[031212.EN.SEA] Shipbuilders Face Bleak Future Owing To Capacity Outstripping Demand

DREWRY Maritime Research is warning of bleak prospects facing the world's shipbuilders owing to the downturn in global shipping markets.

The World Shipbuilding Annual Review highlights that shipbuilding production levels have remained at record highs, surpassing 50 million cgt [compensated gross tonnage - amount of work necessary to build a ship] between 2010 and 2011, with 2012 forecasted to remain close to 2011 levels.

However, the "difference between forecast demand and capacity is too great to be bridged by contraction from isolated capacity closure, meaning shipyards will have to fight for survival by securing enough of the limited new ordering that is likely to take place in the next couple of years".

The authors raise concerns that the orderbook that forms the contracted forward workload has diminished rapidly and tails-off to very low levels for 2014 and beyond, a statement said.

"Over-tonnaging and large operating inefficiencies mask the true levels of fleet under-utilisation and are hindering a recovery. With the orderbook dominated by bulk carriers and containerships, two of the worst hit markets in terms of over supply wreaking havoc with rates, it reflects the fact that for some time now ordering activity by shipowners exceeds the requirements of trade growth," it said.

Drewry's report presents three scenarios covering the projected newbuilding requirement by sector and ship type over a 15 year period, which it said reflects the uncertainty that surrounds the industry.

"Only under the High Case scenario is there a requirement for further new ordering beyond the size of orderbook at the start of 2012. Whereas under the more realistic Base Case in virtually all fleet sectors the size of the orderbook at the start of 2012 more than exceeded the newbuilding requirement to 2016," the authors concluded.

Furthermore, access to funding either through retained reserves or debt is described as being very limited for shipowners and "in the circumstances it seems almost inevitable that new ordering levels will remain low for some time to come."

Source : HKSG.