Monday, June 11, 2018

Cargo Ship Orders, a Global Meltdown Victim

With the WTO expecting a 9% contraction in trade volume in 2009, it is no surprise that demand for container ships is ebbing fast. Orders for vessels placed when trade was still booming--in no small part attributable to shipments to and from the Middle Kingdom--are now in danger of mass cancellation. Just as many commodity producers massively expanded capacity on expectations that commodity prices would remain at an elevated level for the foreseeable future, many shipping lines massively expanded their orders for vessels on similar expectations for world trade. First, to the WTO blurb:
The collapse in global demand brought on by the biggest economic downturn in decades will drive exports down by roughly 9% in volume terms1 in 2009, the biggest such contraction since the Second World War, WTO economists forecast today. The contraction in developed countries will be particularly severe with exports falling by 10% this year. In developing countries, which are far more dependent on trade for growth, exports will shrink by some 2%-3% in 2009, WTO economists say.
Next, to a Bloomberg article of recent vintage:
Shipowners probably canceled orders for 260 vessels carrying commodities and containers as the global recession choked demand and a credit crunch reduced funding, a consultant said.

Shipyards received new orders for 255 million gross tonnage in capacity in the past three years, and about 7 million tons in confirmed contracts may have been canceled, according to Roy Thomson, a regional marine manager in Asia for Lloyds Register, which certifies ships. Yards may have lost $20 billion in revenue from the cancellations, based on Bloomberg calculations. “We will see more cancellations,” Thomson said in an interview today at the Sea Asia 2009 conference in Singapore. “We have not gotten to the root of it yet.”

An investment boom in shipping took place in the past four years, prompted by cheap credit and China’s soaring demand for steel, ore and grains. The global economic contraction and plunge in prices of coal, ore and grains led to lower shipping rates last year.

About a third of the cancellations may have been for bulk carriers, which transport ore, grains and other commodities [read: not containerized items], said Thomson, who has more than 25 years’ experience in the shipping industry.

“The shipping industry has been hit by both supply and demand problems,” Arjun Batra, managing director for consulting at London-based Drewry Shipping Consultants Ltd., told Bloomberg News today in Singapore. “There’s a surplus of carriers and demand has fallen in China and other markets.”
Overcapacity in ship construction is considerable, and the drying up of credit is not lending anyone any favors:
There are 3,424 commodity carriers presently on order at shipyards around the world, according to data from London-based Drewry Shipping Consultants Ltd. Those vessels will have a combined carrying capacity of about 294 million deadweight tons, or 70 percent of the existing global fleet. Deadweight tons measure a ship’s capacity to carry cargo, fuel and water.

As much as 50 percent of the global order book may be canceled because of the collapse in markets and constrained financing, Carsten Mortensen, chief executive officer of Danish shipping company D/S Norden A/S, said April 7.

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