Shipowners worried over delivery delays

As the frenzy in new ship orders continues, many questions are arising over delays in delivery times by shipyards. Over the past three years hundreds of shipping companies have submitted new orders due to the exploding global demand for ships available for chartering. This fact, along with the compulsory withdrawal of about 50 percent of the existing fleet (ships over 25 years of age) by 2010, have led nearly all shipowners, and certainly the Greeks, to order new ships. Today there are outstanding orders for ships totaling 230 million dwt, according to a recent survey by Clarkson Research. As a result, many shipyards are being forced to operate at maximum capacity while delivery times have been significantly extended. The number of ships to be delivered in 2009 has already multiplied, and there is already a delivery scheduled for 2010, Clarkson Research suggested. This phenomenon has been mainly observed over the last couple of years. In 1994 the average waiting time until delivery (for all types and sizes of vessels) did not exceed 19.3 months, just over a year-and-a-half. The situation did not really change until 2002, when that time was extended to 22.2 months. Now, in the past three years, we have reached 29.3 months, almost two and a half years of waiting. In short, shipowners are forced to wait for their newbuildings for up to a year more than they did a decade ago. The classification attempted by Clarkson Research, regarding vessels under and over 100,000 dwt, yields significant differences between the two categories. In 1995, delivery times were almost the same: 21.2 months for the smaller ships, 21.5 months for the bigger ones. In 2005 the times are at 28.7 months for ships under 100,000 dwt and at 36.6 months for those over that level. Consequently, if a shipping company’s strategy is to grow using bigger vessels, which in fact the market demands more and more, then it will have to wait for over three years. Certain types of ships show even longer delivery times. For instance, delivery times for a VLCC tanker (over 300,000 dwt) now reach 40.8 months. This delay naturally worries not just shipowners but also shipyard managers. From the shipowners’ side, Clarkson’s survey stresses, the greatest worry is where chartering prices will be when their new ships are delivered. If demand has subsided, dragging prices down, company profits will be severely diminished, while shipowners will also have to give the shipyard the bulk of the payment as new ships are traditionally paid for on delivery. For shipyards, the greatest problem is to forecast future shipbuilding costs, as unforeseeable factors such as the cost of steel and currency exchange levels are significant. As a result, many shipyards have passed the risk on to shipowners, by raising prices. What is more, every newly built ship costs more for shipowners than in the past. Today VLCC tankers of 300,000 dwt cost about $120 million, while at end-2003 they would not exceed $77 million, representing a 55 percent rise. Similarly, Capesize dry cargo ships cost some $66 million today, up from $48 million in December 2003, an increase of 37.5 percent. The picture is similar across the market. This does not mean that shipyards are goldmines. Besides the sharp increase in the price of steel internationally, managers of several shipyards are troubled by pressures on currency rates stemming from the continuous decline of the dollar. This mainly affects European shipyards, which cannot really benefit from the higher prices of ships due to the strong euro.