Shipowners face rising costs for new tanker orders

Many shipowners who rushed to submit orders for new tankers before April 1 were eventually forced to pay more for them, exactly what they had wanted to avoid, due to the huge demand at shipyards that raised the cost of shipbuilding. The imposition of stricter safety specifications along with the use of more steel in the tanker’s hulls led to a rise in shipbuilding costs, as most analysts predicted at the start of the year. Eventually, though, the increase came earlier than forecast, as too many tried to ensure their order was in place before early April. A recent report by industry publication TradeWinds suggests that ships being built under the new specifications cost 10 percent more than they did earlier this year. However, part of this rise is due to the increased demand that has taken prices higher. Figures published by the shipbuilding associations of Korea and Japan are indicative of the size of the demand, as recorded ahead of the new regulations. The Korean Shipbuilders’ Association suggested that in the first half of 2006 contracts for new orders increased by a third (33.4 percent) over the same period in 2005, according to ships’ capacity. This is the highest order figure in the history of Korean shipbuilding, as the total capacity of ships ordered reaches about 9.6 million tons. The picture is also similar in Japan. The total tonnage of ships ordered from January to June reached 12 million tons, a rise of 200 percent from the same period last year. As a result, analysts agree that not all these ship orders were necessary, nor are they profitable, since in their efforts to avoid the added costs, shipowners have pushed prices even higher. There are also many observers who express worry about a possible repeat of the phenomenon in the container ship category, where new regulations will apply as of August 2007. The new rules concern the protection of fuel tanks, which will reduce ships’ capacity and again raise costs. It is these changes to which analysts attribute the latest surge in container ship orders. Notably, there has been no decline in the number of new orders in any ship category even after April, despite the fact that tankers are now more expensive. Many shipowners, most of them Greek, have recently proceeded to order a series of VLCC, suezmax and aframax tankers, regardless of the high prices. These companies include Kristen Navigation and Alpha Tankers of the Angelikousis group, Drytank and Cardiff of George Economou, Dynacom of George Prokopiou, EST of the Restis group, and finally Chandris. In the container ship sector, Costamare of the Constantakopoulos family is particularly active. Kristen is negotiating with the Chinese shipyards of Sungdong for the purchase of six aframax tankers of 115,000 dwt, to be delivered in 2009 and 2010, each costing $65 million (a total of $390 million). The company has also ordered three suezmax tankers from 2009 onward. Each 159,000-dwt ship will cost $78 million. Dynacom recently ordered two VLCC tankers of 300,000 dwt, set for delivery in 2010. This is the first order by Prokopiou’s company from a Chinese shipyard, namely Jiangnan Changxing. Recent reports suggest that Dynacom is close to signing a new order for four panamax oil tankers. Costamare has ordered four container ships with a capacity of 8,250 teu from the Hudong shipyards. Each ship is expected to cost $118 million, raising the total investment to $472 million, with deliveries expected in 2009-2010. Similarly, Danaos of the Coustas family has reportedly agreed to order five container ships of 6,250 teu at the Sungdong shipyards in China, at $100 million each. This order has not been confirmed yet. Greek dry-bulk shipowners also appear quite positive about strengthening their fleets. However, according to the monthly report on shipbuilding by the George Moundreas and Co ship brokerage firm, they are facing limited interest by shipyards. International analysts argue that shipyard managers want to avoid committing their launching cradles to dry-bulk ships, as tankers and container ships, especially the big ones, allow for much greater profit margins.