HANSA 08-2021

MÄRKTE | MARKETS

MÄRKTE | MARKETS Jitters as boxship orderbook builds Are liner shipping companies taking it too far with their newbuilding investments? Concerns are rising that supply growth could leave carriers exposed in 2 years’ time. By Michael Hollmann The party in container shipping remains in full swing as freight rates and voyage revenues have kept increasing. However, on the sidelines of the party participants begin to feel queasy about the enormous amounts of new capacity added to the shipbuilding orderbook. A record-breaking contracting spree saw projects for over 300 container ships signed at Asian shipyards in the first half of the year. The total combined capacity of all orders reached almost 12 % of current global fleet capacity, taking the overall container ship orderbook to 4.9 mill. TEU (572 vessels) as per early July, according to Clarksons Platou. This is equivalent to 20 % of total fleet capacity. Back in August last year, the ratio was just 9 %. Most of the orders, close to 83 % in terms of nominal capacity, are backed by liner operators based on Alphaliner data – either directly as owners or as long-term charterers. Therefore employment of new tonnage appears not to be an issue, at least not on the face of it. However, it all depends on the performance of operators/ charterers and the counter-party risk they represent. Generally, in view of today’s bumper earnings in liner shipping it seems not unreasonable to reinvest a growing share of it for fleet renewal. The question, though, is whether trade growth really warrants all the plans? Estimates for box trade growth this year are at around +6 %, driven by US imports but with latest data also showing increased dynamics in the transatlantic, Asia/Europe and Asia/Latin America trades. For 2022, analyst opinion leans to slower, albeit still respectable growth of around +4 % in global loadings. Matching these rates with newbuilding additions (minus some recycling) suggests that the industry will be safe for two more years. Fleet capacity is expected to grow by just +4.5 % this year and +2.6 % in 2022. It is 2023 that people start to get worried about. Clarksons projects that 2 mill. TEU will come up for delivery that year, corresponding to +8 % supply growth – far beyond what trade growth had to offer over the past decade. In that case, capacity and pricing discipline among container lines would face a tough test, with mounting pressure on freight rates and on asset values. Still, confidence is so strong following the spike in earnings since autumn last year that the contracting rally seems far from over. One global operator – Taiwan’s Yang Ming Line – has missed the trend towards 20,000+ TEU mega ships so far and is yet to jump on the bandwagon. Also, Maersk Line, soon to be outpaced by MSC as world-largest carrier, has more or less stayed clear of the contracting boom this year. Some believe it may return to the shipbuilding market big time soon. Alphaliner warns that the orderbookto-fleet ratio may even increase to 24 %, but anything beyond that would put the industry at risk of another chronic overcapacity crisis. Similar concerns are VIEWPOINT »Smaller ship projects are struggling for yard capacity« Newbuilding capacity for general cargo, multipurpose and container feeder ships has become a bottleneck as shipyards in Asia gobble up newbuilding programmes by container lines. Meanwhile ship prices rise and rise, warns Hannes Holländer, managing director of shipbroker Toepfer Transport. Hannes Holländer, Managing Director Toepfer Transport HANSA: Newbuilding contracting is back with a bang. Are all the good opportunities gone already or are there some left? Holländer: From a supply/demand perspective, there is still vast potential for new projects, be it for general cargo/ shortsea, heavy lift/mpp or smaller container vessels. There are plenty of tonnage requirements out there, therefore employment of ships that are contracted today is not a problem. The bottleneck right now for contracting © Toepfer Transport smaller dry cargo tonnage is yard capacity! Who is to blame? Are the big liner operators swamping all the yard capacity with their big orders? Holländer: Global liner carriers are indeed grabbing many available berths and whilst it might not be their intention they are squeezing out projects for smaller, more complex ships that don’t fit the big ship-standard. It is a major problem for tramp owners and operating owners in the general cargo/breakbulk or project cargo trades. We are in contact with numerous clients who are looking to order container feeder vessels or multipurpose ships with intakes or 30,000, 25,000 or 12,500 dwt and there is little attention by the shipyards. It’s causing massive frustration. A number of yards in China who used to be famous for building multipurpose vessels or other smaller specialist ships have gone out of business, are still partly mothballed 10 HANSA – International Maritime Journal 08 | 2021

