Ship owners still reluctant to commit new ship orders

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Friday, 08 May 2009

Hellenic shipping companies are refraining from placing any newbuilding orders for almost seven months now, in an attempt to limit potential oversupply of vessels, at a time when financing is scarce and the freight markets’ prospects appear grim, together with the global economical environment. In its latest newbuilding report, shipbroker George Moundreas & Co . commented that this development is normal, since the perception of a huge number and volume of the global orderbook hinder any thought of owners heading back at shipyards. Indeed, the report once was full of contracted vessels, up to 40 on a monthly basis, especially during 2006-2007 with bulk carriers proving the most popular.
The report also states that most banks appear reluctant to finance such new deals. The problem that the market faces is the lack of information regarding the number of order cancellations, or delays in deliveries. Both ship owners and shipyards are silent, since nobody is to benefit from that kind of publicity. Of course, this isn’t the case for publicly-traded companies, which are obliged to report such agreements. So, what can be said with some degree of certainty, regards contracts with no financing backing, as well as that a respectable number of containerships which the market can’t handle.
The report says that the market is headed towards some form of balance, though through slow and painful processes. This combined with some freight market upswings could lead to a normalization of the current troublesome picture.
For the moment, most yards are looking to execute as much of their orders without having to face cancellations. Marketing tools are therefore implemented, with recent reports saying that many Japanese shipyards appearing willful to lower prices for contracts on order, in exchange for an order of one additional unit from the owner’s part. The yards have got room to negotiate as obviously their building costs have been reduced from when they signed the contracts, and the owners are coming to renegotiate the contract price.
The world new ship contracts kept low at 693,700 dwt in March the fifth month with turnover down 1 million dwt. April isn’t expected to be anymore different. A further indication of an absence in new orders, is the fact that ships sold for scrap currently outpace newly ordered ones. Clarkson recently said that global ship orders were for 26 vessels and 1.3 million dwt (deadweight, the weight of freight that can be loaded in a ship) in the first quarter of this year. But a whopping 237 ships of 7.5 million dwt were broken up for metals. Bulk carriers, the cargo ships that carry grains and minerals, were heavily affected by the slump in the industry and dismantled in particularly large numbers. Ninety-nine ships were dismantled from January to March this year, more than last year's total of 93.