Vessel ordering mania
25/07/2013
The recent surge in new vessel orders at a time of industry-wide overcapacity suggests that market fundamentals are no longer the main driver, according to the latest Container Insight report from Drewery Maritime Research.
Even when the most recently ordered ships are delivered in 2016, Europe and the US are still likely to be climbing out of recession, which means that capacity in the east-west trades will continue to outstrip demand, says the report.
One of the factors behind the surge in orders is plummeting shipyard prices. Smaller carriers now see an opportunity to gain a competitive edge over the big three at last, and have not been slow to take advantage of it. For example, CSCL’s recent order for five 18,400 teu ships, the first of which is due for delivery in Q4 2014, each cost $136.6 million, approximately 26% less than Maersk’s 20 x 18,000 teu vessels, which were ordered in 2011, with the first being named only two weeks ago.
The big advantage of the 18,000 teu vessels is their fuel consumption. Compared with the 13,000 teu ships, they are claimed to burn around 35% less per container. As fuel accounts for well over half of all voyage costs, it is easy to see why new market entrants can be lured in.
UASC has expressed interest in ordering four 14,000 teu vessels, OOCL ordered six 13,000 teu vessels in 2011, each costing $136 million, and NOL ordered ten 14,000 ships in 2011, costing $154 million, whereas Seaspan’s five14,000 teu vessels, ordered in March 2013, are estimated to have cost just $108m each.
Drewery saisy: “Getting credit for such orders is still not difficult, strangely, despite the ships not always being ordered to meet demand growth. However, the credit is selective for certain companies and ship types. Also, with many ocean carriers being state-supported in some way, banks appear to see their loans as being as good as ‘sovereign debt’, so not high risk, even though the current surplus of vessel capacity is already destroying profitability through swinging freight rate decreases.
“This means that maintaining the cash flow required to service ship mortgages is increasingly difficult for carriers. Cash-rich non-owner operators, such as Seaspan, Costamare, Technomar, and Capital Ship Management, clearly see this problem worsening, which explains why they have returned to the market in a big way, providing another factor behind the surge.”
The report adds: “So, even where borrowing to fund newbuilds becomes too difficult, carriers will be able to circumvent the problem through leasing or chartering. The container industry, it seems, remains dominated by optimists.”
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One of the factors behind the surge in orders is plummeting shipyard prices. Smaller carriers now see an opportunity to gain a competitive edge over the big three at last, and have not been slow to take advantage of it. For example, CSCL’s recent order for five 18,400 teu ships, the first of which is due for delivery in Q4 2014, each cost $136.6 million, approximately 26% less than Maersk’s 20 x 18,000 teu vessels, which were ordered in 2011, with the first being named only two weeks ago.
The big advantage of the 18,000 teu vessels is their fuel consumption. Compared with the 13,000 teu ships, they are claimed to burn around 35% less per container. As fuel accounts for well over half of all voyage costs, it is easy to see why new market entrants can be lured in.
UASC has expressed interest in ordering four 14,000 teu vessels, OOCL ordered six 13,000 teu vessels in 2011, each costing $136 million, and NOL ordered ten 14,000 ships in 2011, costing $154 million, whereas Seaspan’s five14,000 teu vessels, ordered in March 2013, are estimated to have cost just $108m each.
Drewery saisy: “Getting credit for such orders is still not difficult, strangely, despite the ships not always being ordered to meet demand growth. However, the credit is selective for certain companies and ship types. Also, with many ocean carriers being state-supported in some way, banks appear to see their loans as being as good as ‘sovereign debt’, so not high risk, even though the current surplus of vessel capacity is already destroying profitability through swinging freight rate decreases.
“This means that maintaining the cash flow required to service ship mortgages is increasingly difficult for carriers. Cash-rich non-owner operators, such as Seaspan, Costamare, Technomar, and Capital Ship Management, clearly see this problem worsening, which explains why they have returned to the market in a big way, providing another factor behind the surge.”
The report adds: “So, even where borrowing to fund newbuilds becomes too difficult, carriers will be able to circumvent the problem through leasing or chartering. The container industry, it seems, remains dominated by optimists.”
Lloyd's Loading List