SHIPPING MARKET OUTLOOK 1.3 The Shipbuilding Market Shipbuilding Prices Six months ago,we thought the shipyards were The upturn in shipbuilding prices supported this coping surprisingly well with a market which,a turnaround in investor sentiment.The few years earlier,had looked potentially newbuilding price index for the tankers and disastrous.The orderbook has shrunk by about bulkers (figure 1.3.4)shows the almost 25%from 397m dwt at end 2011 to 296m dwt continuous price fall from the market peak in in February 2014,and deliveries are down 35% 2008,when the tanker index stood at 252 and from 165m dwt in 2011 to 108m dwt in 2013. the bulk carrier index at 248,down to a trough icensed to Shanghal 112/030 So the orderbook represents about three years of 148 for tankers and 124 for bulkers in work. January 2013.But in September 2013 the downward trend was reversed and since then However,deadweight is not a particularly good prices have increased by about 10% measure of shipyard capacity,and when the calculation is repeated in compensated gross For example,a VLCC was quoted at $90 Maritime University. tons (CGT),we estimate that world shipyard million in September 2013,but by March 2014 output has fallen by 20%since the peak in the price had increased by 25%to $99.5 2010.The smaller reduction reflects the switch million.Similarly,an Aframax tanker increased in product mix from bulk carriers,which have a from $49 million to $54.5 million,and a low work content,towards gas tankers, Panamax bulk carrier from $27 million to $29.5 Dis tribution is containerships and offshore vessels which have million.This price surge was supported by the a relatively higher work content and CGT. upturn in demand as investors returned from the holidays in 2013.But the shipyards seem to Shipbuilding Orderbook and Contracting have managed their marketing very well,and succeeded in convincing the market that there plea Over the last six months ordering activity by were few early berths available,especially in owners has increased,with contracts reaching the quality yards which most investors prefer. 151.9 m dwt in 2013,almost 3 times as much as The availability of shipyard credit and cash 2012 when only 54.6m dwt was ordered.This from institutional investors also helped,as did remember to seems to have been driven by the signs of the limited alternative investment opportunities recovery in the OECD countries;the freight rate for owners who“sat tight”during the boom and "spikes"in the tanker and bulk carrier markets; accumulated cash. the availability of investment funds,both from institutional investors and shipbuilding credit Looking Ahead schemes;and investors'perception that prices acknowledge the sourde. have bottomed out. Six months ago we noted the positive effect which the prospective global upturn was The resulting orders surged well ahead of having,combined with the reduced growth rate deliveries.For example,contracts of 36.2m of the world fleet.We also noted the interest in dwt of tankers in 2013 (including 15.3m dwt of eco-ships and the success of the yards in http://ww. VLCCs tonnage)were 50%greater than pushing prices upwards.But we were deliveries of 21.4m dwt.In the dry bulk market concerned that a much smaller orderbook, it was a similar story,with 82.3m dwt of bulker combined with surplus yard capacity might orders (including 39.3m dwt of Capesize make this "price blip"temporary.This analysis tonnage)compared with 62.4m dwt of under-estimated the success of the yards in deliveries.The containership sector also shared managing the situation,helped by strong in the contracting boom,with 22.2m dwt of demand from a market which has moved contracts,(mainly for the bigger ships of decisively into investment mode,as 8,000+TEU.Including orders for vessels of up demonstrated by the near record orders last to 19,000 TEU),compared with deliveries of year.This positive sentiment seems well .2218303:54:80410299051ci 16.8m dwt.So,the shipyards were able to founded in the short-term,but we still believe replenish the orderbook which is now 10% caution is needed in the current market higher than at the beginning of 2013. environment. Clarkson Research Services 12 Spring 2014Clarkson Research Services 12 Spring 2014 SHIPPING MARKET OUTLOOK Six months ago, we thought the shipyards were coping surprisingly well with a market which, a few years earlier, had looked potentially disastrous. The orderbook has shrunk by about 25% from 397m dwt at end 2011 to 296m dwt in February 2014, and deliveries are down 35% from 165m dwt in 2011 to 108m dwt in 2013. So the orderbook represents about three years work. However, deadweight is not a particularly good measure of shipyard capacity, and when the calculation is repeated in compensated gross tons (CGT), we estimate that world shipyard output has fallen by 20% since the peak in 2010. The smaller reduction reflects the switch in product mix from bulk carriers, which have a low work content, towards gas tankers, containerships and offshore vessels which have a relatively higher work content and CGT. Shipbuilding Orderbook and Contracting Over the last six months ordering activity by owners has increased, with contracts reaching 151.9 m dwt in 2013, almost 3 times as much as 2012 when only 54.6m dwt was ordered. This seems to have been driven by the signs of recovery in the OECD countries; the freight rate “spikes” in the tanker and bulk carrier markets; the availability of investment funds, both from institutional investors and shipbuilding credit schemes; and investors’ perception that prices have bottomed out. The resulting orders surged well ahead of deliveries. For example, contracts of 36.2m dwt of tankers in 2013 (including 15.3m dwt of VLCCs tonnage) were 50% greater than deliveries of 21.4m dwt. In the dry bulk market it was a similar story, with 82.3m dwt of bulker orders (including 39.3m dwt of Capesize tonnage) compared with 62.4m dwt of deliveries. The containership sector also shared in the contracting boom, with 22.2m dwt of contracts, (mainly for the bigger ships of 8,000+ TEU. Including orders for vessels of up to 19,000 TEU), compared with deliveries of 16.8m dwt. So, the shipyards were able to replenish the orderbook which is now 10% higher than at the beginning of 2013. Shipbuilding Prices The upturn in shipbuilding prices supported this turnaround in investor sentiment. The newbuilding price index for the tankers and bulkers (figure 1.3.4) shows the almost continuous price fall from the market peak in 2008, when the tanker index stood at 252 and the bulk carrier index at 248, down to a trough of 148 for tankers and 124 for bulkers in January 2013. But in September 2013 the downward trend was reversed and since then prices have increased by about 10%. For example, a VLCC was quoted at $90 million in September 2013, but by March 2014 the price had increased by 25% to $99.5 million. Similarly, an Aframax tanker increased from $49 million to $54.5 million, and a Panamax bulk carrier from $27 million to $29.5 million. This price surge was supported by the upturn in demand as investors returned from the holidays in 2013. But the shipyards seem to have managed their marketing very well, and succeeded in convincing the market that there were few early berths available, especially in the quality yards which most investors prefer. The availability of shipyard credit and cash from institutional investors also helped, as did the limited alternative investment opportunities for owners who “sat tight” during the boom and accumulated cash. Looking Ahead Six months ago we noted the positive effect which the prospective global upturn was having, combined with the reduced growth rate of the world fleet. We also noted the interest in eco-ships and the success of the yards in pushing prices upwards. But we were concerned that a much smaller orderbook, combined with surplus yard capacity might make this “price blip” temporary. This analysis under-estimated the success of the yards in managing the situation, helped by strong demand from a market which has moved decisively into investment mode, as demonstrated by the near record orders last year. This positive sentiment seems well founded in the short-term, but we still believe caution is needed in the current market environment. 1.3 The Shipbuilding Market Licensed to Shanghai Maritime University. Distribution is restricted; please remember to acknowledge the source. http://www.clarksons.net 15/09/2014 08:45:39 36122 Licensed to Shanghai Maritime University. Distribution is restricted; please remember to acknowledge the source. http://www.clarksons.net 15/09/2014 08:45:39 36122