Seaspan Corp has ripped up $520m in contracts to build four container ships and has warned that a legal claim may follow.
The container ship owner, a subsidiary of US-listed Atlas Corp, said the cancellation involves four 7,700-teu, dual-fuel newbuildings.
Seaspan did not explain the reason for tearing up the contracts, other than to say that the counterparty failed to live up to some terms of the deal.
“Due to certain conditions in the contracts not being fulfilled by the counterparty, the contracts have become null and void,” the Hong Kong and Vancouver-headquartered company said.
In language that is often a prelude to legal action, Seaspan said that it has “reserved its rights” to make a claim against the counterparty on the newbuilding contracts.
Fearnley Securities said it understands the troublesome “counterparty” in the case is the shipyard and "by no means" the major European liner company backing Seaspan’s order.
The investment bank said there could be a be a number of reasons for the yard opting to pull out.
Cost-overruns due to steel and labour costs, as well as a potential loss-making contract, are the most plausible, Fearnley argues.
“The contract in question was Seaspan’s most recent order placed in May this year, and has so far been subject to closing conditions, ie never confirmed to be completed,” analysts Oystein Vaagen, Erik Gabriel Hovi and Ulrik Mannhart said.
“Given the recent placement of the order we do not believe Seaspan had paid any pre-delivery instalments yet,” they added.
Seaspan announced in May that it had ordered the quartet of ultra-modern container ships, which were to have the capability to run on LNG or fuel oil.
They were to be delivered in the second half of 2024.
The shipowner also had long-term charters in place with a company described as a “leading liner operator” that was to pay $950m over the life of the contracts.
Seaspan has not named the shipyard and liner operator involved in the cancelled order, and it has not said what will happen to the charter contracts. A company representative did not immediately respond to a call seeking additional information.
But TradeWinds has previously reported that Seaspan ordered the ships at K Shipbuilding in South Korea for about $130m apiece, with giant liner operator Mediterranean Shipping Co (MSC) lined up as the charterer.
VesselsValue shows the Geneva-based container shipping behemoth locked the vessels into contracts that would last four years.
TradeWinds reported in June that MSC also ordered four identical container ships of its own at K Shipbuilding.
MSC has been contacted for comment for this story, and K Shipbuilding could not be immediately reached after business hours in South Korea.
VesselsValue data shows that despite slumping spot container freight rates, the newbuilding contracts have only marginally lost value, estimated at $129m today.
But the valuation platform estimates that ordering an equivalent newbuilding today would only cost $102m.