Boxship newbuilding projects are being placed on ice as freight rates on key routes weaken by the day and banks stay away from the market.
After a strong first half, 2011 looked to be on course for a near record year in terms of the amount of money committed to new orders.
But although a number of industry heavyweights such as Maersk Line, Seaspan and Zodiac Maritime are among those reported to be at an advanced stage of discussion with shipyards, industry insiders say they do not expect much, if anything, to be signed in the current climate.
“The market has switched off,” said one source.
Several others said that boxship owners are biding their time, given the shift in sentiment as last year’s record profits are wiped out. Those prepared to wait a few months should see a further decline in newbuilding prices, according to some brokers.
The change of mood in recent weeks follows a bumper six months when $20bn worth of containership orders were placed, according to Clarkson Research. That compares with $8.5bn in the whole of 2010 and just $1.1bn in 2009. Boxship orders remain way ahead of those in other sectors, with just $1.9bn committed to new tankers and $6.6bn for bulkers in the January-June period.
If the first half trend continued into the latter six months, then 2011 would see $40bn worth of containership orders inked, second only to the all-time high of $56bn placed in 2007 just before the market went into reverse as the global economy collapsed. But the orderbook remains well below 30% of the existing fleet, whereas it hit 60% four years ago.
Maersk is known to be considering more orders, having just converted an option for another 10 Triple-E 18,000 teu ships into a firm contract in late June. The next vessels on its shopping list are expected to be for 10,000 teu capacity, with several series of 10 under consideration.
London-headquartered Zodiac is also said to be in talks with shipyards for various sizes, as is Seaspan, but neither will go ahead until firm charter commitments are in place.
But owners and operators are backing off for the time being, given the dire state of the major east-west freight trades,which are expected to leave the whole industry in the red this year.
Drewry said earlier this month that ocean carriers were likely to post significant losses this year. With cash flow turning negative, some sale and leaseback deals have been reported in what are seen as a way of generating cash at a time when revenue streams from the freight markets are under severe pressure.
Lines are now preparing general rate increases and still hoping to levy peak season surcharges within the next few weeks amid signs of modest improvements in vessel utilisations following the removal of some capacity from the two big revenue-spinner trades.
But in its weekly ACM/GFI market commentary, the broker said there appeared to be a general consensus that the various proposed rate and surcharge increases could not be fully implemented.
Against that background, owners and operators that had been about to sign newbuilding orders are now adjusting their timing. And by postponing their plans, they are likely to get considerably lower prices than those now being quoted. Some think there is scope for a further 5%-10% downwards adjustment, bringing the price of a 14,000 teu vessel to well below $120m. Four years ago, ships of that size were costing close to $170m apiece.
Banks, meanwhile, are playing their part ion putting the brakes on newbuilding activity, Finance remains very tight for all but the top bluechip borrowers, with lenders also being far more selective about the type of ships they are prepared to finance. Much closer attention is being paid to specifications and fuel consumption than in the past.