Orders 'too hot to handle'? Shipyard claims 'Ships can be built, but contracts must be renegotiated'

Ships can be built, but the price must increase, and the contract needs to be renegotiated.

The high fever in the shipping market is beginning to spread to the shipbuilding industry. Under the record-breaking boom in container ship orders, the global shipbuilding industry has shaken off its downturn of the past two years. Some shipyards are overwhelmed with orders, but the sharp rise in steel prices has made orders increasingly "hot".

A cumulative 208 ships! New ship orders in the first five months of this year exceeded the total orders of the past two years.

Data from VesselsValue shows that the number of new container ship orders in the first five months of this year is almost double the total orders for 2019 and 2020, totaling 208 ships valued at US\$16.3 billion, even exceeding the total orders of the past two years. In comparison, the total orders in 2020 were 120 ships worth US\$8.8 billion, while in 2019, the total orders were 114 ships worth US\$6.9 billion.

Due to Western retail giants such as Walmart and Amazon rushing to replenish inventories after experiencing supply chain disruptions caused by the pandemic, demand for container shipping has surged. Meanwhile, major ports in North America, Europe, and Asia continue to be congested, making it difficult to secure containers and driving up freight rates. Major shipping companies such as Maersk, Mediterranean Shipping, CMA CGM, and Hapag-Lloyd have seen their profits soar and have begun to update and expand their fleets.

Data from Braemar ACM, a British shipbroking company, shows that container ship orders in the first half of this year reached their highest level since 2014, with 180 ships totaling approximately 1.9 million TEU in the first quarter, setting a record high for the off-season in terms of capacity. Although the number of new ship orders is large, the number of ships to be delivered in the next two years is expected to be relatively small. Most of the newly ordered ships will be delivered in 2023, and the fleet growth rate will slow down in 2022 before making a strong comeback in 2023, when deliveries will reach 1.5 million TEU.

According to Braemar ACM, 36 ultra-large container ships with a total capacity of 653,600 TEU are expected to be delivered and put into operation this year; 39 ultra-large container ships with a total of 675,354 TEU will be delivered in 2022; and the delivery volume of ultra-large ships in 2023 will reach 75 ships, totaling 1.33 million TEU. In 2023, the global container ship fleet capacity will increase by 6%-7%, setting a new eight-year high.

Unprecedented in 20 years! At least 22 ships are currently renegotiating prices.

More than a year ago, the global shipbuilding industry was facing layoffs and consolidation. Now, new ship orders are flying in, thanks to shipping companies rushing to increase capacity to meet the recovery of Western economies and the expansion of consumer demand.

However, the surge in new ship orders has led to full capacity utilization at Asian shipyards, and some new ship delivery dates will be delayed. It is expected that new ships ordered in the second quarter of this year will not be delivered until 2025 at the earliest.

Sources revealed that due to the influx of orders into shipyards, some shipyards have even suspended providing new ship quotations and are trying to renegotiate existing orders, as the price of shipbuilding thick steel plates has doubled since the end of 2020.

A senior executive at Hyundai Heavy Industries Group recently stated that this is the busiest period in years, with orders mainly for container ships. "We have almost no dock space to build additional new ships before the end of 2023." "I have never seen such strong demand in my 20 years in the industry."

A senior executive at a large state-owned Chinese shipbuilding company revealed that due to the continuous rise in steel prices, the owners of about 20 ships have been asked to pay higher prices to ensure delivery. "If the shipyard adheres to the original contract, it will suffer losses when the ship is delivered." "A large cargo ship requires approximately 25,000 to 30,000 tons of steel, which has increased by an average of US\$15 million in terms of cost compared to last year."

According to industry insiders, the price of steel plates accounts for up to 30% of the cost of a ship, depending on the type of ship. Tankers and bulk carriers require more steel than container ships. The current cost of a very large crude carrier is approximately US\$100 million, which is significantly higher than the US\$85 million in October last year.

Orders are indeed booming, but they are also "hot".