Who broke the contract? Seaspan cancels order for 4 7700TEU container ships
2022-09-22 09:00
Seaspan, the world's largest independent container ship owner, has canceled a $520 million container ship order from South Korea's K Shipbuilding (formerly STX Shipbuilding) due to the shipyard's "failure to fulfill the contract." This news undoubtedly sends another subtle signal to the declining container shipping market.
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It is reported that Seaspan recently announced the cancellation of a contract signed in May for the construction of four 7700TEU LNG dual-fuel container ships. The reason given was the failure to meet "certain specific conditions," but the company did not elaborate on the specific reasons.
Seaspan stated: "Due to the failure to meet certain conditions in the contract, the contract is now void. Seaspan has notified the relevant parties and reserves the right to claim damages from the counterparty for these contracts."
It is understood that in May this year, Seaspan announced the order of ultra-modern 7700TEU dual-fuel container ships, with delivery scheduled for the third and fourth quarters of 2024. At the time, Seaspan stated that it had signed a long-term charter contract worth approximately $950 million with a leading global shipping company, and that it would use existing liquid funds, operating cash flow, and additional borrowing to finance the new ships.
Although Seaspan did not disclose the specific information of the shipyard and charterer, it is said that the order was undertaken by South Korea's K Shipbuilding, with a unit price of $130 million and a total price of $520 million (approximately RMB 3.645 billion). All new ships will be leased to Mediterranean Shipping Company (MSC), the world's largest container shipping company. With the termination of the construction contract, the related charter contract will also be canceled.
Regarding Seaspan's cancellation of the order, a relevant person from K Shipbuilding simply stated: "The contract failed to materialize in the final stage."
According to International Ship Network, the 7700TEU LNG dual-fuel container ship is K Shipbuilding's first container ship order since its renaming from STX Shipbuilding in July last year. It is also the company's first LNG-powered container ship and its second environmentally friendly ship product. Previously, K Shipbuilding signed an agreement with South Korean marine equipment manufacturer Donghwa Entec to jointly develop the 7700TEU LNG-powered container ship.
Statistics show that from January to August this year, K Shipbuilding received orders for a total of 10 MR tankers and 8 7700TEU container ships, with a total contract value of $1.457 billion, exceeding the total order value of the three mid-sized South Korean shipbuilders, Daewoo Shipbuilding & Marine Engineering, Hyundai Mipo Dockyard, and HJ Heavy Industries. However, after the cancellation of the $520 million order, the value of new ship orders received by K Shipbuilding this year has fallen below $1 billion.
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It is reported that Seaspan is one of the shipowners with the largest number of ship orders in the market. Since returning to the new shipbuilding market at the end of 2020, Seaspan has ordered more than 70 container ships during this period of prosperity in the container shipping market. The sudden "cancellation" of the order by Seaspan has sparked market speculation.
Norway's investment bank Fearnley Securities points out that the "counterparty" referred to by Seaspan in the announcement is the shipyard K Shipbuilding, and "definitely not" the European shipping company that supports Seaspan's order.
Fearnley Securities stated that there could be many reasons for the shipyard to cancel the contract, with cost overruns due to steel and labor costs and potentially loss-making orders being the most likely scenarios. In addition, Fearnley Securities stated that Seaspan has not yet paid any installments for this construction contract.
On the other hand, Mediterranean Shipping Company, the charterer of Seaspan's order, has been continuously expanding its fleet since last year and officially surpassed Maersk to become the world's largest container shipping company at the beginning of this year. At the same time, Mediterranean Shipping Company also ranks first in the world in terms of the number of orders on hand.
Alphaliner's data shows that Mediterranean Shipping Company currently operates a fleet of 693 vessels with a total capacity of approximately 4.4868 million TEU, including 377 owned vessels and 316 chartered vessels. In addition, Mediterranean Shipping Company has 110 new vessels under construction, approximately 1.5029 million TEU, more than double that of CMA CGM (approximately 626,200 TEU), which ranks second in terms of orders on hand. Mediterranean Shipping Company's orders on hand alone are close to the fleet size of ONE, the world's seventh-largest container shipping company (approximately 1.5065 million TEU).
Clarkson's data shows that in the first half of this year, Mediterranean Shipping Company, as a shipowner, has ordered as many as 48 new ships from Chinese and South Korean shipbuilders, including 6 LNG-powered 15000TEU ships from Hyundai Mipo Dockyard, 6 LNG-powered 16000TEU ships from CSSC, 10 1800TEU ships from Mawei Shipbuilding, 6 LNG-powered 7900TEU ships from Hyundai Heavy Industries, and 10 LNG-powered 8100TEU and 10 LNG-powered 11400TEU ships from New Times Shipbuilding.
However, Mediterranean Shipping Company's expansion pace does not seem to have stopped. Recently, there have been reports that Mediterranean Shipping Company will order a total of 12 16000TEU dual-fuel LNG-powered container ships from Yangzijiang Shipbuilding, with each ship costing over $180 million, and the total contract value reaching $2.16 billion (approximately RMB 15 billion). The new ships are expected to be delivered between the end of 2024 and 2026.
However, while some shipowners are still keen on expanding shipbuilding, freight rates have been declining since the second half of this year. According to data from the Shanghai Shipping Exchange, the freight rate for a 40-foot container from Shanghai to the US West Coast in the first week of September was $3959, a decrease of 23% from the previous week, a drop of over $1000, marking the largest drop since statistics began in 2009. According to the latest Shanghai Export Container Freight Index (SCFI) released by the Shanghai Shipping Exchange on September 16, the SCFI index continued to fall by 4.2% this week to 2609.09 points, marking a 14-week decline and falling to its lowest point since the end of 2020. The SCFI index has been halved year-to-date.
In addition, according to data from Clarkson Research in the UK, new orders for container ships in 2021 increased by 4.2 times compared to the previous year, reaching a 14-year high. If demand decreases and a large number of ships are put into operation, the shipping market downturn may make a comeback.
With the continuous decline in freight rates, more and more shipowners and experts have realized that this "feast" is about to end, and the unprecedented super-cycle of the container shipping market is entering its countdown. (Wang Chu)
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