Shipyards in China have declared force majeure over delays to newbuildings under construction due to the coronavirus outbreak.
Market players said most Chinese shipbuilders have contacted shipowners to inform them the delivery of their newbuildings will be affected.
In the wake of the outbreak, the Chinese government has extended the new year public holiday from 3 February to 9 February to contain the spread.
Delays have been reported by yards in northern, eastern and southern China.
The China Council for the Promotion of International Trade has been handing out force majeure certificates to help yards renegotiate newbuilding liabilities in the face of the unforeseen circumstances.
A shipyard executive in Shanghai confirmed his company had notified shipping companies.
“This matter [the outbreak of coronavirus] is an unexpected event and the instruction given by the central government is beyond the shipyard’s control. This is a force majeure event which is covered in the shipbuilding clause,” the yard representative said.
“Currently technical and administration staff are working from home, communicating through the internet and telephones. We will be returning to the shipyard for work on 10 February and employees that visited Wuhan during the outbreak of the virus must be quarantined at home for two weeks before reporting for work."
The shipyard executive could not specify how long the delays would take. “It may affect [work for] three to six months and this all depends how fast the virus clears up,” he said.
Demand fallout
One newbuilding broker commented: "It is one of the most clear-cut force majeure claims you can get, explaining that yards have a limited time in which they can declare this under newbuilding contracts.
"Any yard which doesn’t claim force majeure is being naive," he added. “Frankly, they have no alternative. The coronavirus is going to disrupt them and if they ever want to claim any force majeure for it they have to do it straight away."
He does not believe the outbreak will disrupt anyone wanting to negotiate a newbuilding contract, but acknowledged that yard production will be set back.
But he said the biggest impact is likely to be on commodity demand, which he expects to collapse.
Silver lining
According to analysts, the delays in newbuilding deliveries would mitigate oversupply when shipping demand is falling amid slowing economic activity.
Clarksons data suggested Chinese yards were originally due to deliver at least 20 tankers totalling 1.32m dwt, 51 bulkers of nearly 4.7m dwt and 17 containerships totalling 54,000 teu. Most, if not all of them, are expected to be delayed.
“Ships are likely to be tied up longer in Chinese shipyards,” Braemar ACM regional tanker research head Anoop Singh said.
Bancosta’s head of research in Singapore Ralph Leszczynski said the delay of newbuilding deliveries due to the coronavirus crisis will be positive for the shipping markets, as it will reduce fleet growth.
“We are certainly seeing the impact very well in the capesize sector, where rates are now down to below $4,000 per day according to the Baltic indices.”
“I don't think this could be a ground for owners walking away from the shipbuilding contracts,” he said. “It is clearly not the yard's fault if delays occur due to government enforced lockdowns and movement restrictions.”
Another shipbuilding expert also thinks shipowners are unlikely to ditch their contracts as many of the newbuildings were placed at the “rock bottom” of the shipbuilding market in 2018.
