Ship owners are eager to build for the future, as new rules and regulations are bound to make life more difficult in the future and having a vessel which is unsuitable for service can be a major liability. In its latest weekly report, shiproker Allied Shipbroking said that “activity looks to be back in the market now, with August showing the highest level of new contracts having been placed in the year so far for some sectors. There still seems to be significant appetite amongst buyers out there and shipbuilders look to have mobilized their marketing strategies once more in an effort to take full benefit of the current opportunity. The rise in secondhand prices in the dry bulk sector has also helped a fair amount, placing the current newbuilding prices on offer in a more competitive and favorable light. At the same time sentiment seems to be very firm right now amongst dry bulk owners, given the current performance being noted in the freight market, which will surely start to attract more ship owners towards this option. Having said that, there still seems to be considerable problems with regards to arranging for financing of most of these new contracts under talks, while there are rumors that several owners are still facing difficulties in securing letters of guarantee for contracts they have signed”, Allied said.
In a separate weekly note, shipbroker Intermodal said that “if there is one thing that has been completely unaffected by volatility in the freight market in the past months this is newbuilding activity. Additional dry bulk and tanker orders have surfaced last week, evidencing the strong momentum newbuilding contracting still enjoys and while the performance of the dry bulk market explains partly the ordering enthusiasm in the sector, the steady tanker ordering is certainly raising a few eyebrows given the disappointing earnings crude carriers have witnessed so far in 2017. Following the most recent VLCC order by Hyundai merchant Marine, NYK is reported to also have added four VLs to its orderbook. In this case all orders are placed on the back of long term employment, which is always removing a substantial element of risk for the owner, but the market effect is not different and that is a quickly increasing orderbook in a fleet the average age of which is less than fifteen years. In terms of recently reported deals, Japanese owner, NYK, placed an order for three firm VLCCs (300,000 dwt) at JMU, in Japan for a price in the region of $80.0m each and delivery set in 2019”, said Intermodal.
Meanwhile, Clarkson Platou Hellas said that “in Tankers, DSME have announced an order for five firm plus five optional 300,000 DWT VLCCs from Hyundai Merchant Marine. The five firm units are set for delivery within 2019 from Okpo, Korea. JMU and Namura have also won an order for four firm 310,000 DWT VLCCs from an unknown owner. Three vessels will be built by JMU and one vessel will be built by Namura, all for bareboat charter to NYK when delivered throughout 2019 and 2020. Thun Tankers have extended their series of 17,500 DWT Chemical/Product Tankers at AVIC Dingheng by declaring an option for one additional vessel. This would be the 5th unit in the series and will be delivered in 1H 2020. Fujian Mawei have signed a contract with domestic owner Haixin Tanker Corp. for one 15,000 DWT Product Carrier for delivery in 1H 2019. There is one order to report in Dry this week. COSCO Zhoushan have received an order for four firm plus two optional plus two optional 82,000 DWT Kamsamax Bulk Carriers from Clients of Aegean Shipping Management. The four firm vessels are scheduled to be delivered in 2H 2019 from China”, the shipbroker concluded.
The second newbuilding very large gas carrier (VLGC) has joined DryShips’ fleet, the Greek shipowner said.
The VLGC will be employed under a time charter on a fixed rate with five years firm duration to an unnamed oil major.
The charterer has options to extend the firm employment period by up to three years. DryShips expects a total gross backlog from the time charter to reach USD 92.7 million including the optional periods.
In June this year, the company took delivery of its first ultra large gas carrier, the 78,700 cbm Anderida, built by Hyundai Samho Heavy Industries.
The Maltese-flagged LPG carrier was chartered out to an oil major for a firm employment of up to three years with the expected gross backlog from the charter totaling in USD 92.7 million.
Since the beginning of this year, DryShips has taken delivery of 15 vessels and expects to take delivery of two more by the end of the year.
Since November 2016, the company has raised approximately USD 688 million of equity that has been used to acquire 17 vessels with an average age of two years for a total cost of USD 772.4 million, of which USD 606.2 million has been advanced so far.
At the end of August, the Greek shipowner was subpoenaed by the Securities and Exchange Commission (SEC) which requested documents and information regarding the company's share offerings made between June 2016 and July 2017.
"The company is providing the requested information to the SEC," DryShips said, announcing the results for the second quarter of 2017.
Newbuilding orders are bound for a quick pick up of pace over the next few weeks, as buying interest from ship owners is more than active, in a reverse of the trend set over the course of the previous year. In its latest weekly report, shipbroker Allied Shipbroking noted that "there was a fair amount of activity to be reported during the past two weeks, despite being right in the midst of the summer holiday season. We started to see a good flow of interest emerge amongst owners, while this should surely gain momentum over the coming weeks as we enter the Autumn period and prospects start to show a brighter side in terms of trade growth. A big part has also been played by the emergence of new financing structures over the past couple of months, which having been tested now to some degree and worked with some of the bigger names in the market, shipbuilders have started to take on a bigger marketing push which will surely pay its dividends moving forward. In terms of pricing we are still seeing things hold stable, though given that activity has started to show fresh signs of life, there could now be extra room being created for a further upward push in terms of pricing", said the shipbroker.
