Contract orders for containerships are down 84.1 percent year-over-year so far in 2016, which is “exactly what the shipping industry needs,” according to Peter Sand, chief analyst at the Baltic and International Maritime Council.
Contract orders for newbuild vessels at shipyards around the world have fallen to their lowest level in over two decades, according to the Baltic and International Maritime Council (BIMCO).
The shipowner association said in a statement following slight, incremental declines in 2014 and 2015 compared with the previous year, order activity has “crashed” so far in 2016.
After a buying frenzy in 2006 and 2007, shipbuilding orders fell to then-record lows in 2009 as the industry reeled from the effects of the 2008 financial crisis. Orders bounced back in 2010 before declining again the next two years, only to rebound in 2013, the biggest year on record next to the 2006/2007 run.
BIMCO attributed the decline primarily to a steep drop in orders for containerships and liquid bulk tankers, which represent 67.7 percent of total contracted orders during the first eight months of the year. So far in 2016, containership and tanker contract orders are down 84.1 percent and 80.1 percent, respectively, compared with the same 2015 period.
On a regional level, shipyards in Japan and South Korea saw the biggest decline in order activity, as contract orders fell 86.7 percent and 86.5 percent year-over-year, respectively. Only shipyards in Europe posted an increase, as year-to-date orders have jumped 45.3 percent compared with the previous year.
The rapid decrease in contract orders has put further pressure on what is called the “order cover” of global shipbuilding yards, according to BIMCO.
Order cover refers to the number of years it will take shipyards to deliver the vessels currently on order, also known as the order book, based on shipyard capacity. A low order cover, therefore, can result from a declining order book, excess shipyard capacity, or a combination of the two.
Order cover at shipyards in South Korea is currently the lowest of any individual country at less than two years, according to BIMCO.
“Since the high contracting in 2013, BIMCO expected the shipyards could come under pressure,” said Peter Sand, chief shipping analyst at the association. “This expectation became a reality at the start of 2016, with Q1 contracting the second lowest CGT in 20 years.”
Although it certainly won’t help the shipyards, the lack of newbuild orders is actually a good thing for the shipping industry as a whole, according to Sand.
“A low level of contracting is exactly what the shipping industry needs in order to eventually restore the fundamental balance between supply and demand,” he said.
Persistent overcapacity that has resulted from the delivery and deployment of larger vessels on the major east-west trades, along with weak global trade growth, has caused freight rates to plummet over the past 18 months, making it almost impossible for ocean carriers to turn a profit.
Lars Jensen, CEO of SeaIntelligence Consulting, recently predicted container shipping companies could report combined losses of up to $10 billion for the full year in 2016.
Sand noted that the negative growth trend in newbuild build contract orders could continue, or even worsen, in 2017.
“There is a declining trend for Japan, China and South Korea and with such low levels of newbuilding contracts being placed, this will look even more severe next year,” he said. “However, the order cover could have been even lower, if capacity had been taken out due to shipyards cutting down on operations or closing entirely.”
BIMCO: Newbuild vessel orders drop to lowest level in 20 years
