The declining momentum of global economic growth has also had a dampening effect on the demand for newbuildings in 2014. On an annual basis incoming orders stayed behind the relatively high figures of 2013, but will still be higher than in previous years
The growth of the global economy and world trade was slightly weaker than expected in the first months of the[ds_preview] year. In October, the International Monetary Fund has therefore adjusted expectations downwards for GDP growth in 2014 again. The forecast for the full year is now plus 3.3%, and 3.8% for world trade. The slightly more positive forecasts for 2015 were also reduced to 3.8% and 5% respectively. However, geopolitical risks to the economy are still present: In the Near and Middle East, in Ukraine and in the South China Sea. Debt problems besetting many countries and uncertainties in the financial sector may come to a head again.
For the first half of 2014 global shipping was characterized by continued high fuel costs and slowly increasing charter as well as improved prices for new and second hand vessels. These trends did not continue in the second half. Most dramatic changes have occurred in recent months in the decrease in crude oil and bunker prices. If this trend should continue for a longer period of time, significant market shifts also affecting demand of newbuildings are likely to occur.
According to figures from IHS Fairplay global orders included a total of 2,105 ships with 26.2mill. CGT during the first three quarters of 2014. These are partly traced back to the coming into force of the IMO Noise Code, which applies to orders from July 2014 on and is said to have persuaded shipowners to bring forward orders. The increasing demand for ships with higher energy efficiency has also contributed to many shipowners’ new orders.
Shipyards in China, South Korea, Japan and the Philippines accounted for approx. 90% of the contract volume on CGT base. China extended its lead with 14.4mill. CGT to a market share of almost 40%. Japan was in second position this time, with only one percentage point ahead of Korea with 25% market share. The rise of Japanese shipyards to old glory was significantly triggered by the government‘s devaluation of the Yen. The reduced market at the Korean shipyards have also led to deteriorated corporate results, this affected the world‘s largest shipbuilder, Hyundai. As a consequence, the management has already been replaced and restructuring has been announced.
German shipyards placed fourth on the market with a share of 1.5%, closely followed by the Philippines, Italy and France. All EU-28 shipbuilding countries plus Norway together delivered a CGT share of 7.5% (2.7mill. CGT).
Bulkers by far had the largest share of global orders with 13.3mill. CGT and an increased share of approx. 37%. Gas tankers followed with approx. 14% and then container ships, whose share again fell back to now 13%. A positive trend was to be observed with crude oil tankers where orders were significantly higher than in previous years, a fact which led to an increase of the specific market share to more than 8%. Higher levels were also a result for ferries and passenger ships. In contrast, product/chemical tankers, roro carriers, other dry cargo and offshore vehicles lost market shares. As for other types of ship, market share changes were relatively small.
The relatively strong demand for newbuildings in 2013 and during the first months of 2014 caused construction prices based on US Dollar to rise again until June. However, the slowdown in the third quarter of the year put an end to the positive trend and there was a further decline in prices while persistent overcapacity further added to this trend. This affected mainly large tankers, bulkers and roro. Taking currency changes into account, price changes may be very unequal. Depreciation of the Euro compared with Dollar by 9% from December to November has led to a continuous price increase based on Euro during the second half of the year. The Japanese Yen went through an even stronger devaluation of 11%. This policy initiated by Japan to support the country’s export sector has contributed to the fact that orders of the Japanese shipyards have improved significantly in 2014. Since the beginning of Yen devaluation in 2011 this currency has lost a third of its value compared to the Dollar. The Korean Won was revalued against the greenback by mid-2014, but has lost 7% of its value since then. The Chinese Yuan emerged with the lowest value changes, while the government wants to achieve full convertibility.
Despite a slight decline in delivery figures in each quarter, the annual result will be the same as in the previous year approximately. Deliveries in the period January to September included 2,271 ships with 28.4mill. CGT. The leading shipbuilding nations China (9.4mill. CGT) and Korea (8.9mill. CGT) continued to compete head-to-head with market shares of 33% and 32%. Japan achieved 19% with deliveries of 5.3mill. CGT. For the Philippines, the proportion doubled to nearly 3% last year due to the increasing production relocation of foreign shipyard owner Hanjin (Korea), Tsuneishi (Japan) and Keppel (Singapore). The following countries had each an approx. 1% share, including Germany (rank 11). The situation of European shipbuilding countries remained nearly unchanged with a proportion of 5% (EU + Norway) or approx. 6% (SEA Europe member states).
The specific proportion of ship types among the newbuildings has seen some change. Crude oil tanker deliveries fell to a level of approx. 4% (due to extremely few completions in Korea) and bulk carriers dropped to 33%. In contrast, positive developments were particularly at gas tankers to 8% and with offshore vessels to 11%. Changes at other types were relatively small.
Since deliveries corresponded to only 78% of new orders and only 114 cancellations of newbuilding orders with 2.2mill. CGT were reported, the order backlog increased to 6,371 ships with 111.9mill. CGT by the end of September. This increase was primarily attributable to China and Japan, where order books climbed by approx. 6.5mill. CGT and 5mill. CGT compared with December 2013. The book of business of European shipbuilding countries increased by more than 1mill. CGT. German backlogs were involved in this process, too, which increased by 0.6mill. CGT and improved the German position in the ranking from the 9th to the 6th position. The dominance of bulk carriers has resulted in an increase of the bulkers’ CGT proportion to 33% with reference to the type structure of the order book. Container ships, however, dropped from 19% in late December to now 16%.
The order situation in the global shipbuilding market has further improved in the third quarter. However, this does not apply to all shipbuilding countries alike. While Chinese and Japanese yards managed to improve their order situation as a whole, the Koreans got into trouble because of poorer workload. German companies also profited, both shipyards and marine equipment suppliers. However, the competition among shipbuilding countries remains hard and has by now affected all parts of the market. In almost all market segments forms of government intervention prevent fair competition. In particular, financing conditions are very different depending on the state-controlled general framework. Shipbuilding companies in China and Korea especially have an advantage here, since these and their clients receive ignificant support in financing granted by predominantly state-controlled banks.
The problem of global overcapacity has become less of a problem for shipyards, but a balanced market is far from implementation though. The specific process of consolidation is proceeding very unevenly across countries. China pursues an industrial policy objective of restructuring the shipbuilding industry through mergers and acquisitions in favor of public shipyards while lending by the banks is used as a steering mechanism. Furthermore, the government has issued a »White List« including shipyards given priority in such aids which also includes some private shipyards such as Rongsheng with a variety of jobs official China does not want to see down.
The industrial policy goals more and more focus on the development of a proper marine supply industry. This strategy is also pursued by the Korean government to reduce dependence on imports, to create new jobs and raise the quality in shipbuilding to higher levels. The German industry therefore remains subject to highly distorted competition.
