Newbuilding activity: Orders are a thing of the past

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Wednesday, 18 March 2009

Newbuilding orders have grounded to a halt for more than three months now, as ship owners around the world are looking for ways to limit future tonnage supply, not to mention their weakened sentiment on the market’s prospects, at least until the world economy and subsequently global trade manage to rebound from today’s “depths”. According to Clarkson’s latest weekly report, restructuring discussions are now the dominant activity, with the question as to when buyers will see value in committing to newbuildings still remaining.
With the answers to even attempting to solve the above riddle still a long way, “second hand values continue to sit at a considerable discount against what are theoretical newbuilding prices and until we reach an alignment in pricing, newbuilding will remain an unattractive proposition” said the leading maritime service provider. Of course, this established trend begins to pose significant challenges for yards around the world, since there’s a total absence even for enquiries for conventional ships, creating a void in terms of any significant new business being concluded this year. This gap will undoubtedly hurt the cash flow generation of shipyards, rising as the capital issue to be dealt with in the months to come.
Clarksons said that “in theory most yards are committed through into 2011 and there is a cushion for the shipyards in terms of their ability to abstain from dropping prices. This has been an effective tool in existing contract maintenance also, as the backlash from owners with expensive ships on order at yards that would be re-quoting at lower values for the same business, would clearly have a bearing on the attitude of existing buyers and their willingness to perform”. The critical point will come when the forward available capacity will need to be sold. At that time, we shall witness which yards will face more challenges than their counterparts.
From a freight market’s point of view, the fact still remains that during 2009, the global dry bulk fleet is poised for a strong increase of supply by 17.6% or 980 ships with an aggregate capacity of 74.1 million dwt. This estimate was given by Drewry, which says that the current global dry bulk fleet stands at 6,844 ships of 421 million dwt. Not even a record in ship breaking activity is enough to correct things, since historically the demolition activity for all vessel types never exceeded the 10% of the global fleet limit.