Shipbuilders' count costs of cancelled orders

An unprecedented number of cancelled orders is thought to have cost Asian shipyards more than $25 billion (£17 billion) in lost revenues. Two of the world's largest fleet owners estimate that worldwide between 250 and 300 orders for bulk carrier, liquefied natural gas (LNG) tankers and container ships may have been cancelled this year The Times was told in Tokyo on Wednesday.
Plunging commodity demand from China has created a large surplus supply in bulk carriers, which is thought to have accounted for as much as half the order cancellations. Taking such a step is usually viewed as a last resort for ship owners because of the expensive loss of deposits and, in some cases, additional penalty payments.
Moreover, Roy Thomson, a regional marine manager in Asia for Lloyds Register, speaking at the Sea Asia 2009 conference in Singapore, said that the number of cancellations would rise. “We have not got to the root of it yet,” he said.
Brokers in London said that as much as half the global order book might be cancelled, a process that could hasten a recovery in shipping rates.
The problems are not restricted to bulk carrier fleets. Analysts are warning that it is “only a matter of time” before a big container ship operator declares bankruptcy in a collapse that would add a fresh layer of disruption to the already turbulent world of global shipping.
The warning of an impending bankruptcy, issued yesterday in a research note by Macquarie Securities, comes after an exceptionally downbeat annual report by Maersk, the industry's biggest company, in which it concluded that the outlook for container rates was “extremely negative”.
The risks of a corporate implosion are constantly rising, people in the industry say, because in many parts of the world freight rates are so low that shipping companies lose money from the moment their vessels leave port. To make matters worse, some operators are reportedly willing to transport cargoes at a loss to avoid losing either market share or customer relationships that will be critical when the recovery begins. Such an approach has, in turn, dramatically eroded the operators' collective negotiating power on rates.
Janet Lewis, of Macquarie, wrote in her report: “We suspect some shippers are desperate for cashflow, so will accept almost any price. There have been a number of small-bulk ship companies filing for bankruptcy, but no container ship companies. However, that is only a matter of time.”
The slump in consumer demand has produced imbalances between supply and demand, something made worse by the relative youth of the world container ship fleet since few vessels are being scrapped. New ships, commissioned four years ago during headier times for commodity prices and world trade, are expected to come on to the market over the next two years, adding yet more tonnage to a market where large parts of the fleet are already idle.
Macquarie's warning comes after equally alarming signs from the supertanker business, where rates have plunged to an 11-year low, forcing many to carry loads at a loss. Very high interest payments, also stemming from times when there was lots of liquidity in the market and borrowings were huge, add to the burden. Senior executives at Frontline, the world's largest supertanker operator, have said that the crisis may lead to significant knock-on problems for shipbuilders.
“We will see scrapping happening soon — then we will see massive cancellations in the order book,” Jens Martin Jensen, Frontline's temporary chief executive, said.
Asia's shipbuilders are fearing the worst: South Korean, Chinese and Japanese yards are processing about 98 per cent of the new orders for very large crude carriers and cancelled orders will pose them huge problems.