Shipowners May Have Canceled 260 Orders on Recession

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Thursday, 23 April 2009

Shipowners probably canceled orders for 260 vessels carrying commodities and containers as the global recession choked demand and a credit crunch reduced funding, a consultant said. Shipyards received new orders for 255 million gross tonnage in capacity in the past three years, and about 7 million tons in confirmed contracts may have been canceled, according to Roy Thomson, a regional marine manager in Asia for Lloyds Register, which certifies ships. Yards may have lost $20 billion in revenue from the cancellations, based on Bloomberg calculations. “We will see more cancellations,” Thomson said in an interview today at the Sea Asia 2009 conference in Singapore. “We have not gotten to the root of it yet.” An investment boom in shipping took place in the past four years, prompted by cheap credit and China’s soaring demand for steel, ore and grains. The global economic contraction and plunge in prices of coal, ore and grains led to lower shipping rates last year. About a third of the cancellations may have been for bulk carriers, which transport ore, grains and other commodities, said Thomson, who has more than 25 years’ experience in the shipping industry. “The shipping industry has been hit by both supply and demand problems,” Arjun Batra, managing director for consulting at London-based Drewry Shipping Consultants Ltd., told Bloomberg News today in Singapore. “There’s a surplus of carriers and demand has fallen in China and other markets.” Market Share Lloyds Register, which certifies ships, has about 18 percent of the global market share in the existing commercial fleet of about 8,400 vessels, said Russell Barling, a spokesman for Lloyd’s Register. The biggest bulk carriers at the peak of the shipping boom in the first quarter of last year may have cost as much as $100 million each while large size tankers and container vessels cost as much as $135 million, Thomson said. Leading shipyards in South Korea and elsewhere may not have reduced prices as yet because their order books are full from previous contracts and scheduled deliveries this year may be unaffected, Thomson said. Shipowners have started renegotiating with yards to reduce prices of newbuilds, creating uncertainty in construction schedules next year. There are 3,424 commodity carriers presently on order at shipyards around the world, according to data from London-based Drewry Shipping Consultants Ltd. Those vessels will have a combined carrying capacity of about 294 million deadweight tons, or 70 percent of the existing global fleet. Deadweight tons measure a ship’s capacity to carry cargo, fuel and water. Order Book As much as 50 percent of the global order book may be canceled because of the collapse in markets and constrained financing, Carsten Mortensen, chief executive officer of Danish shipping company D/S Norden A/S, said April 7. There were few orders for large vessels transporting ore and oil this year though yards are still building specialist vessels such as anchor handlers, tug boats and vessels for the oil and gas industry, Thomson said. About 6 percent of Lloyds Register’s order book to certify vessels was canceled in the past six months, Thomson said. Yards received new orders of 80 million gross tonnage in 2006, 130 million in 2007 and 45 million last year, he said. Source: Bloomberg