Ship Orders Doubling Seen Curbing Recovery From Capacity Glut

Demand for new ships doubled this year, potentially curbing a recovery from the worst excess of capacity in decades, caused by record orders for vessels before the 2008 financial crisis and global recession.

Shipyards received contracts to build 72.7 million deadweight tons of new carriers in 2013’s first eight months, up 101 percent from a year earlier, according to London-based Clarkson Plc, the world’s largest shipbroker. Orders are heading for the highest since 2010, and iron ore-carrying Capesizes accounted for 25 percent of the agreements.

Demand swelled this year as Capesize charter rates gained in six of the first eight months, the best performance since 2007, according to data compiled by Bloomberg. Hire costs were the highest since November 2010 yesterday. Increased ordering threatens to stifle the nascent recovery, according to Hartland Shipping Services Ltd., a London-based shipbroker.

“There’s a perception that by the time ships are delivered in two years, the market will be better,” Nigel Prentis, head of consultancy at Hartland, said by telephone today. “Hopefully the surge in ordering is going to abate, because it’s not in anyone’s favor if it goes much further and is in danger of tipping the balance and restraining the recovery.”

Capesize rates surged as much as 178 percent this month. Still, the ships are earning 83 percent less than the 2008 record after the industry’s biggest shipbuilding program created the largest glut since at least 1986, according to data from Clarkson and the Baltic Exchange, the London-based publisher of shipping costs on global maritime routes.
Source: Bloomberg