In a separate newbuilding report, Clarkson Platou Hellas said that there were "a few orders to report since previous week, albeit some just coming to light having been firmed up earlier in the summer. In the dry market, clients of Angelakos are understood to have placed an order for 4 firm plus two optional 82,000dwt bulk carriers at Yangzijiang Shipbuilding – the deal is understood to have been signed in July and the vessels to be delivering from early 2019 onwards. Meanwhile it has been reported that Foremose Maritime have returned to Oshima to order a pair of 85,000dwt bulk carriers, both for delivery in 2020. This looks to be a continuation of their relationship with the yard, having taken delivery of four vessels of this size over the past year. In Tankers, Socatra are understood to have placed an order at Avic Dingheng in China for 2+1 IMO II chemical tankers of 7,950 dwt. Both the firm units are understood to be delivering in 2019. In the container sector, the Pasha Group have announced they have signed a deal for 2+2 x 2,525 TEU Container carriers to be built at Keppel AmFELS in Texas. These Jones act ships will be delivered in 2020 and will be constructed with dual fuel LNG bunkering capacity", the shipbroker said.
Meanwhile, on the S&P market, Allied Shipbroking said that "on the dry bulk side, boosted sentiment over-spilling from the improving freight market seemed to have brought about a strong buying interest, with activity picking up considerably over the past couple of weeks. We witnessed a strong interest for most of the larger size segments while prices have already started to show signs of making strong gains. Overall it seems as though confidence in the potential prospects of the market has once again resumed and we should see things improve further over the coming months. On the tanker side, activity was relatively slow over the past couple of weeks with only a handful of units changing hands over the two week period being reported, while the majority involved tonnage in the smaller size segments of the market. Prices continue to remain under pressure, though there is now hope that things may improve slightly as we enter in to the autumn season which traditionally has shown better activity levels".
In a separate note, ships' valuations expert VesselsValue said that bulker values have remained stable. "Privatlantic (75,100 DWT, Feb 2012, Sasebo) sold for USD 18.5 mil, VV value USD 17.97 mil. There has been an en bloc deal of 4 Ultramax vessels Tiger Tiangin, Zhejiang, Hongkong and Beijing (63,500 DWT, 2015, Chengxi) for USD 80 mil. In mid age tonnage Ocean Leader (56,100 DWT, Jan 2010, Mitsui Ichihara) was sold for USD 14.5 mil, VV value USD 14.26 million", VV concluded.
German container carrier Hapag-Lloyd doesn't plan to make any investments in ordering of new vessels over the next couple of years, the company said during a conference call today.
"In terms of Capexes, we said that we don't anticipate any material Capexes in new vessels in the upcoming couple of years. We will continue to invest in container boxes and our investment level will be around EUR 400 million every year," the company said.
As disclosed, there have been no significant orders in the container shipping sector over the recent period, and Hapag-Lloyd believes that new orders are not necessary as there is sufficient capacity in the market to meet the volume growth.
As a result, it is not expected that a surge in orders would occur.
Regarding the IMO regulations, Hapag said that most of its vessels are in principle suited for various types of fuel and may require some additional investment. Tough, huge investments on a per vessel basis are not expected.
The company added that it would be watching very closely what would happen to the fuel prices after 2020 when the new regulations kick in. The costs are anticipated to go up, but the company said it should be able to pass them on to the customers.
For the first half of 2017, the German container carrier booked a net loss of EUR -46.1 million (USD 55.1 million, slashed from last year's equivalent of EUR 142.1 million.
The company said that the half-year result includes a number of one-off effects related to the United Arab Shipping Company (UASC) merger, resulting in a net impact on EBIT of approximately EUR -19 million.
Hapag-Lloyd's results were announced as the carrier welcomes the fourth of its five Valparaiso Express class 10,500 TEU vessels, the Callao Express.
The ship, built by Hyundai Samho Heavy Industries, has been named in the port of Callao this week. The Callao Express has set sail in the direction of Puerto Anamos and Valparaiso and will return to Europe after sailing the South American west coast, the company said.
It emerged that a total of global shipyard output from January to July, 2017, stood at 1,003 vessels of a combined 68.60m dwt (22.60m cgt). In July only, particularly, 105 vessels of a combined 8.20m dwt reported delivered throughout the world, continuing a steady trend. It is also expected that shipyard deliveries will reach 101.20m dwt in full year 2017, up by 1% from 100.50m dwt posted in 2016.
For the first seven months this year, according to Clarkson Research, 260 vessels of a combined 25.80m dwt were delivered, representing a 39% increase year-on-year (in dwt terms). As for Suezmax sector, in particular, 39 units of a combined 6.10m dwt were delivered, almost four times the volume of tonnage delivered during the same period of 2016.
Global shipyards also delivered 355 bulkers of 30.00m dwt during the same period. This year's bulker deliveries are forecasted to show a 10% decline against a year ago, with 42.40m dwt.
