Orders surge! The shipbuilding cycle is expected to end ahead of schedule
2017-07-04 09:00
As a shipbuilding industry within the shipping industry chain, shipbuilding is a typical cyclical industry. It has been declining since 2010 for nearly 7 years, and nearly 10 years since the 2008 global financial crisis. Everyone knows that the shipbuilding industry will eventually recover, but no one knows exactly how long it will take to truly recover. The significant increase in new ship orders in the first half of the year seems to have made Clarkson more optimistic. After comparing the shipbuilding cycle in the late 1970s, Clarkson's latest conclusion is that this round of shipbuilding may end earlier.
Clarkson's recent report states that the shipping industry is cyclical. For shipyards, the current weakness in new ship orders puts even greater pressure on their capacity. Although the current overcapacity in shipbuilding seems very serious, this is not the first time the shipbuilding industry has dealt with overcapacity. Looking back at the shipbuilding cycle in the late 1970s, the current shipbuilding industry can gain some experience from it.
The shipbuilding industry is usually accustomed to rapidly increasing production capacity. In 2010, shipyard deliveries reached a record high of 53.2 million CGT (deliveries calculated by deadweight tonnage and GT reached their peak in 2011). Compared to 2004, deliveries in 2010 increased by 122%. In the mid-1970s, shipyard deliveries also experienced similar rapid growth, with strong newbuilding demand driving deliveries to double between 1972 and 1976, reaching 10.2 million CGT.
Similar to the late 1970s, economic downturn and its impact on the shipping industry led to a significant decline in shipyard deliveries after peaking in 2010. However, the decline in shipyard deliveries in the 1970s was faster and more significant, with deliveries decreasing by 64% between 1976 and 1979. In the current cycle, the decline in deliveries has been more gradual, with a 34% decrease from 2010 to 2014, with 178 shipyards delivering all their new ships under construction in 2012.
Currently, shipyard deliveries are still declining. Although the rebound in new ship orders in 2013 helped support deliveries, current predictions show that shipyard deliveries will decrease by 18% in 2018. Many expect the current delivery cycle to decline around 2019, meaning the current cycle is shorter than in the past. In addition, shipyard deliveries are unlikely to fall to the low levels of the late 1980s. If following the 1980s model, deliveries would decrease by another 47% after 2018, falling to approximately 15 million CGT.
After the recession of the 1970s, the shipbuilding industry took more than a decade to recover production. After new ship orders fell to a record low in 2016, the problem of overcapacity in the shipbuilding industry became more prominent. Currently, a total of 353 shipyards have orders for at least one ship (1000 GT and above), and nearly half of these shipyards have not received any new ship orders since the beginning of 2016.
If the current shipbuilding cycle pattern is the same as in the 1970s, it will take another 7 to 8 years for this cycle to end. However, if new ship orders increase, the current situation will improve. Demand such as trade growth, old ship renewal, and stricter environmental regulations will drive growth in new ship orders, thereby supporting shipyard capacity, and this cycle may not take 7 to 8 years to end. Judging from the significant increase in the number of new ship orders in the first half of the year, the market is gradually improving, and the number of new ship orders in the second half of the year may determine the duration of this round of shipbuilding cycle.
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