50% down payment! Japanese shipbuilder launches rare "priority payment" model
2022-11-22 09:00
With down payments reaching up to 50%, Japanese shipbuilders are seizing the opportunity presented by the significant depreciation of the yen to offer "top-heavy" payment terms to shipowners urgently needing to order bulk carriers.
Typically, new shipbuilding contracts signed by Japanese shipbuilders utilize tail-heavy payment terms, divided into four installments: 10% upon contract signing, 10% upon commencement, 10% upon launching, and the remaining 70% upon completion. However, recent contracts for bulk carrier construction between Japanese shipyards and shipowners have seen down payments as high as 50% of the contract price.
According to Japanese media reports, with the yen's continued depreciation since the beginning of this year, the down payment ratio for some small and medium-sized bulk carrier construction contracts from Japanese shipbuilders has increased to 20-30% since autumn. However, orders with 50% down payments are unprecedented for the Japanese shipbuilding industry.
Relevant personnel from Japanese shipyards pointed out that the payment ratio for this newly surfaced order reached 50% at the time of signing, "possibly the largest top-heavy payment project ever, seizing the opportunity of the yen's historic depreciation."
For shipyards, under the current yen depreciation, the advantage of securing 50% of the ship price upon contract signing is "extremely significant." Shipyards enjoy the benefits of yen depreciation, thus having room to discount the ship price.
It is understood that overseas shipowners and operators who accumulated a large amount of cash during the booming shipping market in the first half of this year, as well as large Japanese shipowners with large fleets and sound financial conditions, are mostly ordering bulk carriers from Japanese shipyards with 30%-50% down payment terms. However, currently, new ship orders from Japanese shipyards with down payments exceeding 30% are limited to some small and medium-sized bulk carriers.
Industry insiders analyzed that for shipowners, with the rise in US dollar interest rates, choosing deposits instead of investing in shipbuilding would inevitably lead to an expansion of cash reserves. Many shipowners are cautious about investing 50% of the ship price in cash for vessels that will not be completed for another three years.
On the other hand, newbuilding prices remain high, while long-term charter rates are quite weak, with the gap between the two larger than ever before. In fact, inquiries for bulk carriers in the newbuilding market have stagnated, which is also a factor contributing to the low number of contracts signed.
On November 15, the Japan Ship Exporters' Association released the latest order data for October 2022 from Japanese shipbuilders. Japanese shipbuilders received orders for 10 vessels totaling 217,470 GT, a year-on-year decrease of 80.5%, creating a new low in nearly six years.
The data shows that the new ship orders received by Japanese shipbuilders in October included 3 general cargo ships (29,700 GT) and 7 bulk carriers (187,500 GT), including 6 handysize and 1 supramax bulk carriers.
As of now, the total number of orders received by Japanese shipbuilders in the first 10 months is 224 vessels totaling 9,643,020 GT, a year-on-year decrease of 27.6%. Classified by ship type, this includes 54 cargo ships (3,344,310 GT), 162 bulk carriers (5,976,310 GT), 7 tankers (320,300 GT), and 1 other vessel (2,100 GT).
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