As for containership sector, 87 vessels of 7.20m dwt reported completed, with annual deliveries of vessels less than 3,000 teu, 3,000~7,999 teu and less than 8,000 teu expected to increase by 35%, 290% and 16% y-o-y, respectively.
Regarding the volume of delivery of gas carriers, during the cited period, LNG carrier recorded delivery of 1.60M dwt (22 vessels) and LPG carrier, 1.70m dwt (56 vessels). The annual deliveries are expected to increase by 7% and decrease 30%, respectively, this year.
Meanwhile, by shipbuilding nation, shipyards in China delivered 403 newbuildings, 27.90m dwt, or 8.00m cgt, from January to July in 2017, with total amount of $14.9bn. China was ranked No.1 in dwt, cgt and numerical terms.
Notable is the fact that Chinese yards took the lion's share of the world's newbuilding deliveries with around 41% (in dwt terms), up from a 35.9% share in full year 2016.
During the same period, Korea delivered 199 newbuildings, 22.00m dwt, and 7.30m cgt, making it worth about $19.1bn and ranked No.1 in value terms. This total accounts for 32% (36.3% in full year 2016) of global deliveries in dwt terms.
Japan delivered 248 vessels, 4.60m cgt, or 14.10m dwt, worth about $8.6bn, accounting for about 21% (21.8% in full year 2016) of global deliveries in dwt terms.
In full year 2017, Chinese deliveries are projected to post a 14% increase against a year ago, with Korean, a 16% decline, and Japanese, a 1% decline.
Meanwhile, during the first seven months of this year, 463 vessels of 18.90m dwt (the average age=26.6) were sold for demolition, down by 27% year-on-year (in dwt terms). This year's annual scrapping is expected to reach 33.10m dwt, down by about 25.6% compared to 44.50m dwt seen the previous year.
The fact that the summer is nearing its end has prompted more ship owners into securing more newbuilding orders. In its latest weekly report, shipbroker Intermodal said that “stable newbuilding activity resumed last week as well, while the fact that the list of the latest newbuilding deals had a couple of dry bulk orders but no tanker ones is a first in a long time and of course indicative of the difference in momentum each sector is currently witnessing. The steady and rather unexpected improvement of dry bulk earnings during the traditionally quiet month of August has certainly given additional confidence to those owners who have been contemplating placing a newbuilding order. Indeed, with expectations for a particularly firm last quarter of the year building up quickly, the belief that asset prices will also firm during that time has revived healthy contracting activity in the sector, while oppositely we are seeing less and less tanker orders lately following the disappointing performance that earnings have been witnessing throughout the summer season and the consequent pressure on asset prices in the sector. In terms of recently reported deals, Hong Kong listed owner, SITC lines, placed an order for six firm feedermax containers (1,011 teu) at Dae Sun, in S. Korea for a price in the region of $18.6m each and delivery set in 2019.
In a separate newbuilding report, Clarkson Platou Hellas said that “there is one order to report in Dry this week. It has been reported that China Steel Express have placed an order for two firm 208,000 DWT Newcastlemaxes at CSBC. Set for delivery in 3Q 2019, the duo will be built at CSBC’s Kaohsiung facility. In the Container market, Dae Sun have signed a contract for six 1,011 TEU Container Carriers with SITC. The vessels will be delivered throughout 2018 and 2019 from Busan, Korea”, the shipbroker said.
Moving on to the S&P market, Intermodal said that “with activity in the second-hand market taking a very small break during the second week of August, it now seems that Buyers are back with healthy appetite, while modern dry bulk tonnage is once again gaining most of the interest. On the tanker side we had the sale of the “TORM FOX” (37,025dwt-blt ‘05, S. Korea), which was sold to Indonesian buyer, for a price in the region $10.7m. On the dry bulker side we had the sale of the “FORTUNE CLOVER” (77,430dwt-blt ‘06, Japan), which was sold to Greek buyers, for a price in the region of $11.7 million”.
In a separate note, ships’ valuations expert, VesselsValue noted that tanker values have remained stable this week. “Aframax DS Amba Bhavanee (107,100 DWT, Dec 2003, Koyo Dock) sold at auction for USD 4.5 mil having been laid up 4 years with class expired. The MR Torm Fox (37,000 DWT, May 2005, Hyundai Mipo) was sold for USD 11 mil vs VV USD 11.7 keeping values stable”. In the bulker segment, “it has been a quiet week in the Bulker market. The Panamax BC Harbour Hirose (83,500 DWT, Oct 2011, Sanoyas) sold for USD 19.3 mil vs VV USD 19.25 mil. The Panamax BC Fortune Clover (77,400 DWT, Aug 2006, Oshima) sold for USD 11.9 mil vs VV USD 12.06 million”, VV said. Finally, in the container segment, values firmed slightly this week. According to VV, the Sub Panamax Chief (2,672 TEU, Nov 2001, Stocznia Gdansk) sold for USD 6 mil vs VV USD 5.4 million.
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.