2015 was clearly a very challenging year for the shipping markets. With earnings rock bottom in many sectors, investors shifted into a lower gear with respect to the placement of new vessel orders last year. But whilst for many this might be seen as a step in the right direction in terms of rebalancing supply and demand, for the world’s shipbuilders it might feel like a most abrupt adjustment.
Overall contracting of new vessels in 2015 dropped by 40% to 1,306 units from 2,162 in 2014, with estimated newbuild investment falling from $113bn to $69bn. In the largely difficult market conditions investors eschewed newbuild opportunities, and the overall newbuilding price index fell by 5% over the year. The number of tanker orders increased by 14% to 424 and containership ordering increased to 224 units, but these positives were outweighed by the rapid slowdown in orders in the most challenged sectors. Orders for (ship-shaped) offshore units fell by 73% to just 127 last year and bulkcarrier ordering, so often a shipbuilding mainstay in the past, dropped by 68% to 250. To put this in a wider context 1,243 bulker orders were placed in 2013.
Korean builders maintained their volume of orders in dwt terms with 32.5m dwt booked, backed by significant tanker ordering and the tail of the surge in ‘mega’ boxship orders, and Japanese yards even expanded their order intake by 3% to 28.9m dwt. The drop in order volume was felt the hardest in China, where yards saw a 46% fall to 29.2m dwt, as the demand for new bulkers evaporated.
One Hand On The Brake
The drop in ordering left the orderbook down by 7% on its start year level at the end of 2015. But output from the world’s shipbuilders increased last year for the first time since 2011. Deliveries were up by 6% to 96.2m dwt, with output edging up in the major volume sectors, as many of the units ordered back around 2013 were completed. However ‘non-delivery’ of the start year orderbook schedule also increased (to 35% in dwt terms), with a ‘brakes on’ approach from many owners with units scheduled to enter the fleet.
Not Hard Enough Yet?
Few of these trends could be construed as good news for the world’s shipbuilders, many beleaguered by financial problems. Yet the brakes haven’t really been put on hard enough to help market conditions. Overall demolition did increase by 15% to 38.6m dwt, but scrap prices have remained depressed due to a surplus of Chinese steel around the world. World fleet capacity growth slowed marginally to 3.3% in 2015, with European owners holding their own, and the number of units changing hands on the S&P market (1,334) remaining steady. But against seaborne trade growth of 2.0% this wasn’t enough to stem surplus capacity in the markets in general.
Where’s The Accelerator?
Into 2016 things still look tricky. Owners are facing up to the reality of the tough market conditions, and for them the supply side brakes may not yet have been applied robustly enough. But it has been plenty firm enough for builders, leaving demand for new units thin on the ground, and the trend could continue. Niche requirements and the need to replace older tonnage with new, more ‘eco-friendly’ units in some parts of the fleet might help, but like so many in the industry, the world’s shipbuilders find themselves hoping that somebody, somewhere finds the accelerator. Have a nice day.