The generous terms are coming to an end, however, as banks tighten lending practices in China to force consolidation in the shipbuilding industry. Shipowners will now need to be cashed up or have deep pockets to place orders with banks demanding they fork out deposits to the yards of up to 30 percent.
It may be a blessing in disguise, because despite the shipping downturn, many carriers have been ordering vessels, encouraged by the low prices and betting on a recovery before the ships are delivered in two years.
According to Drewry, Seapan’s five 14,000 TEU vessels ordered in March are estimated to have cost US$108m each, while the six 13,000 TEU ships ordered by OOCL in 2011 cost $136 million each.
China Shipping secured its five 18,400 TEU ships at a good 26 percent less than Maersk Line paid for its 18,000 Triple-E class vessels, even though the Danish carrier ordered 20 of them.
Competing on price is a sign of fierce competition, but the yards are finding themselves in exactly the same position as the owners of the ships for whom they are building. There are too many of them chasing too little business.
Both the yards and the lines are facing a sharp drop in demand and are burdened by overcapacity. Desperation to maintain market share has seen both industries slashing prices, devastating revenue and putting bottom lines under pressure.
Newbuilding orders have slowed to a trickle and ship utilization is down to 85 percent westbound on average on the Asia-Europe trades and 55 percent on the return voyage. Less cargo at lower rates is hardly a recipe for profitability.
In the bulk-shipping sector the cargo is different but the problems are the same: Too many ships and too little demand.
There is some optimism that this year will finally see a peak season in the container business. This premonition is no doubt supported by the industry’s leading geomancers.
Correctly forecasting the shipping market has never been a strong point of the shipping industry and the market intelligence experts that examine it. But a key question that needs answering is will Europe emerge from its chronic financial hangover in time to fill all those big new ships that will float into service over the next two years?
To find the answer, we suggest inserting an opposable digit in the mouth and sucking for all its worth. Or ask an analyst.