Orders hit a 7-year high! Will the new shipbuilding market continue to be 'excited'?

A $25 billion surge in container ship orders propelled global newbuilding orders to a seven-year high in the first half of the year. However, this unprecedented surge seems to be slowing down, with rapidly rising ship prices and dwindling dockyards causing the market to shift from 'excitement' to 'calm'. For most shipyards with insufficient orders, focusing on future market vessel demand may be more important.

New ship orders hit a 7-year high, with container ships making up half the total

According to Clarkson Research Services, new ship orders in the first half of the year reached 23.8 million CGT, totaling $52 billion, the highest level since 2014 and exceeding the 21.9 million CGT ($47.5 billion) total for the whole of 2020. However, the current order backlog accounts for only 8% of existing fleet capacity, remaining near a historical low.

The main driver for the increase in new ship orders is the overall improvement in the shipping market, especially the container ship market. In the first half of the year, the ClarkSea Index averaged $21,717, the highest half-year figure since 2008.

Container ships accounted for more than half of the new ship orders in the first half of the year, totaling 12.7 million CGT and $25 billion. In comparison, orders for tankers and bulk carriers were only 3.5 million CGT and 2.5 million CGT respectively. Shipyards also report that inquiries for container ships are continuing, mainly focusing on new Panamax and smaller vessels, but inquiries for tankers are very limited due to the current weakness and uncertainty in the tanker market.

Despite the positive performance in the first half of the year, shipbroking companies generally believe that new ship orders will slow down in the second half of the year. One reason is that rising steel plate prices have led shipyards to increase newbuilding prices accordingly. Another is that the delivery schedules of major shipyards in China and South Korea are largely booked until 2023, and equipment suppliers have reached maximum capacity.

The Baltic and International Maritime Council (BIMCO) also seems less optimistic about the order level for the whole year. BIMCO's latest analysis predicts that although container ship newbuilding orders are at a 14-year high this year, global shipyards still face pressure from insufficient orders. Based on the current market order growth rate, it is estimated that the total new ship orders in 2021 will be the third lowest in the past 12 years.

Fleet growth to slow in the next 5 years, with LNG carriers experiencing the fastest growth

BIMCO further predicts that the global fleet growth rate will slow down in the next five years, with LNG carriers experiencing the largest increase, but the container ship sector may find it difficult to maintain its current high growth in the long term.

BIMCO points out that at the beginning of 2021, the global merchant fleet comprised 74,505 vessels across 11 major vessel types. BIMCO simulated three fleet

       growth scenarios. In the baseline scenario, the total fleet is projected to reach 79,282 vessels by 2025, a 6.4% increase, lower than the 7.4% increase in the previous five years. From 2021 onwards, the predicted compound annual growth rate (CAGR) for the global fleet is 1.25%, lower than the 1.44% in the previous five years.

At the same time, BIMCO also provides a high-growth scenario and a low-growth scenario to consider the impact of different levels of uncertainty on the number of vessels in the future market.

In the low-growth scenario, the compound annual growth rate of the global fleet is predicted to be 0.75% over the next five years, with an average of 567 new vessels per year, significantly lower than the 955 in the baseline scenario. In the high-growth scenario, BIMCO predicts a compound annual growth rate of 1.75% over the next five years, with the total fleet exceeding 80,000 vessels by 2025.

According to BIMCO's forecast, the fleet growth rate in the next five years may be highest for LNG carriers among the 11 major vessel types. Currently, the global LNG carrier fleet totals 593 vessels, with 85% of the vessel capacity between 100,000 and 200,000 cubic meters. BIMCO expects the compound annual growth rate of the LNG carrier fleet to reach 6.7% under the baseline scenario, with the final fleet size reaching 819 vessels by the end of 2025. In the low-growth scenario, the total fleet may eventually reach 799 vessels, while in the high-growth scenario, the total fleet will reach 839 vessels.

In addition, the cruise ship fleet will also experience significant growth in the next five years. Although cruise ships are the second smallest vessel type in the global merchant fleet in terms of number, totaling 621 at the end of 2020, BIMCO expects a compound annual growth rate of 4.2% for the cruise ship fleet under the baseline scenario over the next five years, increasing the fleet size to 763 vessels by 2025.

In the crude oil tanker sector, despite the continued weakness of this market during the pandemic, BIMCO points out that orders for crude oil tankers have already exceeded 40 this year. According to previous data from IHS Markit, the crude oil tanker fleet totals 2,976 vessels, with 34% of the vessel capacity between 80,000 and 120,000 deadweight tons. BIMCO expects the compound annual growth rate of the crude oil tanker fleet to reach 2.8% by the end of 2025, with VLCCs being the main driver of growth.

Container ships are currently the fastest-growing segment of the fleet. BIMCO data shows that year-to-date new orders for container ships have reached 229 vessels totaling 220 TEU, while deliveries totaled 393,566 TEU. The current order backlog stands at 4.35 million TEU, more than double the low of 1.95 million TEU eight months ago. Soaring profits and extremely high freight demand have driven the growth of container ship orders, but BIMCO believes that container ships are unlikely to maintain this growth rate.