Many people shy away from Handysizes but we like this work. It has taken a long time to build up and we can send ships everywhere.” He believes Pacific Basin’s strategy bodes well for long-term growth and

improved profitability. “We believe in a gradually stronger supply-demand balance,” he said. “Supply growth of 5% when demand is pretty good should see things improve. In fact, there has never been anything wrong with demand, it has been supply weakness. But this is improving and I believe it will continue to improve for the next two to three years. I think this will gradually drive the market up, but it will take some time to take out the surplus.

“You need to think long term in this business, and this is why we have purchased a lot of ships. We’ve been positioning for cyclical, gradual recovery. When that comes is difficult to say. But the ships are bought for 20 years not 16 months.

“We have bought quality ships at good prices, so we believe we are well placed in the long-term.”