Newbuild contracting fell to a 30 year low in 2016, but when looking at it in estimated investment value terms, the fall was slightly less sharp. This trend has continued, with contracting in 2017 so far up by significantly more in investment value terms than in numerical terms. This month’s Shipbuilding Focus investigates which sectors are attracting investment and which yards are benefitting from it.
Though still depressed in historical terms, the value of newbuild contracting investment, which declined by 59% in 2016, stands at $33.8bn in the year to date, up 58% year-on-year on an annualised basis. This has been driven by investment in high value vessel types such as cruise ships, which experienced record ordering levels last year and accounted for 43% of total investment. Firm cruise ship ordering has continued in 2017 so far, and the 20 cruise ships contracted have an estimated newbuild value of $12.6bn, up 36% year-on-year on an annualised basis and accounting for 37% of year to date investment. Similarly to in 2016, US owners account for the largest share of year to date cruise investment (82%).
Signs Of A Comeback
Most sectors suffered from a depressed contracting environment in 2016, but in 2017 so far some have shown early signs of improvement and estimated investment in tanker and gas carrier units is up by an annualised 133% and 176% respectively year-on-year. Tankers and gas carriers account for 23% and 10% of year to date investment respectively, and the increase in investment has been driven by firmer ordering of larger units such as VLCCs and large LNG carriers. Norwegian owners account for 49% of year to date gas carrier investment, while Greek owners account for 22% of year to date investment in the tanker sector.
Still Seeming Sluggish
Containership contracting has remained muted, with only 20 units of an estimated $0.5bn ordered in 2017 so far, an annualised year-on-year investment decrease of 71%. In contrast, boxships accounted for 22% of 2015 investment, compared to 1% in 2017 so far. Estimated bulkcarrier investment in the year to date is up 15% year-on-year on an annualised basis, but bulkers only account for 7% of estimated 2017 investment compared to 42% in 2010, even if with an improved freight rate environment, ordering could pick up.
Which Builders Benefit?
The benefits of higher investment levels have not necessarily reached all yards. While cruise ordering is booming, this is only benefitting a small number of yards, with European yards accounting for 96% of year to date cruise orders in investment terms. Similarly, in the VLCC sector, only eight yards have won orders in 2017 so far, mostly in China and Korea.
So, investment is up this year, with high value orders even more prominent than in 2016. The cruise sector has continued to boom and in the tanker and gas carrier sectors contracting is improving, but other sectors are still struggling. However, while ordering of high value units can have an impact, a recovery is needed across more of the major sectors for investment to return to healthier levels.
Yangzijiang Shipbuilding has added 14 shipbuilding orders to its orderbook in July, via a mix of new contracts and options exercised, worth a total of $381m.
The new orders means the Chinese yard has secured a total of 33 vessels this year at a total of $832m, giving it a total orderbook of 85 vessels worth $4bn. At current levels, Yangzijiang will see the optimal use of its facilities up to 2020.
Yangzijiang reported the orders in its first half results, posting revenues of RMB8.47bn ($1.26bn) which is an increase of 49% compared to 2016. Profits improved by 61% to RMB1.39bn ($206.9m).
Ren Yuanlin, executive chairman of Yangzijiang Shipbuilding, commented: “Yangzijiang stood the test of a challenging market reasonably well and this was attributable to our persistent pursuit of excellence. We seek constant improvement to every detail in our vessel design, energy efficiency, construction process, quality and stability, and cost structure. Through innovation and introducing new vessel products, we maintained a healthy order book backlog when the market was weak, and we are making good progress in order taking when market starts to recover.”
Looking at the global shipbuilding market, the company said that it is seeing a recovery most notably in dry bulk carriers supported by the higher volume of iron ore transportation and the ease of overcapacity, however demand for containerships remained weak.
