Optimism is tangible, although ship yard overcapacity is the looming danger in the horizon

Overview

If you work a little harder every day and do your work a little better and smarter today than yesterday, you will stand a better chance of running a successful shipping business. Those words of wisdom catch the optimism bubbling at the NAVIGATOR 2011 event in Athens, Greece. A business full of hardship in recent years has only drowned a few of the die-hard optimists within the shipping industry.

If you work a little harder every day and do your work a little better and smarter today than yesterday, you will stand a better chance of running a successful shipping business. Those words of wisdom catch the optimism bubbling at the NAVIGATOR 2011 event in Athens, Greece.

A business full of hardship in recent years has drowned only few of the die-hard optimists within the shipping industry. Many of the survivors were present at a recent top Greek shipping event. Despite being brutally aware of the internal and external challenges facing the industry, focus was firmly on weathering the storm and concentrating on optimizing your business to be ready for the next upturn in the markets.

Piracy was also high on the agenda. Here, the focus was on Best Management Practices and alternative ways to protect your crew, ship and cargo from being seized by pirates. Moreover, the continued unresolved legal issues that encompass the use of armed guards caught the attention of everybody.

BIMCO key message: BIMCO was invited to contribute to the event during the “Market Trends” session. Focus was put on the issue of the supply situation and ship yard overcapacity. The key message was: Inflow of new tonnage in all three main shipping segments last year, this year and the next has created a fundamental imbalance between supply and demand putting downward pressure on freight rates, asset values and earnings, basically affecting all participants in the shipping industry. However, the clear and present danger to the shipping industry is actually not the ships on order but rather how to handle the massive shipyard overcapacity post 2014, with the utilization factor dropping from the present close to 100% to 50%. The situation can be overcome only if shipyard overcapacity is not utilized to build more new ships for delivery within the near-term future.


Source: BIMCO, Clarksons Research Services Ltd., IHSFairplay

With the yards being eager to fill their order books, newbuilding prices are likely to fall further, most certainly tempting some owners to place new contracts. But this would merely protract the oversupply situation further. The shipyards, on the other hand, have a responsibility too and they need to consider other business options; with the youngest world fleet ever, building yet more new ships merely to fill yard capacity is simply not a sustainable option for shipping industry as a whole.

If newbuilding yards are not closed down to a large extent, the surplus overcapacity gap should rather be used for purposes such as retrofitting of energy-efficiency improving equipment, scrubbers for reducing SOx emissions, repair facilities, or a place for green recycling of over-aged tonnage. Alternatively, using the yard facilities for manufacturing e.g. windmills or large steel structures for roads or buildings might be considered.


Source: BIMCO, Clarksons Research Services Ltd.

During 2007, a record of 93.6 million CGT was contracted, topping-off an only one-year-old record of 67.8 million CGT in 2006. The breaking out of the crisis resulted in just 15.8 million CGT being contracted in 2009. The industry needs to concentrate on fleet replacement, bringing old tonnage to recycling as new ships are delivered. It is certainly not the right time for speculative and asset playing activities in respect of contracting for new ships. The contracting level in 2011 year-to-date provides some optimism, as owners appear to be abstaining from another round of excessive contracting.

“It is difficult to predict when the next upturn will happen – there are simply too many uncertainties in the world economy right now and no recovery in sight. It is, however, much more certain that the supply situation is an internal matter to be handled by the shipping industry. The supply/demand ratio must be balanced somehow. Handling this with care is a condition for bringing back profitability to ship owners, at least in the short term”.

in Copenhagen, DK

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