How low can you go

Malcolm Latarche
Malcolm Latarche

19 October 2016


There are very few in shipping who believe that the heady heights of newbuilding activity that peaked around five years ago will ever be repeated. That view is borne out by a report issued by Clarkson Research Services earlier this week. According to the Yonhap News Agency, Clarkson says that this year’s new ship orders around the globe are estimated at 586 vessels and the comparable figure for next year will be a little higher at around 790. The market researcher forecast that orders for an estimated 1,300 ships are expected to be placed in 2018, and the number may rise to 1,667 in 2019 and 1,869 in 2020. The final figure is what would be expected as needed replacement for end of life vessels and compares with annual figures from before the ordering spree of the last decade or so. There was a good reason behind some of the binge but nowhere near enough to justify most of it. The accelerated phase out of single hull tankers and the demand for offshore vessels to meet new requirements such as in Brazil were such but much more was pure speculation with only short term elevated freight rates as the spur. Clarkson believes that demand for container ships will rise and perhaps it will be proved correct but there are plenty of others who would argue that more boxships is a recipe for disaster. Even so shipowners may be persuaded to contract for new containerships before 1 January 2020 in order to avoid the next phase of EEDI regulations. That does give them a little time to see how the trade situation for the sector is moving and what degree of scrapping is occurring. Desperation by yards may lead to cheaper ships in which case owners could well consider scrapping vessels at an earlier stage in their life than was considered normal. But the price for newbuildings will have to be quite low for the replacement to compensate for the probable lifetime loss on the demolition of a 13-16 year-old ship that was purchased when prices were high and has traded through some of the most depressed markets experienced.