It seems that there are still deals to be made in the newbuilding contracting market, as several ship owners are looking to commit to new vessels. In its latest weekly report, shipbroker Allied Shipbroking noted that “despite being well into the summer period which notes a typical slow down in new ordering and despite the fact that we had seen a fair softening in activity over the past couple of weeks, things seemed to have sparked back into life this past week, with a fair amount of deals emerging. A number seemed to be still on the LOI stage though it is clear that in their majority potential buyers are seeking to secure any TIER II slots looking to take advantage of the lower price being offered against what is being offered for the newer TIER III designs. Beyond this, it has become ever more clear that appetite has re-emerged amongst owners, though hopefully it is still under a fair amount of conservatism and the volume of new orders that will amount in total during the remainder of 2017 will still be limited in number compared to what we had seen in previous years. The demand/supply balance in the freight market is still relatively fragile and it is vital that the future orderbook does not become once again an overshadowing burden for the market”.
In a separate newbuilding note, Clarkson Platou Hellas this week said that “there is one tanker order to report this week, with Torm signing a contract for four firm plus four optional 50,000 DWT MR Tankers with CSSC Offshore Marine (GSI). It is understood that the deliveries for the four firm units will be within 2019. In Dry, Jiangsu New YZJ have received an order for three firm plus three optional 180,000 DWT Capesize Bulk Carriers with a JV between Cargill and Mitsui, Great Wave Navigation. Delivery of the firm vessels is similarly due in 2019”, the shipbroker noted.
Meanwhile, in the S&P market, Allied said that “on the dry bulk side, activity was on the rise this week, showing a complete turn around in market conditions, with buying interest once again on the rise. Prices have yet to reflect this with most sales still remaining fairly in line with similar transactions that we have been seeing. On the tanker side, limited activity to be seen, with only a handful of MR tankers changing hands this week. With a notable amount of difficulties still being noted in the freight market and uncertainty as to the future prospects currently prevailing amongst owners and potential buyers, it seems as though most have put things on hold for now”.
VesselsValue, a ship valuations’ expert noted that “tanker values have remained stable this week. Suezmax vessels Gener8 Horn (159,500 DWT, Jun 1999, Daewoo) and Gener8 Phoenix (153,000 DWT, Aug 1999, Halla) were sold en bloc for USD 20.4 mil vs VV USD 20.4 mil keeping values stable. The MR2 Tamarin (51,000 DWT, Nov 2008, SPP) sold for USD 17 mil vs VV USD 18.2 mil which has softened mid age MR tonnage”.
In the dry bulk market, VV added that “bulkers values have firmed this week. The Capesize Blue Island (152,400 DWT, May 2000, Koyo Dock) sold for USD 8.2 mil vs VV USD 6.0 mil. The Panamax Atlantic Prime (82,200 DWT, Sept 2011, Tsuneishi Zosen) sold for USD 19 mil vs VV 18.5 mil, firming values. In older tonnage the CSE Harmony Express (76,700 DWT, Nov 2002, Imabari) sold for USD 9.0 mil, VV value USD 8.15 mil. The Supramax Christine B (58,100 DWT, Dec 2009, Tsuneishi Zhoushan) sold for USD 13.8 mil, VV value USD 12.32 mil. Firming values for mid age tonnage. Handy values have remained stable this week. The Ephesus III (31,800 DWT, Oct 2004, Hakodate Dock) sold to Manta Shipping Transport for USD 6.75 mil, VV value USD 5.83 million”, VV concluded.
The containership orderbook has diminished by 30% in capacity terms since the start of 2016. Ordering during this period has remained very limited, with capacity contracted in 2016 at 0.29m TEU, representing the lowest level since 2009, and contracting in the first half of 2017 totalling less than 40,000 TEU. Despite this, however, there are several important aspects of the containership orderbook to consider.
The first of these concerns the change in the overall size of the orderbook, with the volume of capacity on order shrinking considerably over recent years. At the start of July 2017, the orderbook stood at 396 units of 2.78m TEU, a marked drop from 515 units of 3.97m TEU at the start of 2016. While the volume of capacity on order is still not insignificant, as a percentage of fleet capacity, it is the lowest it has been on record, standing at 14% at the start of July. As a result, boxship fleet growth in the next few years is expected to be relatively moderate, and significantly lower than 8.1% in 2015. In full year 2017, the containership fleet is projected to expand by 3.0% y-o-y in TEU terms, and by 3.7% y-o-y in 2018.
