Orders for new ships decline sharply over first three quarters

New ship orders appear to be losing steam in 2005, according to data for the year’s first nine months, as they reached just 45 ships and were worth a touch over $2 billion in combined worth. With the months of August and September excepted, new orders remained in shallow waters throughout the year, on the back of four years of strong growth: The hundreds of ships Greeks ordered between 2001 and 2004 have been seeing delivery since the end of last year. In 2004 alone, Greek shipowners ordered 135 new ships, worth a total of $5 billion. They had also maintained their option to extend orders for 30 new vessels in various shipyards around the world. Most of those options were used during 2005. The reduction in new orders by Greek shipowners is attributed to a variety of factors. The lack of launching cradles is the main one, at least in the biggest and most reliable shipyards. This problem began emerging in 2004, when most major shipowners rushed to place new ship orders while they enjoyed good cash flow thanks to the rise of chartering rates to record levels in virtually every market. Shipyards are fully booked and this obviously affects rates as well. Shipbuilding costs have risen sharply in the last couple of years, making this a costly choice for every shipowner. When the decision to order a new vessel must be made during a period of low rates, like today, owners are likely to opt not to order. After all, shipowners have to anticipate the future course of the market where they intend to employ their new vessels ordered, given that most deliveries could stretch up to 2008 or even 2009 in some cases. Shipyards, for their part, are suffering significant financial problems due to their inability to foretell shipbuilding costs. They sign contracts which, a year later, generate losses instead of profits, especially in periods of rising prices for raw materials such as steel. During the summer shipyards tried to renegotiate terms in many new order contracts. Depending on the case, shipowners either show some understanding and accept higher prices, or send the case to courts of arbitration, aiming at compensation. The situation for shipowners worsens further by the increasing unreliability by certain shipyards, mainly among those that lack a solid financial and entrepreneurial base, say market professionals. In order to handle the current difficult situation without compromising the Greek fleet’s renewal process ongoing in recent years, many Greek companies are turning to specialized shipping niches, such as the increased number of orders for liquefied petrol gas (LPG) ships. The situation in those markets is less saturated, because of lower interest. For example, since the beginning of 2005 Greek interests have ordered at least 11 LPG ships. These developments also point to rising confidence in dry-bulk vessels, which for the first time could overtake tankers among new ships. This is explained both by the strong prospects of the dry-bulk sector (thanks to China) and by the relative lagging in renewal of dry-cargo fleets. Still, Greek activity in sales and purchases of old vessels partly offsets the drop in orders, as several companies make sure they renew their fleet by acquiring ships aged up to five years. Finally, many shipping companies are finally receiving vessels they had originally ordered two or three years ago, which will allow them to cover their short-term as well as their long-term needs.

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