Shipyards' financial troubles appear and seek quick solutions

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Wednesday, 01 April 2009

After almost six months during which almost no new building orders have been placed, shipyards around the world and especially in the two biggest shipbuilding nations of South Korea and China are facing acute problems. Besides their urgent need for cash, they are faced with the additional pressure by many of their clients to either delay the scheduled deliveries of new vessels, but also to cancel some of their orders. This situation is more obvious for smaller yards, as well as some of the greenfield yards that were appearing like mushrooms in China during the past couple of years.
South Korean yards are actively looking to address their cash availability by issuing corporate bonds. Their goal is to strengthen their position by subsidizing their lack of any recent new business. According to Clarksons weekly report “this is a clear indication of the fact that cash reserves are becoming increasingly depleted which is an ongoing concern with very little sign of any green shoots in terms of serious buyers in the short term”.
So, what does this mean for new building prices? Everybody’s wonder is whether we shall witness more aggressive pricing from yards eager to attract more customers, with ship owners being more keen on second-hand vessels at the moment. Clarksons says that one or two Chinese shipyards are more active in terms of pricing on berths going forward. In fact, several yards in China are marketing dry bulk berths at levels that are on par, or close to, modern second hand values and this in turn is starting to generate potential buying interest.
Should this encouraging trend continue, there is a possibility that some owners will be loured in placing new orders, but that should occur during the second half of the year, when more yards are added to the list of those willing to offer more attractive prices, always in conjuction with how the freight market will have evolved by then. That means that for a period of nine months or more, we shall see a “black hole” of deliveries. This should occur by late 2011, when everybody’s hope is that the market will have rebounded at higher and more sustainable levels, together with the world economy.