Are the good days of shipbuilding over? Orders could decrease by 40% next year?!

After two consecutive years of booming new ship orders, new ship orders are expected to be halved next year, and the good times for the shipbuilding industry may be over.

On November 8, the Overseas Economic Research Institute of the Export-Import Bank of Korea (KEXIM) released a report titled "Trends and Outlook of the Shipping and Shipbuilding Industry." The report predicts that due to the slowdown in global economic growth and high interest rates, and especially with the worsening of the shipping market, the global new ship order volume in 2023 will decrease by about 40% compared to 2022. Among them, the order volume of the South Korean shipbuilding industry may decrease by more than 40% compared to this year.

The report points out that the global new ship order volume in 2023 is expected to be only 22 million corrected gross tons (CGT), a decrease of 37.1% compared to 35 million CGT in 2022. The order value will also decrease from US$100 billion in 2022 to US$61 billion in 2023, a decrease of 39%. Among them, the order volume of the South Korean shipbuilding industry next year will be 8.5 million CGT, a decrease of 41.8% compared to 14.6 million CGT this year; the order value will be US$22 billion, a decrease of 42.9% compared to US$38.5 billion this year.

The Overseas Economic Research Institute of the Export-Import Bank of Korea stated that the order volume of the global new shipbuilding market increased significantly in 2021 and 2022, benefiting from the booming LNG market and the concentrated investment of container ship owners, leading to a surge in orders for LNG carriers and large container ships. However, for bulk carriers and tankers, with the new maritime environmental regulations such as the Energy Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Indicator (CII) about to be implemented on January 1, 2023, new ship orders have not increased significantly.

Yang Jong-su, chief researcher at the Overseas Economic Research Institute of the Export-Import Bank of Korea, said: "The wait-and-see attitude of bulk carrier and tanker owners is mainly because some owners are still bearing the impact of the continuously rising prices of new ships since the beginning of last year, coupled with the unexpected increase in interest rates globally, leading to a worsening financial environment and an increased risk of global economic recession. This is the decisive factor for the inevitable decrease in global new ship orders."

At the same time, the global major shipbuilding companies already have new ship orders that can meet the workload for more than 3 years, and the possibility of a price reduction for new ships is not high, which will also affect the reduction of short-term new ship orders. In addition, it is highly likely that the growth rate of demand in the shipping market next year will slow down or even shrink. With the decline in the shipping market, it will be difficult for ship owners to make large-scale investments in new ships, which will also lead to a decrease in new ship orders.

Lee Bong-jin, a researcher at Hanwha Investment & Securities, said: "In fact, due to concerns about economic stagnation and a decrease in shipping volume compared to last year, the industry has already lowered its expectations for this year. Fortunately, supported by LNG ship prices and new ship order volumes, the cumulative order volume of South Korean shipbuilding companies at the end of September this year increased by 4.4% compared to the same period last year. However, with the backlog of orders showing a downward trend compared to last year, it remains to be seen whether the upward trend in orders for the South Korean shipbuilding industry this year can be sustained."

In this regard, some people in the South Korean industry have pointed out that the South Korean shipbuilding industry has already secured orders for more than 3 years, so it will not be greatly impacted. According to Clarkson's statistics, as of the end of October this year, the global backlog of new ship orders was 104.7 million CGT, of which South Korea accounted for 36.75 million CGT, with a market share of 35%. Based on the delivery volume of new ships in the South Korean shipbuilding industry in 2021, it can meet the workload for the next 3 to 4 years.

The Overseas Economic Research Institute of the Export-Import Bank of Korea believes that the shrinkage of global new ship orders in 2023 will only be a temporary phenomenon. With the implementation of global carbon-neutral environmental regulations such as the Energy Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Indicator (CII), it will create a huge demand for ship energy-saving modifications, ship operation optimization, and renewal of old ships. Therefore, if various countries gradually lower interest rates and the international shipping market improves in the future, and the investment confidence of ship owners is boosted, the new shipbuilding market is expected to return to a higher level again.

Yang Jong-su said: "It is expected that the global new ship order volume in 2023 will decrease to the level of the stagnant period of the ship market in 2020, and South Korea will not be able to escape its impact. However, the shrinkage of global and South Korean new ship orders will be a temporary phenomenon. With the changes in the global economy and shipping market next year, the new shipbuilding market is expected to return to a good level again in 2024."