Shipyard suffers huge losses! Order for 6 of Hapag-Lloyd's 23500TEU container ships takes effect

2021-06-25 09:00

German shipping giant Hapag-Lloyd has confirmed the execution of an option for six dual-fuel ultra-large container ships from Daewoo Shipbuilding & Marine Engineering (DSME). Although the total price is as high as US$1 billion, this large order finalized last year is undoubtedly a "loss-making deal" for DSME, serving as a costly lesson for their impulsive low-price bidding.

In a June 21 announcement, DSME stated that it had signed a contract with a European shipowner for the construction of six LNG-powered ultra-large container ships, totaling 1.12 trillion won (approximately US$9.93 billion). Although DSME did not disclose the shipowner or order details, Hapag-Lloyd has confirmed the additional order of six 23,500 TEU container ships from DSME, with deliveries starting in 2024.

Hapag-Lloyd stated that these new vessels will be equipped with energy-efficient high-pressure dual-fuel engines, capable of operating on LNG but also having sufficient tank capacity to use conventional fuel. Upon delivery, the new ships will be deployed on the Far East-Europe route as part of the THE Alliance.

According to International Ship Network, Hapag-Lloyd initially signed a contract with DSME in December last year for the construction of 6+6 LNG-powered 23,500 TEU container ships. The first six ships were priced at approximately 1.08 trillion won (approximately US$9.79 billion at the time), equivalent to a price of only US$163 million per ship. At the time, Korean media reported that DSME won the order because it "offered lower prices than Hudong-Zhonghua and Jiangnan Shipyard in each round of bidding, thus winning over the shipowner."

Since the beginning of this year, with the continuous rise in steel plate prices, South Korean shipbuilders have correspondingly increased their ship prices. However, the price of Hapag-Lloyd's latest six orders is almost the same as the price at the end of last year.

According to Clarksons' data, the current price of newly built 22,000/24,000 TEU container ships is approximately US$163 million, similar to the price of Hapag-Lloyd's order. However, Hapag-Lloyd's new ships will use LNG power, and the construction cost of LNG-powered ships is usually about 20% higher than that of traditional fuel ships. Based on this calculation, the construction cost of similar LNG-powered container ships is approximately US$195 million, which is about US$30 million higher than the price per ship received by DSME. This means that according to the current market price, DSME's order has already incurred a "floating loss" of US$180 million.

There are reports that DSME attempted to increase the price of these six optional vessels for Hapag-Lloyd, but was unsuccessful. DSME's creditors are dissatisfied with the activation of the option order; unless steel plate prices drop significantly in the near future, this will inevitably be a loss-making project.

Hapag-Lloyd stated that the six ships will be financed through a US$852 million syndicated green loan with a term of 12 years from the delivery date. The transaction was completed in accordance with the Loan Market Association (LMA) Green Loan Principles and verified by DNV. This credit arrangement is supported by the Korea Trade Insurance Corporation (K-SURE), and the syndicate consists of 10 banks.

Hapag-Lloyd CEO Rolf Habben Jansen said: "Through investment in newbuilds, we aim to take another step in the modernization of our fleet – both in terms of vessel size and sustainability. At the same time, we aim to meet persistently high demand and reduce unit costs."

Currently, Hapag-Lloyd is the fifth largest container shipping company globally. Alphaliner's data shows that Hapag-Lloyd's fleet operates 259 vessels, including 115 owned vessels and 144 chartered vessels, with a total capacity of approximately 1.78 million TEU. After the delivery of 12 newly built 23,500 TEU vessels, Hapag-Lloyd's fleet size will reach approximately 2.06 million TEU.

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