Orders & Sales New Orders Container Appetite for new orders resumed on the newbuilding front, with another generous round of freshly-inked deals. Lastly, Cosco Yangzhou secured an order for four 16,180 TEU and six 14,092 TEU units from Cosco at 155.0 mill. $ and 146.0 mill. $ each respectively. Sea Consortium declared options for four 7,000 TEU units to be built at Waigaoqiao in China for delivery in 2023–2024 at 73.0 mill. $. The order book stands at about 20 % of active capacity. Secondhand Sales In view of the high tonnage demand, the secondhand market continues to be busy. MSC is behind the purchase of two »Northern J« types (8,814 TEU, 2005 Korea built), which were sold for prices of 85 mio $ each. Oaktree Capital has sold their remaining six widebeam container vessels for a total of 260 mill. $ to Danaos including long term t/c attached to them. Demolition Sales Scrap prices smashed through the 600 $ barrier as tonnage supply slows down. The all-time high from 2008 where the prices exceeded 800 $/LDT are yet quite far away, but the liquid market remains under pressure. echoed in German tramp shipping circles. Risking another market depression as a result of over-ordering could prove a disaster not just for liner operators and shipowners, but for the whole planet. Billions of dollars will be needed for the green transformation of container shipping over the next two decades – for or were consolidated by larger shipbuilders focusing on bigger ships and larger series of ships. Sporadically, we do see opportunities pop up for construction slots for smaller vessels and for earlier delivery, perhaps in less than 2 years’ time. In that case, owners have to pay premium prices. HANSA: What is the outlook for newbuilding prices? Holländer: Still going up! Prices will continue to trend up purely based on supply/demand. There is so much more demand for new vessels than yard capacity right now. And don’t forget that shipyards have a lot to catch up after a number of devastating years. They just start making money again today. On top of that, smaller vessels are facing increasing price premiums because they are more complex to build and don’t offer the same economies of scale during construction as repetitive orders for dual-fuel vessels, smarter solutions and emission allowances under the EU Emissions Trading System that shipping will be become part of in 2023, just when overcapacity might hit. Carriers still have it in their hands. Wasting their record profits on too many conventional ships would be the worst of all options. large and ultra-large container ships. Finally, the second-hand market remains red hot, causing upward pressure on newbuilding prices. Financing is not a bottleneck any longer, it seems. What are the kind of structures you come across? Holländer: I see a lot more traditional bank lending over the last six months, and it seems more of them are even pro-actively exploring new business in shipping. It sounds odd but even bigger banks that may have just sorted out their distressed loan portfolios are on the way back again. No doubt, shipping can be a lucrative business for them today given the relatively high net interest margins in that segment. As far as equity is concerned, there has been a substantial influx of money from very wealthy investors and family offices that can easily take tickets far beyond 200,000 €. mph Container ship t / c market 2400 2000 1600 1200 800 Tankers Baltic Dirty Tanker Index Baltic Clean Tanker Index Shortsea / Coaster Norbroker 3,500 dwt earnings est. HC Shortsea Index ISTFIX Shortsea Index MÄRKTE | MARKETS COMPASS 591 460 4,100 22.23 1,480 –4.8 % +2.2 % +0.0 % +1.3 % +12.2 % Norbroker: spot t/c equivalent assessment basis round voyage North Sea/Baltic; HC Shipping & Chartering index tracking spot freights on 5 intra-European routes; Istfix Istanbul Freight Index covering spot freight ex Black Sea Bunkers 23.02.2021 VLSFO 0.5 Rotterdam $/t MGO Rotterdam $/t Forward / Swap price Q4/21 VLSFO 0.5 Rotterdam $/t ConTex 495 550 494 22.07.2021 Month on Month 2,348 + 42.7 % Container freight market WCI Shanghai-Rotterdam WCI Shanghai-Los Angeles Dry cargo / Bulk Baltic Dry Index Time charter averages / spot: $/d Capesize 5TC average Panamax 5TC average (82k) Supramax 10TC average (58k) Handysize 7TC average (38k) July '20 6,391 $ 13,066 $/FEU 9,953 $/FEU Forward / ffa front month (Aug 21): $/d Capesize 180k Panamax 82k MPP 3,103 30,918 32,042 31,264 31,072 36,061 34,061 TMI Toepfer's Multipurpose Index July '21 11,225 $ +9.1 % +16.4 % –2.3 % –6.0 % +1.3 % –0.8 % +16.9 % –4.0 % –2.1 % 12,500 tdw MPP/HL »F-Type« vessel for a 6–12 months TC –5.7 % –7.1 % –3.1 % Data per 22.07.2021, month-on-month HANSA – International Maritime Journal 08 | 2021 11