Tay Linsiau has been working in the shipping business for 13 years. The Singapore-based company ordered four new ships this year after years of suffering through a declining market. Tay says 35,000-ton ships like the model in his office are now too small to be efficient cargo carriers.
"For the kind of ship that we ordered, 64,000 tons, they are actually cheaper than the ones that people started ordering in mid 2000, which are smaller at 57,000 tons. Because it`s cheap, if they don`t have any cargo or they don`t have any use for the vessels later on, they can find some way to re-let the vessels or to sell them," Tay said.
The Danish company DSF invests in building ships and it says that the cost to build a new ship fell to a ten-year low of about 1,400 U.S. dollars per ton last year. Meanwhile, Barclays Group in Britain is predicting a 5.8 percent increase in cargo volume to be shipped this year. That means demand for cargo volume will exceed shipping capacity for the first time since the economic crisis began in 2008.
"The best situation I can say is that freight rates are not declining any further. Many people believe that this is it, that we`ve already hit the bottom. So the only way to go is up," Tay said.
In addition, the Chinese government is paying 1,500 yuan per ton to ship owners to encourage them to scrap ageing ships. The move is part of a campaign to reduce excess shipping capacity. One analyst says that replacements for the older vessels will stimulate demand for new ships.
"Given that they were built mostly in the 1990s, and are almost 30 years old, when they are retired, the demand for new ships will be substantial. A lot of ship breaking operations in Guangdong, Jiangsu and in north China, are now fully occupied breaking up the old ships," said Yao Tuan, from International Register of Shipping Company.
Chinese regulations say that cargo ships can serve no more than 33 years. About 2.5 million tons of Chinese ships were retired last year.