Shipbuilding – a challenge for the entire industry
What happens in the shipbuilding sector will play a fundamental role in shaping the fortunes of the wider shipping market for the next decade.
London, U.K., 24th June 2009 – There has been a lot of talk in recent months about the state of world shipbuilding, but much of the commentary has been based on supposition, gut instinct or pure guesswork. There has been little rigorous assessment of the likely cancellation risk associated with the current bulging orderbook.
Do commentators know the likely level of future shipbuilding demand, or the shipping demand that drives it? Do they know how many orders have been cancelled, and how many “cancelled” ships will be built anyway? Do they know what shipbuilding capacity really is? How much of today’s order slippage is the result of a planned slowdown in production and how much is a measure of shipyards’ over-optimism?
Now, in a new 200-page report, Drewry Shipping Consultants analyses the facts and explodes some of the myths surrounding the future of this crucial sector. The lack of knowledge has led to some assessments that are cock-eyed or just plain wrong – sometimes dangerously so. But several things can be stated without equivocation.
Firstly, the global orderbook is the biggest in history, creating a danger of long-term oversupply in several – perhaps most – industry sectors. The situation can be compared to the large tanker market in the early 1970s, where a glut of ordering skewed the market for decades. That mistake seems to have been repeated in recent years, only on a wider scale and across dry bulk and containerships as well as tankers.
How many ships are needed?
Drewry has established three likely scenarios for shipbuilding demand between now and 2023. The Base Case projection indicates that the newbuilding requirement to satisfy incremental increases in ship demand and the need to replace scrapped ships to 2013 would amount to 97 million cgt, while the current orderbook and scheduled deliveries for this period is double that amount. The projected newbuilding requirement rises to 120 million cgt over the period 2014-2018 and to 139 million cgt up to 2023. In these periods the newbuilding requirement is quite large, in the main because of the need to replace ageing parts of the world fleet,” says Nigel Gardiner, Managing Director.
A matter of timing: the dry bulk experience
But for the moment all eyes are on the next five years and dry bulk provides a good example of the problems confronting shipbuilding and shipping alike.
At the beginning of 2009 there were 6,864 bulk carriers in service, with a combined deadweight of 422 million tonnes. Despite a steady stream of newbuildings, the fleet is old with an average age of 16 years. Although most tonnage will not be scrapped at least until it reaches 30 years of age, there is already a considerable number of ships in excess of 20 years of age. Given the severe downturn in the dry bulk freight market, scrapping in this sector can be expected to pick up and in the period to 2013 total removals could well be in the order of 60+ million dwt.
If dry bulk trades were to grow at the rates seen in the period 2000-08, it would generate incremental new ship demand for approximately 100 million dwt over a five-year period.
However, the latest projections suggest that over the next five years trade growth is likely to generate new demand closer to 50 million dwt. To this figure you must of course add demolitions over the period, but even then the combined total will make only a small dent on the 300 million dwt that is currently scheduled to be delivered between now and the end of 2013. As such, do not expect trade growth to save the dry bulk market.
The rate of deletions in sectors such as container ships will remain low due the younger nature of the fleet despite the appalling conditions. A similar, though less extreme situation exists in the tanker market.
The current orderbook and scheduled deliveries indicate that some 197 million cgt of new tonnage will be built and delivered by the end of 2013. At the moment there is a strong possibility that perhaps as much as 20-30 million cgt will be cancelled, reducing the amount that will be delivered to 170-175 million cgt. Some 14% of the orderbook is currently at some appreciable risk of cancellation.
Fantasy Shipbuilding
Muddying the waters is the issue of shipbuilding capacity. Many observers have assumed that the orderbook is a guide to shipbuilding capacity, but the widespread failure of shipyards to deliver on time suggests that capacity is actually less than it seems. Drewry estimates that the world’s shipyards delivered 2,173 ships in 2008, equivalent to 79 million dwt, 57 million gt and 36 million cgt. While there might still be some late reports, so far it seems that output was only 0.4 million cgt higher than in 2007.
