HANSA 09-2024

MÄRKTE | MARKETS Racing

MÄRKTE | MARKETS Racing for efficiency with newbuildings Container shipowners are hastening to order new vessels again despite concerns over supply should Red Sea disruptions end. Lars Schionnemann, Global Head of Newbuildings with MB Shipbrokers (formerly Maersk Broker) in Copenhagen, argues that it’s more than a gamble on the market. Liner operators are looking for maximum efficiency through fleet renewal and the right tonnage mix for new alliance structures. By Michael Hollmann There has been quite a surge in newbuilding contracting for large and ultra-large container ships. What’s happening? Why such a frenzy? Lars Schionnemann: If back in January we had said that by July we would count over 1,8 million TEU or 160 vessels contracted, most people would have laughed, as the industry expected a challenging year. This sentiment changed quickly during the first half of the year, and the quarterly results posted by the liner operators have clearly underlined the improved market conditions. In our opinion, the major driver for newbuildings has been the financial attraction of new tonnage: ships that offer better fuel economics and intake and hence better slot cost. Sure, contracting the last months has been hectic, but it’s important to note that deliveries are spread over a number of years from second half 2026 to end 2028. We think you cannot just put it down to the Red Sea situation and resultant strong charter rates. Rather, forward tonnage demand, fuel economics, an old fleet with first and second generation post-panamax tonnage being expensive to operate all are factors playing a role. Plus the fact that shipyards have consolidated over the last few years leaving limited capacity available because tankers, dry and gas carriers also show robust demand. But the recent positive earnings may indeed have contributed to a somewhat accelerated fleet renewal by many operators. With newbuilding prices sustained at such high levels since 2021, does the earnings outlook justify the investments? Wouldn’t it make more sense to wait for prices to correct? Schionnemann: You can argue whether newbuilding prices are in fact super high in a historic context and when factoring in the general inflation... The shipyard industry has gone through consolidation, just like the container liner industry, and this has given the remaining yards greater pricing power – specifically in a market environment with simultaneous high demand from several other tonnage types as in the last two years. Everyone hopes to buy at the bottom and sell at the top, but keep in mind that the big majority of container ship orders the past years were placed by operators for their own networks, not by tramp owners who may have a more speculative strategy. New tonnage offers other advantages compared to old tonnage, which means price is just one factor among several important Lars Schionnemann, Global Head of Newbuildings, MB Shipbrokers © MB Shipbrokers VIEWPOINT parameters. And in this respect, one driver behind the high newbuilding activity this year also relates to the different fleet and alliance strategies that the various liner companies have adopted. Dual-fuel/LNG, methanol and ammonia propulsion are now accounting for the majority of new projects. Is the industry on the right track? Schionnemann: A big question, but presumably the current technology and indeed fuel type is in what we could call a »transition phase«. Today’s energy grid has taken nearly 200 years to establish, and to transition to a new energy scope without fossil fuel will take some time, despite our wish for quick solutions. Hence liner operators to us appear to act logically when they opt for tonnage with dual fuel possibility and indeed having both methanol and LNG optionality. Ample supply of green methanol will take years to develop and so will ammonia, whereas LNG is more readily available. Today LNG is simply the more pragmatic and practical fuel choice for newbuildings, because the LNG supply chain has matured and price is – currently – competitive. Perhaps a good comparison is to look at the changes seen in fuel types for cars globally. This will also take time with the development in the car fleet likely taking different tracks globally depending on fuel availability and infrastructure possibilities plus potentially climate considerations. The car fleet composition will not change overnight, nor will the composition of the global fleet of ships. To us, the focus in shipping should be on both optimization and renewal – where continued optimization of the current fleet can also yield significant reductions in consumption. What’s the outlook for newbuilding contracting for the rest of the year? More/less activity? Schionnemann: For the big container builders the usual summer holiday season was basically cancelled this year, and we expect continued ordering for the rest of the year, although likely at a reduced pace compared to the first six months. Plus there are options attached to most of the orders signed this year, and some – if not all – of these will likely be declared. Overall, it is fair to expect that activity will eventually slow down due to very forward delivery positions, which makes pricing difficult for the yards and indeed gives increased cost for buyers. 12 HANSA – International Maritime Journal 09 | 2024

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