The containership newbuilding prices being quoted by shipyards are reaching historical lows, and yet contracting in 2012 has remained very subdued. Why has investment in boxships been so sparse this year, and will these low prices eventually stimulate a surge in contracting? The yards certainly hope so. The Graph of the Month shows the number of orders placed for boxships since 1997, along with the Containership Newbuilding Price Index. 2003-7 saw an extended, and unprecedented, boxship ordering boom. Prices were enticingly low in 2003, but increased rapidly as demand exploded and spare yard capacity tightened. However, from October 2008 prices fell sharply, before a modest and relatively short-lived upturn in 2010/11.
Meanwhile, in value terms, contacting peaked in 2007, with 549 boxships ordered, including 184 of 8,000+ TEU (VLCS). This represented an estimated annual investment of $56bn. However, following the global financial crisis, contracting dwindled, and just 17 boxships were ordered in 2009. 290 containerships of a combined 2.02m TEU were subsequently ordered in between July 2010 and June 2011. However, just 68 ships of a total 0.42m TEU have been ordered so far this year, at a contract value of $5bn.
Why So Quiet?
As the graph indicates, previous price troughs have tended to precede ordering surges. However, the current newbuilding price level has not yet tempted a large number of investors back to the yards. Many factors have supressed ord-ering, not least the continuing, and debilitating, paucity of available finance. What funding has been secured has often focused on liner companies for the ordering of VLCSs. Indeed, the 8,000+ TEU orderbook remains equivalent to 54.6% of VLCS capacity on the water, with 185 such vessels of a combined 2.07m TEU scheduled to be delivered before the end of 2014.
Size Sector Surge?
In the small and medium sizes, charter market conditions have not been benign, while investment from German KG funds, which provided so much liquidity for smaller tonnage in the boom years, has withered. As a result, the 0.19m TEU on the sub-3,000 TEU orderbook is equivalent to just 4.6% of fleet capacity in this size range. In the medium size 3-7,999 TEU sector, the 0.76m TEU on order is equal to 10.3% of fleet capacity of this size. Meanwhile, the proportion of orderbook capacity that is German-owned has fallen from 36% in September 2009 to just 15%.
Since trade growth in the coming years is expected to be rosier on non-mainlane routes, the lack of ordering in the small and medium sizes could eventually create a supply deficit of such tonnage. Recently, market and economic conditions have made it tough to attract finance, but when renewed contracting splutters into life, these small and medium size sectors may deserve more attention.