Despite the rush to get in on the shipbuilding boom, the increases in shipbuilding capacity so far have been far less than anticipated. Essentially, shipyards promised more than they could deliver, which suggests that the present delivery schedule might be subject to the same exaggeration. “The sheer scale of contracting has led to many shipbuilders committing to delivery dates based more on wishful thinking rather than realistic productivity and capacity improvements,” comments Gardiner. If the total scheduled delivery workload for 2009 is to be realised, shipbuilding completions (including 2008 slippage) would roughly need to double – from 2008’s 36 million cgt., something which is unlikely to happen.
Drewry’s conclusions can be summarised as follows:
• The size of the current newbuilding orderbook suggests massive over-supply in some sectors
• Orderbook phasing is not realistic and many ships are not being delivered on time; hence the incidence of slippage is increasing, which will help to alleviate the projected net increases in supply
• Cancellations of newbuilding orders have been relatively minor to date and while they are expected to grow, they are unlikely to reduce the size of the orderbook by a significant margin
• Growth in seaborne trade and ship demand in the next five years will absorb relatively small amounts of the tonnage on order
• Scrapping will help, but only to a limited extent, by moderating the net increase in fleet size
• Deferral and rescheduling of the orderbook phasing may be a more attractive option and while only very small levels of this have occurred to date, this provides the market with potential to reduce the imbalance.
The world’s shipbuilders undoubtedly face difficult times between the delivery of the current inflated orderbook and a return to more normal ordering patterns.
“World Shipbuilding Review and Forecast 2009/10", an Annual report by Drewry Shipping Consultants Ltd is available for purchase. Individual copies of the report are priced, including postage to any part of the world.
Print & PDF £1,290
PDF only £1,195
For further information, please contact Nigel Gardiner, Managing Director or Paula Puszet
Shipbuilding – a Challenge
Shipbuilding – a challenge for the entire industry
What happens in the shipbuilding sector will play a fundamental role in shaping the fortunes of the wider shipping market for the next decade.
London, U.K., 24th June 2009 – There has been a lot of talk in recent months about the state of world shipbuilding, but much of the commentary has been based on supposition, gut instinct or pure guesswork. There has been little rigorous assessment of the likely cancellation risk associated with the current bulging orderbook.
Do commentators know the likely level of future shipbuilding demand, or the shipping demand that drives it? Do they know how many orders have been cancelled, and how many “cancelled” ships will be built anyway? Do they know what shipbuilding capacity really is? How much of today’s order slippage is the result of a planned slowdown in production and how much is a measure of shipyards’ over-optimism?
Now, in a new 200-page report, Drewry Shipping Consultants analyses the facts and explodes some of the myths surrounding the future of this crucial sector. The lack of knowledge has led to some assessments that are cock-eyed or just plain wrong – sometimes dangerously so. But several things can be stated without equivocation.
Firstly, the global orderbook is the biggest in history, creating a danger of long-term oversupply in several – perhaps most – industry sectors. The situation can be compared to the large tanker market in the early 1970s, where a glut of ordering skewed the market for decades. That mistake seems to have been repeated in recent years, only on a wider scale and across dry bulk and containerships as well as tankers.
How many ships are needed?
Drewry has established three likely scenarios for shipbuilding demand between now and 2023. The Base Case projection indicates that the newbuilding requirement to satisfy incremental increases in ship demand and the need to replace scrapped ships to 2013 would amount to 97 million cgt, while the current orderbook and scheduled deliveries for this period is double that amount. The projected newbuilding requirement rises to 120 million cgt over the period 2014-2018 and to 139 million cgt up to 2023. In these periods the newbuilding requirement is quite large, in the main because of the need to replace ageing parts of the world fleet,” says Nigel Gardiner, Managing Director.
A matter of timing: the dry bulk experience
But for the moment all eyes are on the next five years and dry bulk provides a good example of the problems confronting shipbuilding and shipping alike.