Checking The Schedule
The second interesting aspect is the shape of the orderbook schedule, which is a result of the pattern of ordering, as well as delays to deliveries to owners throughout challenging market conditions. With the vast majority of boxship capacity currently on order scheduled for delivery either in the remainder of this year or next year, the containership orderbook looks very thin after 2018 (see inset graph). Basis start July, just 22 boxships of over 12,000 TEU (including ‘mega boxships’) are scheduled for delivery from 2019 onwards (out of a total 108 vessels in this size range currently on order). In reality, some vessels currently expected to be delivered in 2017-18 may slip into 2019-20. Moreover, new orders for containerships of very large capacity could yet still emerge for delivery in that period, although appetite for boxship ordering in general currently remains very subdued.
Thirdly, the orderbook tells a very different story across the boxship sectors, remaining heavily weighted towards the larger sizes (see graph). Ships of 15,000+ TEU account for c.40% of capacity on order, and represent the equivalent of 73% of 15,000+ TEU fleet capacity. Meanwhile, sub-3,000 TEU there are currently 213 ships of 0.39m TEU on order, equivalent to 10% of fleet capacity in this size range, and expectations of limited deliveries mean that the sub-3,000 TEU fleet is expected to shrink in the short-term. Moreover, the orderbook in the 3-7,999 TEU size range is extremely limited, just 2% of fleet capacity.
So, the boxship orderbook has dwindled significantly, and against the current backdrop of a diminished appetite for contracting, it looks likely that it will continue to shrink. The shape and size of the orderbook does vary significantly across different vessel sizes but overall the schedule looks pretty thin after 2018. Peering through the orderbook ‘looking glass’, clearly there’s still a lot to see.
Greek ship owners have more than doubled their newbuilding orders during the first half of 2017. According to exclusive data provided to Hellenic Shipping News (www.hellenicshippingnews.com), from ship valuations’ specialist VesselsValue, ship owners from Greece have so far placed orders for 58 ships, versus 28 in the same period of 2016 and 72 in 2015. As such, Greek owners have returned atop of the global newbuilding activity and by some margin, given that the next highest ordering nation was China with 40 orders. Japanese owners ordered just 13 ships, versus 105 ships over the first half of 2015 and 36 ships in 2016.
Globally, newbuilding orders amounted to 245 ships over the first half of 2017, a slight decrease versus the same period of last year, when a total of 254 units were ordered. However, these number pale in front of the 2015 ordering activity, when 594 newbuildings were contracted during the first six months of that year.
Orders By Companies
Lou Kollakis’ Chartworld Shipping has been the most aggressive in terms of its newbuilding ordering activity, having contracted a total of 14 ships so far. However, it’s worth noting that the company was absent from such activity during the past couple of years. The Angelikoussis-controlled Maran Tankers has also been very active with three newbuilding oredrs this year, on top of an additional six in 2015 and 4 in 2016 (13 in total). TMS Tankers has ordered four more vessels this year, while Enesel has invested in four newbuildings this year.
Orders by Ship Types
What’s also striking is that all of the 58 newbuilding orders this year have been for the mainstream ship types, i.e. tankers (42 orders) and dry bulk carriers (16). It’s worth adding that out of the 151 orders that Greek shipping companies have placed over the course of the past three years (first halves), 104 are for tankers, i.e. two thirds are for the wet segment. By contrast, the once favored and less capital intensive dry bulk segment attracted orders of just 29 ships over the same three-year period.
Although newbuilding orders for tanker and bulkers increased during the first half of 2017, the overall number of orders placed has more than halved when compared to the same period in 2015, according to data provided by VesselsValue.
A total of 245 new orders were placed so far this year, against 594 new ships ordered in the first half of 2015. When compared to the same period in 2016, the new contracts slightly decreased from the 254 new ships ordered a year ago.
