Another 11! Container ship market starts a new round of order boom

Chinese shipyards win a contract for nine 22,000 TEU ultra-large container ships from CMA CGM Container ships The news that the order has caused a significant impact on the South Korean shipbuilding industry is still fresh. The order from Mediterranean Shipping Company (MSC) for 11 22,000 TEU ultra-large container ships will likely quickly soothe the pain for the South Korean shipbuilding industry. However, many people focusing on the competition between the shipbuilding industries of China and South Korea may have overlooked an important point: two massive orders within a week could be another sign of market recovery, and also indicate that the global container ship market may be about to see another wave of orders.

According to TradeWinds, Mediterranean Shipping Company (MSC) has confirmed that it will order 11 22,000 TEU ultra-large container ships from South Korean shipbuilders, with a total value of nearly US$1.5 billion. Samsung Heavy Industries will receive the most orders, with 6 ships, while Daewoo Shipbuilding & Marine Engineering will receive the remaining 5.

The new MSC vessels will not use LNG power, but will install exhaust gas scrubbers to meet sulfur emission limits that came into effect in 2020. Each new ship will cost approximately US$145 million, and the cost of installing exhaust gas scrubbers is approximately US$5 million.

Meanwhile, an industry insider said that MSC is also considering lengthening some of its existing 14,000 TEU container ships to convert them into 17,000 TEU container ships, and has contacted shipyards for this purpose. These container ships to be lengthened and converted are MSC's first-generation 14,000 TEU container ships, built by Daewoo Shipbuilding & Marine Engineering between 2009 and 2013, for operation on routes between Asia and the Mediterranean. MSC is interested in a bundled proposal from shipyards for newbuilding and conversion work. It is understood that MSC has contacted South Korean shipyards for this, but not Chinese shipyards.

For MSC, placing such a large order for ultra-large container ships in the current market is clearly a well-considered decision.

Due to the fastest growth in global container volume in six years, Drewry, a shipping analysis agency, recently significantly revised its forecasts for this year and 2018. Drewry noted: "All available container traffic data this year shows that the current growth momentum is far faster than previously predicted." Container volume has risen sharply since the end of 2016. With the surge in momentum, we have been forced to make significant revisions to our forecasts for this year and the following year. 。”

Earlier this year, Drewry predicted that the container shipping industry would achieve approximately US$1.5 billion in operating profit this year, driven by higher freight rates and rapid growth in freight demand. Given the rise in freight rates and growth in demand in the first half of this year, Drewry Maritime Research raised that forecast to US$5 billion in July.

With the market recovering rapidly, new ship prices remain at a low point, which is clearly a good time for shipowners to place orders at bottom prices. The current price of these two batches of 22,000 TEU container ships is approximately US$140 million to US$160 million per ship, meaning the average cost per container is only US$6,364 to US$7,273. In 2012, Maersk Line ordered the world's first 18,000 TEU ship at a price of US$180 million, with a per-container cost of US$10,000. But COSCO ordered 6 21,000 TEU ships in October 2015 at a per-container cost of US$6,667, far lower than the per-container cost of Maersk's 3E-class ships. If the CMA CGM order uses LNG-Ready ships, the price is even lower than that of COSCO's 21,000 TEU ships, which is clearly very tempting.

Some industry insiders say that the impact of these large CMA CGM ships on the market will depend on the specific market conditions at the time of delivery. Assuming they are delivered after 2019, most of the ships on existing orders will have been delivered, and with the increase in transport demand and the increase in the number of ships being scrapped, the negative impact of these new ships may not be too great. However, the psychological impact on other competitors in the industry could be very significant: will they cautiously maintain their asset balance sheets and continue to wait and see, or will they quickly follow suit and order 22,000 TEU ships to join the "arms race"?

Betting on market recovery and placing orders at bottom prices, the two giants of the container shipping industry have taken the lead, and the global container ship market may be about to see a wave of orders, which is good news for the shipbuilding industry in any case.