At the beginning of 2009 there were 6,864 bulk carriers in service, with a combined deadweight of 422 million tonnes. Despite a steady stream of newbuildings, the fleet is old with an average age of 16 years. Although most tonnage will not be scrapped at least until it reaches 30 years of age, there is already a considerable number of ships in excess of 20 years of age. Given the severe downturn in the dry bulk freight market, scrapping in this sector can be expected to pick up and in the period to 2013 total removals could well be in the order of 60+ million dwt.
If dry bulk trades were to grow at the rates seen in the period 2000-08, it would generate incremental new ship demand for approximately 100 million dwt over a five-year period.
However, the latest projections suggest that over the next five years trade growth is likely to generate new demand closer to 50 million dwt. To this figure you must of course add demolitions over the period, but even then the combined total will make only a small dent on the 300 million dwt that is currently scheduled to be delivered between now and the end of 2013. As such, do not expect trade growth to save the dry bulk market.
The rate of deletions in sectors such as container ships will remain low due the younger nature of the fleet despite the appalling conditions. A similar, though less extreme situation exists in the tanker market.
The current orderbook and scheduled deliveries indicate that some 197 million cgt of new tonnage will be built and delivered by the end of 2013. At the moment there is a strong possibility that perhaps as much as 20-30 million cgt will be cancelled, reducing the amount that will be delivered to 170-175 million cgt. Some 14% of the orderbook is currently at some appreciable risk of cancellation.
Fantasy Shipbuilding
Muddying the waters is the issue of shipbuilding capacity. Many observers have assumed that the orderbook is a guide to shipbuilding capacity, but the widespread failure of shipyards to deliver on time suggests that capacity is actually less than it seems. Drewry estimates that the world’s shipyards delivered 2,173 ships in 2008, equivalent to 79 million dwt, 57 million gt and 36 million cgt. While there might still be some late reports, so far it seems that output was only 0.4 million cgt higher than in 2007.
Despite the rush to get in on the shipbuilding boom, the increases in shipbuilding capacity so far have been far less than anticipated. Essentially, shipyards promised more than they could deliver, which suggests that the present delivery schedule might be subject to the same exaggeration. “The sheer scale of contracting has led to many shipbuilders committing to delivery dates based more on wishful thinking rather than realistic productivity and capacity improvements,” comments Gardiner. If the total scheduled delivery workload for 2009 is to be realised, shipbuilding completions (including 2008 slippage) would roughly need to double – from 2008’s 36 million cgt., something which is unlikely to happen.
Drewry’s conclusions can be summarised as follows:
• The size of the current newbuilding orderbook suggests massive over-supply in some sectors
• Orderbook phasing is not realistic and many ships are not being delivered on time; hence the incidence of slippage is increasing, which will help to alleviate the projected net increases in supply
• Cancellations of newbuilding orders have been relatively minor to date and while they are expected to grow, they are unlikely to reduce the size of the orderbook by a significant margin
• Growth in seaborne trade and ship demand in the next five years will absorb relatively small amounts of the tonnage on order
• Scrapping will help, but only to a limited extent, by moderating the net increase in fleet size
• Deferral and rescheduling of the orderbook phasing may be a more attractive option and while only very small levels of this have occurred to date, this provides the market with potential to reduce the imbalance.
The world’s shipbuilders undoubtedly face difficult times between the delivery of the current inflated orderbook and a return to more normal ordering patterns.
“World Shipbuilding Review and Forecast 2009/10", an Annual report by Drewry Shipping Consultants Ltd is available for purchase. Individual copies of the report are priced, including postage to any part of the world.
Print & PDF £1,290
PDF only £1,195
For further information, please contact Nigel Gardiner, Managing Director or Paula Puszet
Drewry Shipping Consultants Ltd,
https://edir.bulk-online.com/profile...onsultants.htm9293 drewry shipping consultants.htm
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