Owners’ appetite for tankers was apparent as this type of vessel was in the lead with 145 orders out of the 245 newbuilding deals. Tankers were followed with 70 bulker orders, while LPG ships took the third place with a mere 16 orders. The containership market saw 10 new orders, while only four vessel orders were added to the LNG sector.
In comparison, bulkers were in the lead during the first half of 2015 with 229 orders, followed by 181 new tankers deals. Containerships took the third place with 90 new orders. The LNG sector was more active in 2015, with 26 new ship orders placed during the first half, followed by the LNG sector with 18 new ships.
The plunge in shipbuilding orders was also noticeable in the offshore sector. There were 50 offshore vessels ordered in the first half of 2015 compared to a complete lack of offshore orders during the first six months of this year.
In what can only be seen as a worrying sign of things to come, shipbroker Gibson reports that VLCC orders this year have more than tripled, compared to those of the whole of 2016. The London-based shipbroker said in its latest weekly report that “back at the beginning of May, our weekly report focused on the accelerating pace of orders, in particular demand for VLCC tonnage. Two months later we are reporting 20 more fresh VLCC orders, in addition to those placed between January and April. The total count of VLCC orders placed in the first six months of this year reached 38 compared to just 13 in the whole of 2016. We are also aware of several owners circling around the issue, either to order speculative tonnage or direct replacements for their elder units which will certainly add to the recent melee. The pace of VLCC ordering prompted Bimco last week to warn of a potential “fundamental imbalance that would take years to overcome”. Furthermore, we have seen 16 Suezmaxes ordered this year compared to 18 in the whole of last year”.
According to Gibson, “orders for Aframaxes which are at 35 so far this year (6 in 2016) and LR2s at 12 (2 in 2016) indicate that ordering activity has heated up quickly. Similarly, orders for MRs have already overhauled last year’s total of 30. Almost half of all orders this year have been placed in June alone. Delivery dates for these orders indicate that only a few slots are available for late 2018 delivery, suggesting that shipbuilders are rapidly filling their forward orderbook. Price is still a driver, but the influx of new orders appears to have applied the brakes to the downward spiral of newbuild prices of recent times. Owners may also be betting on the potential recovery of the tanker market by placing orders for 2019/20 delivery in anticipation of a rising freight market. The latest deliberations at the IMO on ballast water is unlikely to have any real impact on newbuilding orders unless you require tonnage for US trade. With the US regulators operating a different regime outside of the IMO coupled with the Tier III requirements, some owners will be paying a higher newbuild price to comply. It appears that the US authorities are beginning to toughen up ballast water waivers since they started approving systems. The IMO has agreed to extend the deadline, this potentially could lead to slower pace of tanker scrapping in years ahead”.
Gibson added that “however, perhaps the most interesting development in June was the announcement by Trafigura to order up to 32 crude and product tankers, with a potential value in excess of $1.35 billion. Contracts were reported to have been placed by China’s Bank of Communications Financial Leasing against bareboat charters to Trafigura who are believed to have purchase options. Official confirmation of the initial 22 (Suezmaxes, Aframaxes & MRs) split between Hyundai and New Times remains sketchy and some of the finer details relating to this order remain unreported. Cido Shipping also seem to favour the products market, having recently announced changing an order for two car carriers in to MR tankers. The two vessels involved were originally ordered in September 2015 and as such are not recorded as fresh orders, adding to a swelling tanker orderbook”.
The shipbroker concluded that “most recent orders placed are for ‘blue chip companies’ who appear to have access to huge lines of credit or have been very creative with their funding. Lack of ‘easy money’ is something which has kept a lid on ordering in the recent past. Referring back to our May report “only those with strong financial muscle are likely to be in a position to capitalise”. There appear to be quite a few out there”.
Meanwhile, in the crude tanker market this week, Gibson said that there was “steady VLCC fixing through the week, but no pinch points in availability to allow Owners to lever the market higher than their previous low ws 50 East, mid ws 20’s West marks. The final phase of the July programme is now being played out and the end month does sometimes provide opportunity, but the odds of anything noticeable developing look poor as things currently stand. Suezmaxes moved through a reasonably active phase and premiums for Kharg loading did stretch to over 10 ws points, though the bulk of enquiry was quite easily satisfied by supply and rates bumped against at ceiling of ws 70 to the East and mid ws 20’s to the West. Aframaxes couldn’t find any relief from downward pressure, but did continue to make a stand at around 80,000mt by ws 90 to Singapore nonetheless. more resistance will be required next week too”, it concluded.
