1.The types of vessels being ordered have also changed over the past two years, moving away from bulk carriers and tankers towards specialized and offshore vessels2. The two leading ship building countries, China and S Korea, face very different problems
“It is now almost 5 years since the beginning of the Credit Crisis in August 2007. The autumn of 2008 saw the end of the greatest shipping boom in living history, with the precipitous fall of the dry cargo market. Capesize bulk carrier earnings fell from $300,000 per day in June 2008 to a trough of $2, 000 per day in November 2008,” said Dr. Martin Stopford, Managing Director, Clarkson Research, at the Press conference in SMM 2012.
Speaking about the shipping market he stated: “Bulk carrier earnings are very low in 2012 and close to operating expenses for some sizes. Tankers are somewhat better, but the market remains very weak, as does the container market. Over the past two years there has been much interest in offshore, gas, smaller tankers and containerships”.
In 2009 world GDP declined for the first time since the 1970s, falling by 6%. This was followed, however, by a strong recovery in 2010 (5.3%) and continued growth in 2011 (3.9%). Currently, forecasters are predicting continued firm growth over the next 18 months, he informed newsmen.
Seaborne trade, according to Dr. Stopford, has followed a similar pattern to the world economy. The cargo volume fell to 7.8 billion tonnes in 2009, but then recovered to 8.6 billion tonnes in 2010 and 8.9 billion tonnes in 2011. Currently, the forecast is for another 4% growth in 2012. So from this perspective the development of trade and ship demand is better than seemed possible two years ago.
“But the crisis is not over yet. Continuing problems in the Eurozone and Japan, combined with concerns over the Chinese economy cast a shadow over the coming year which could lead to a downside scenario with slower GDP growth, weak trade and a shortage of new building finance,” he felt.
Dr. Stopford also touched upon several other related issues and expressed his concerns and viewpoints.
SHIP BUILDING
The massive order book and the decline in freight rates produced a widely held belief that slippage and cancellations would force a sharp fall of ship building output. This is not what happened. In fact ship building production has grown by 30% in the past three years, from 77.3 million GT in 2009 to 100.9 million GT in 2011.
Contracting of new ships has also continued, but well below the level of deliveries. In 2009 orders slumped to 32.7 million GT, followed by 88.8 million GT in 2010 and 55.2 million GT in 2011. This means that the shipyards will not be able to sustain current output levels beyond 2012. We are currently predicting a fall to 94 million GT in 2012 and 70 million GT in 2013.
The type of vessels being ordered has also changed over the past two years, moving away from bulk carriers and tankers towards specialized and offshore vessels. In 2011 specialised vessels accounted for two thirds of the ships ordered, including 4.2 million CGT of LNG tankers; 4.1 million CGT of offshore vessels; and 9.1 million CGT of container ships. In contrast, orders for tankers were only 2.6 million CGT and bulkers 8.3 million CGT.
Ship building prices have fallen by 30 to 40% from the peak level of 2008; when the Clarkson ship building price index reached 190. Since then the index has fallen by 29% to 135. At the peak, a new VLCC cost $160 million and a new Capesize $99 million. Today the price of a VLCC has fallen to $97 million and a Capesize to $47 million. Most of this fall took place in 2009, though prices today are under pressure, especially from Chinese yards.
The estimated marine equipment order book has fallen slightly to roughly $196 billion in 2011with sales of roughly $60 billion.
INVESTOR NATION
The value of contracts placed by shipping investors in 2011 was $99 billion. This was 8% lower than in 2010 and 45% lower than in 2008. The biggest investor was the United States ($15.5 billion), followed by Greece ($13.1 billion) and Norway ($8.9 billion). China was in fourth place with orders for $5.6 billion. These figures include the substantial orders for offshore structures (particularly mobile drilling units) and LNG tankers.
At a regional level, after two years in which Asian investors placed more orders than European investors, the trend was reversed, with orders for $43.9 (44%) billion Europe, compared with $23.7 (4%) billion from Asia. Over the four years since 2008 Europe still dominated ship investment, committing $180 billion, 27% more than Asia’s investment of $142 billion.
DEMOLITION
As noted above world shipyards continued to expand output, despite the difficult situation in the world ship building market, with a new record set in 2011 of 162.5 million deadweight (100.9 million GT). However, this looks like the peak of the long cycle, and we expect output to fall by about 5% in 2012
Meanwhile, demolition increased from 14.2 m dwt in 2008 to 41.4 m dwt in 2011 and remains firm in the first quarter of 2012 with 15.1 dwt scrapped. We expect about 50 m dwt of ships to be scrapped in the whole of 2012, about one third of the tonnage of new ships delivered.
However, the age profile of the world fleet does not favour continued high levels of demolition. Relatively few ships were delivered in the 1980s, and the high level of demolition over the past two years is the result of catching up with the demolition of vessels, which would normally have been scrapped in the earlier years, but were not due to the very strong market conditions.
CHINA AHEAD
Over the past two years. China has moved ahead of South Korea to become the world’s leading ship builder. In 2011 China delivered 19.3 million CGT, compared with South Korea’s 16.1 m CGT and Japan’s 9 million CGT. CRSL’s latest order book predictions suggest that China will hold its lead in 2012, with deliveries of 18.4 million CGT, compared with South Korea’s deliveries of 14.2 million CGT.
Looking ahead, the two leading ship building countries, China and S Korea, face very different problems. Although the Chinese ship building industry is still very competitive, its output is heavily biased towards bulk carriers, which accounted for 63% of output in 2011. This part of the market is severely depressed, leaving the Chinese yards with the challenge of diversifying.
In contrast, the South Korean yards have a broad product range, producing fewer bulk carriers and have a greater presence in the specialist markets which are in demand at present. They are market leaders in gas tankers, containerships and offshore vessels. In addition, South Korean yards made extensive use of block production facilities during the boom, which will simplify their diversification into more outfit-intensive vessels like offshore and gas.
The Japanese ship building industry is currently heavily focused on bulk carriers and small tankers. They are marketing these designs aggressively, leading with eco-designs.
As a result of the heavy deliveries, the world merchant fleet grew by 7.8% in 2011, compared with 4.1% growth of trade. However, the increase in the cost of bunker fuel from $200 a tonne to $700 a tonne over the past six years has revolutionized the operating economics of the fleet.
On both accounts the shipping industry faces a period of radical change, particularly concerning the design of its vessels and the way they are operating. The introduction of the new IMO EEDI in January 2013 will drive this forward, but today it represents a challenge which many shipyards and equipment manufacturers are struggling to come to terms with.
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