Shipbuilders will likely be keen to see the back of 2019. It has been a lean year for new orders and is likely to result in the majority of them missing their order targets.

The figures make for grim reading. At the close of the third quarter, the global orderbook had shrunk by 16% since the start of the year, according to shipbroker Clarksons, while contracting was down 42% year-on-year in deadweight terms on an annualised basis.

Affinity (Shipping)’s statistics show that, assuming the fourth quarter as an average of the first nine months of this year, 2019 will rank as the third weakest year since 2010 in contracting terms — and slightly worse than 2017 when prices were at historical lows.

The broker says the final contracting figure for 2019 could end up 30% lower than in 2018.

Newbuilding brokers say orders have been particularly slim for the bulkers and containerships, somewhat neutral for tankers and LPG ships, while LNG carriers are heading for another high scoring year.

This picture is reflected in vessel prices, with LNG carriers the only ones coming under any upward pressure.

Nikolaj Ankerstjerne Sorensen, department manager for newbuilding at Lorentzen & Stemoco (L&S)’s office in Copenhagen, says yards have been adjusting their capacity downwards since the financial crisis of 2008.

“We are now probably at the lowest for 11 years, but newbuilding demand is still not adequately fulfilling the needs of the shipyards,” he says.

Nikolai Hansteen, chief shipping analyst and department manager for sale and purchase and newbuildings at L&S' Oslo office, says that in compensated gross tonnes terms there has been a notable reduction in the Chinese order intake versus that for South Korea.

He attributes this to the lower interest in bulkers that in an ordinary year would account for about 40% of China’s orders.

Japanese shipyards are also struggling, taking fewer export orders and unable to compete with China on price.

Nightmare scenario

Shipping guru Martin Stopford said contracting is running at about half the rate of deliveries on what is a short orderbook.

“It’s your nightmare scenario,” Stopford says. “When you get down to these order numbers, the finance guy in the shipyard is looking at a black hole for 2021 because when most of your orderbook is delivered by [the] end of next year, you either slip some into the following year or fall off a cliff in 2021.”

The reasons for the order downturn are mixed and intertwined.

Hansteen says finance is difficult to secure and IMO Tier III-compliant vessels are more costly to build.

He adds that the downward slope in the forward freight agreement curve is creating hesitancy for bulkers.

“I think there is a kind of scare factor out there when looking at the sentiment for next year and onwards,” he says.

Yard mergers — including that of Chinese state giants China State Shipbuilding Corp and China Shipbuilding Industry Co, and the one planned for South Korea’s Hyundai Heavy Industries and DSME — are fuelling further uncertainty.

“And the world economy is rubbish,” Stopford says.

But it is reluctance among owners to move on their investment plans that shipbuilders highlight as the key concern.

Floodgate watch

One senior yard manager told TradeWinds that while owners appear to have the intention to order, in reality they are proving “hesitant” and “cautious”.

“IMO 2020 is overshadowing everything,” he says.

Martin Stopford Photo: Susanne Hakuba

A prominent newbuilding broker has previously spoken about looking towards the end of the year or early in 2020, when “the floodgates will open” on new orders, with owners throwing off their concerns and getting down to renewing their fleets.

Responding to this, the official says: “They [the floodgates] still look pretty secure.”

There maybe more pain to come next year but there are also positive signals

Ankerstjerne Sorensen says yards are now focusing on two to four ship types where than can be truly competitive, rather than trying to build everything.

He says the orderbook is flattening out and at some point the market will see higher freight rates.

On dry bulk, he says: “I don’t forsee another year with this lack of contracting activity.”

He expects to see lower newbuilding prices established and “hopefully notable contracting activity” for this sector next year.

Hansteen hopes this will have a knock-on effect to other shipping sectors.

“I think the timing is looking attractive to order new ships taking delivery in 2022 in a market which will be devoid of vessels,” he says. “I think there are some very prudent reasons to start looking now.”