Chinese shipyards have experienced a 31.5 percent decline in newbuilding order intake reaching 9.86 million dwt in the first five months of this year when compared to the corresponding figures from last year, China Association of the National Shipbuilding Industry (CANSI) said.
At the end of May, the orderbook backlog came at 85.15 million dwt, a drop of 30.7 percent year-on-year and down 14.5 percent in comparison to the end of 2016.
However, the completion volume of new ships saw a steep growth. Namely, during the said period, the country's shipbuilders completed 22.93 million dwt of newbuilding tonnage, up by 78.8 percent year-on-year.
According to CANSI, the country's 53 key shipbuilders completed 19.57 million dwt equivalent of new ships, up by 63.5 percent. Nevertheless, when it comes to new orders, the key shipbuilders had secured 8.74 million dwt of new tonnage, which is down by 37 percent year-on-year. At the end of May, the yards' orderbook reached 80.61 million dwt, dwindling by 31.6 percent.
The figures have been announced as the country's shipbuilders launch its largest ship yet – the first 20,000 TEU containership COSCO Shipping Taurus.
Greek shipowners placed the highest number of newbuilding orders so far this year, as these companies ordered a total of 35 new bulkers and tankers since the start of 2017, according to VesselsValue.
Globally only 119 orders have been placed. Greece leads the way, followed by the US with 14 new contracts and Singapore on the third place with 10 new ships on order. Additionally, Norway has contracted eight and the Netherlands six new ships.
Greek Chartworld Shipping placed the majority of orders with 14 newbuilding contracts, 12 of which are for bulk carriers and two for tankers. The country’s Enesel SA, TMS Tankers, Capital Maritime and Trading each ordered four tankers, followed by Maran Tankers which ordered three ships of the kind.
Additionally, Neda Maritime, and Metrostar Management Corp ordered two tankers each, while M Maritime Corp placed orders for two bulk carriers.
"Many in the shipping industry are worried that there is an imbalance of supply and demand between the number vessels currently on the water and the amount of cargoes. This situation does not look to improve in the near future as there is just under 66 million dwt of tankers and bulkers to be delivered during the rest of 2017, representing 47% of the current bulker and tanker order book," VesselsValue informed.
Over the last five years, a major source of finance and investment in the newbuilding market came from the private equity sector. Today the preference from the private equity sector is to invest in tonnage already delivered and on the water so that an immediate return on their investment can be realised, according to VesselsValue.
This led to a lack of newbuilding finance available and resulted in a gap in deliveries at the major shipyards and therefore increased appetite from them to take orders.
"As we progress through 2017, yard capacity has reduced but continued buying demand from the private sector remains. This is one of the major factors that has led to the increase in newbuilding prices over the past 5 months," VesselsValue said.
Singapore-based owner and operator of pressurized gas carriers Epic Gas has taken delivery of the 11,000cbm LPG carrier Epic Salina.
The final vessel in a series of eight pressurised LPG newbuildings, constructed by Japanese shipbuilder Kyokuyo Shipyard, joined Epic Gas’ fleet on March 29.
In January 2017, the company took delivery of the seventh newbuilding from the series, Epic Sardinia, which is under a long-term bareboat charter with purchase option. According to data provided by VesselsValue, the ship is owned by Japan-based shipping company Kumiai Senpaku.
"Since the first quarter of 2013 we have grown from 22 vessels of total capacity 99,500 cubic metre, to 41 vessels and 268,900 cubic metre today, a 270% increase. Our average vessel size has increased from 4,523 to 6,559 cubic metre," Epic Gas said.
The company added that it remains committed "to providing a high-quality fleet of long term controlled assets across the fully pressurised sector of 3,300 – 11,000 cbm."