New ship orders sink on slow trade, overcapacity

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SHIPYARDS are feeling the pinch of slowing global trade and massive overcapacity, particularly in containerships, as 2016 will apparently set a record for the least number of new shipbuilding contracts in more than 20 years, according to a new report by maritime analysts BIMCO.

The firm pointed out that shipbuilding contracts declined from 2010 to 2012 in the wake of the global financial crisis, but rebounded in 2013 and were expected to stabilize over the next few years.

BIMCO said that there was actually a further decline in the number of contracts in 2014 and 2015, but a slight increase when measured in terms of tonnage. In 2016, however, the analysts describe new contract activity as a “crash,” as the compensated gross tonnage (CGT) is at its lowest level on record, and has virtually no chance of increasing over the last few months of the year.

According to Peter Sand, Chief Shipping Analyst at BIMCO, “Since the high contracting in 2013, BIMCO expected the shipyards could come under pressure. This expectation became a reality at the start of 2016, with Q1 contracting the second lowest CGT in 20 years.”

But, he added, “A low level of contracting is exactly what the shipping industry needs in order to eventually restore the fundamental balance between supply and demand.”

According to an update earlier this month by maritime services firm Drewry, the overcapacity in containerships, in terms of the amount of capacity that has been idled by its owners, has already surpassed 1 million TEUs (twenty-foot equivalent units) this year.

By the numbers

Japan and South Korea have been the hardest-hit by the downturn, seeing contracts decline by 86.7 percent and 86.5 percent year-on-year in the first eight months of 2016. China also saw a steep drop in contracted CGT, dropping 49 percent in the January-August period compared to a year earlier.

On the other hand, BIMCO said that European shipyards, which are dwarfed by their Asian counterparts, saw some improvement. Europe contracted 2.52 million CGT in the first eight months of 2016, 45.3 percent more than the same period in 2015.

The tanker and container segments, which are responsible for two-thirds of all new orders, were also responsible for most of the decline in orders in 2016, BIMCO reported. Compared to the first eight months of 2015, tanker contracts have dropped by 80.1 percent, which contracts for new containerships have declined 84.1 percent.

Globally, the tanker and container segments are the main reasons for diminishing new orders by percentage as well as in CGT in 2016. Combined, they were responsible for 67.7% of the total contracted CGT in the first 8 months of 2015. This year, tanker contracts are down by 80.1% and container contracts are down 84.1% compared to the same eight months last year.

SKorean yards worst hit

BIMCO’s Peter Sand pointed out that order cover – the number of years it would take a shipyard to complete its outstanding orders, and an indicator of the health of the shipbuilding industry – began to decline in South Korea in 2014, whereas China and Japan did not see a significant drop until 2015 and 2016, respectively.

Order cover in South Korean yards is now down to about two years. A low order cover indicates that either the shipyard has too much capacity, or that it has a low number of orders.

BIMCO noted that in this respect European shipyards are doing better, having increased their order cover slightly from 2015 to 5.3 years. Europe, however, is only responsible for about 9.3 percent of global shipbuilding, BIMCO said, making their success inconsequential to the global situation.

One exception for Korean concerns seems to be the Hanjin Heavy Industries operation at Subic Bay. While declining to give specifics of pending orders, a company spokesman said that order activity for the year to date is slightly ahead of the same period last year, and is expected to remain stable for at least the rest of the year. The spokesman attributed this to the shipyard’s work on ships that have been less affected by the global trade slowdown, such as bulk and specialized carriers.

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