The outlook for the global shipbuilding industry is bleak said a recent research report from Danish Ship Finance. While global yard capacity has just passed its peak, it is still historically high. The size of the global orderbook is currently 46% below the 2008-peak and expected to be almost halved within the next 12 months (exclusive of any potential new orders placed during 2012).The report mentioned that 74 million cgt (compensated gross tonnage) was scheduled for delivery in 2011 with actual deliveries amounting to 50 million cgt. 24 million cgt was not built in 2011. 21 million cgt was re-scheduled to a later delivery date. Of these, 3 million cgt changed segment from Tanker, Container or Dry Bulk to Other. 2 million cgt was cancelled outright. Chinese shipyards apparently went through 2011 without any major cancellations. Chinese yards were due to have built 10 of the 24 million cgt in 2011. An equal amount was postponed for later delivery. 8 million cgt was postponed one year forward for delivery in 2012. South Korean shipyards struggled to maintain the size of their orderbook. South Korean shipyards were to have delivered 8 of the 24 million cgt in 2011. Only 3 million cgt was postponed for later delivery, while the remaining 5 million cgt was cancelled.
According to Danish Ship Finance, “dry bulk orders were impacted the most. 32 million cgt of Dry Bulk orders was scheduled for delivery in 2011. 22.5 million cgt was actually delivered in 2011. Of the remaining 9.5 million cgt, 8 million cgt was postponed for later delivery. The Dry Bulk orderbook shrank by 1.5 million cgt. A total of 19 million cgt was scheduled for delivery in the Tanker segments during 2011. 11.5 million cgt was actually delivered. Of the unsettled 8 million cgt, 4.5 million cgt was re-scheduled for later delivery whereas 3.5 million cgt was cancelled” the report said.
Several ship segments are facing low freight rates, declining asset values and a short- to medium-term outlook, in which the risk of escalating overcapacity issues cannot be disregarded. Nevertheless, new orders will be placed in 2012 and beyond. Shipyard capacity seems to have grown ahead of demand for new, quality, fuel-efficient, competitively-priced and environmentally-friendly vessels. Danish Ship Finance mentioned that “orders scheduled for delivery in 2012 exceed estimated yard capacity. The same was the case in 2011. In our forecast, we apply a 2011 scenario to the 2012 schedule, by postponing one third of scheduled deliveries and thereby reducing scheduled 2012 deliveries from the original 67 million cgt to 48 million cgt. This figure is our best estimate based on individual yard performances in 2011. As a result, we estimate global yard capacity utilization at 82% in 2012. On the other hand, there is obviously more to deliveries than yard performance. Shipowners’ ability to take delivery of their newbuildings is correlated with the situation in the freight markets and the ship financing squeeze. If market conditions deteriorate any further some owners may fail to take delivery in 2012, not to mention that their appetite for ordering new vessels will be reduced” said the company’s report.
42 MILLION CGT TO BE DELIVERED IN 2013
The extensive postponement activity is expected to lift 2013 deliveries beyond the current schedule. “We forecast that 43 million cgt (up 10 million cgt from the current schedule) will be delivered in 2013. We assume the same delivery performance for the 2013 deliveries as for the 2012 deliveries. As a result, we estimate global yard capacity utilization at 78% in 2013. Currently, the global orderbook looks very thin after 2013. Presumably, new orders will be placed for delivery in 2014 and beyond but will it be enough to utilize current capacity? We do not think so” said the research.
NEWBUILDING PRICES WILL DECLINE IN 2012
Will newbuilding prices stabilize if yard capacity is reduced to meet lower demand? That is difficult to say. We have previously argued that there comes a point when lower yard utilization can no longer can push down newbuilding prices any further. When that point is reached, capacity, not prices will have to give. In 2012, some yards will struggle to utilize their capacity, while others will have full orderbooks well into 2013. As a result, there will be large differences between, for example, South Korean and Chinese yards as well as differences between segments. Obviously, yards capable of building advanced vessels should be much better off than yards primarily building Dry Bulk vessels. Therefore, we expect that South Korean shipyards together with the largest Chinese shipyards will be the better positioned to stick it out over the next two years. On average, we forecast that newbuilding prices for less sophisticated vessels – or at least shipyard profitability - could decline by as much as 15-20% in 2012” concluded Danish Ship Finance.