The new shipbuilding market is recovering, and ship prices will continue to rise over the next three years.

2018-05-28 09:00

The recovery of ship operating income will drive the revival of new shipbuilding activities, while the increase in shipyard costs and the continuous pressure on capacity are promoting higher prices for new ships.

Stuart Nicoll, an analyst at Maritime Strategies International (MSI), recently stated that freight rate revenue in some major ship segments is expected to increase over the next four years, leading to growth in new shipbuilding activities. Factors driving revenue increases are growth in cargo demand (from trade growth) and a slowdown in fleet growth rates.

MSI expects fleet growth in major shipping sectors to slow over the next five years, which will help improve the supply-demand balance in many areas. The slowdown in fleet growth comes from a decline in deliveries; the reduction in order volumes in 2016 and 2017 will inevitably lead to lower deliveries; in addition, a stricter regulatory environment is also expected to lead to a significant increase in scrapping.

MSI points out that the growth in new shipbuilding activities will boost ship prices over the next three years. It is clear that the shipyard order backlog indicator, which represents the amount of work that can be handled, fell to its lowest level in 2017, and the outlook for the next two years will improve rapidly. In addition to the growth in the order backlog, the continuous reduction in shipbuilding capacity also helps to improve this indicator. Shipbuilding capacity will be further reduced as some shipyards deliver their last backlog orders.

MSI found that shipyard costs have expanded rapidly over the past two years, further increasing this year, and are expected to remain largely stable in 2021. These factors have led to a recovery in new shipbuilding starting in 2018, accelerating growth in 2019, and new shipbuilding prices are expected to hit a new high by 2021. Prices for most ship types will reach or even exceed the peak levels of 2013.

Theoretically, the current low prices of new ships offer shipowners an excellent opportunity to make deals before expected earnings growth in multiple shipping sectors. Another factor driving investment in new shipbuilding is the revival of demand for environmentally friendly ships in the face of high fuel prices expected in 2020.

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