One year ago the dry bulk orderbook stood at 276 million DWT – today it totals at 277 million DWT. As if the dry bulk orderbook wasn’t large enough back then, orders are constantly placed at shipyards that hungers for orders to fill their order books for and beyond 2013. New orders equal to 70 million DWT have been placed in 2010, of which 60% at Chinese shipyards which have gained the lion’s share of the orderings.
Impacting the level of new orders may also be the fact that since September 2008 – newbuilding prices have come down by 35-40%. The activity level suggests that owners see little downside risk at the current price levels.
The development in the dry bulk orderbook stands in sharp contrast to the containership orderbook which have dropped by 21% over the last year and tanker orderbook which is down 6%. This article focuses on the dry bulk segment, while the development of tanker and container segments will be covered in upcoming analysis.
Source: BIMCO, Clarksons
Where are the orders placed and who placed them?
60% of all new dry bulk orders were placed at Chinese shipyards. This follows the trend from last year where 62% of all dry bulk orders landed at Chinese yards, up from 46% in 2008. It is Japanese yards which cannot attract investors like they used to before the financial crises broke. 31% of all dry bulk orders landed in Japan in 2008, but in 2009 and 2010 only 15% and 12% respectively were contracted in the once so mighty dry bulk shipbuilding nation.
Japanese shipbuilders have been suffering from a floating Japanese Yen gaining strength, which have hampered the competitiveness in the dollar-dominated shipping industry. By August 2008 the USD/JPY cross exchange rate was 110, a level which it had been hovering around over the last 10 years. But as the crisis emerged the Yen was initially strengthened by 20% and by October 2010 the Yen had gained another 10% against the US dollar. This has made Japanese newbuildings more expensive in comparison with Chinese and South Korean competitors, as the Korean Wong over the same timespan has depreciated against the US dollar, while the Chinese Yuan has been more or less stable against the US dollar. Moreover many Chinese owners have placed orders consistently and domestically during the crisis pushing up the local orderbook and securing employment at the shipyards further into the future. Japanese owners also used to place nearly all orders at domestic yard but the currency development have changed that situation and the Japanese owners are now placing orders outside Japan to stay competitive themselves.
Source: BIMCO, Clarksons
Chinese owners have ordered 28 million DWT at Chinese yards out of the total contracts of 100 million DWT placed globally during the past two years. Once these vessels are delivered, China will be second only to Japan in the world rankings of nations owning dry bulk tonnage. During the next couple of years they will leave the third place to Greece which in currently number two in the rankings. The development on the sales and purchase markets will of course also play a part in the development of ownership by country.
The massive Chinese investments is a unique feature for dry bulk, as Chinese investments in tankers and containerships over the past years have been next to insignificant in the greater picture. This could perhaps reflect the high priority in China to keep the supply chain of core commodities flowing to ensure Chinese growth.
In terms of DWT in the total dry bulk orderbook, China’s position at the top of the ranks is undisputed as the nation hold 49% of that order book, equal to 136m DWT.
What has been ordered?
In 2010, the Kamsarmax vessel, which is a long version of the Panamax, has been in high demand. Looking back - 2008 remains a remarkable contracting year either way you look at it. More orders were placed during that year than in 2009 and 2010 combined. While orders were placed for vessels of all sizes in 2008, the following year was a year for the big ones. More than half of the 32 million DWT that was ordered in 2009 was bigger than 175,000 DWT, adding to the already swollen orderbook for Capesizes and Very Large Ore Carriers (VLOC).
Source: BIMCO, Clarksons
The Kamsarmax has been “dish of the year”. The vessels are longer and hold more cargo as compared with Panamax vessels, besides that they have an equally shallow draft which allows them to enter into traditional Panamax trades with an economy of scale advantage. The extra cargo potential should provide a commercial edge as it attracts costumers who move large quantum of cargo and are not bound by traditional cargo quantities. The ships cater to industrial shipping customers – a focus area for more and more shipping companies wanting to do contracts of affreightment as a way to secure employment for vessels over a longer period than a pure spot player is getting.
Where are newbuilding prices going?
Newbuilding prices have been quite steady throughout 2010 with a small and slow increase over the year. The massive ordering must reflect that owners find the current price tags to be a part of a good deal in future shipping markets. But as tonnage becomes abundant in the market and yards becomes more eager to secure employment for 2013 and beyond in a shipbuilding market with plenty of spare capacity – BIMCO forecast newbuilding prices will drift downwards over the coming years and squeeze the margins the shipyards are making even further should the steel prices remain steady.
Where will it go from here?
Guess it is fair to say that Chinese yard have been very active in past years and have built their orderbook significantly. BIMCO forecast that new contracts cannot continue to be signed at current pace – a slowdown will take place as freight rates comes under pressure due the weight of the oversupply. This will in turn cool the appetite for signing of newbuilding contracts.
Should a slowdown in contracting activity materialize, this will in turn cause a significant shipyard overcapacity from 2013 and onwards. Unless this overcapacity is converted into repair or demolition yards, massive unemployment could haunt the shipbuilding industry. Will governments subsidize for fear of unemployment and labor unrest? Such a scenario could have socio-economic consequences and could result in a revival of subsidies – something we are all fearsome of, as it may come in so many disguises.
Note that: Orderbook revisions over the past year have added as well as cancelled orders, but it remains that the orderbook have been refilled by new orders to the same extent as new vessels have been delivered.
BIMCO - Shipping Analyst: Peter Sand PS@BIMCO.ORG
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