Elena Babyna, Natalia Melnyk

Kyiv State Maritime Academy

WORLD SHIPBUILDING – DIFFICULTIES AND CHANGES IN 2012-2013 YY.

Global shipbuilding industry has been going through a downturn for the last four years. The downturn has been felt more in the commercial shipbuilding industry where demand tends to be driven by fixed asset investments and growth in global trade. Global commercial ship orders were down 48% YoY in the first nine months of 2012 and order backlog fell to half of the level in first half of 2008. At this point all lead sector indicators such as freight rates, ship prices, used ship transactions, and used ship prices suggest that commercial shipbuilding demand is unlikely to recover much in 2013 as the sector continues to suffer from oversupply, a weak financing market, and low freight rates. Nevertheless, strength in selective segments such as LNG and offshore should continue to support order flow at big Korean yards although a sustained recovery might take some more time [1].

Only 49m dwt (or about 852 ships) were ordered in 2012 compared to 89m dwt (or about 1,375 ships) in 2011. This volume is higher than the record low of 34m dwt reached in 2009 but in line with levels seen in 1993–2003 when the volume of orders fluctuated between 40 and 60m dwt per year. However, it is well below the average order levels of about 140m during the boom years of 2003–2008 and, most importantly, it is below the world newbuilding capacity level [2].

Sales prices in dollar terms declined throughout 2012, with the contraction ranging between 5% and 10% depending on the type, size and of course, the shipyard and the shipbuilding country [3].

Weak demand, competition from a bearish second hand market (see the following paragraph), re-sales at cut price, the low level of freights and the scarcity of finance all contributed to the decline. Apart from prices, all other terms of purchase (payments deferred to delivery, the requirement or not of guarantees from the buyer, richer specifications) improved in favor of the ship-owners [3].

Despite ongoing problems in commercial shipbuilding, the big three Korean shipyards have done relatively well with Hyundai Heavy, Samsung Heavy, and DSME achieving between 50% and 95% of their 2012 yearly order targets driven by strength in offshore rig and platform orders. Offshore orders accounted for 60% (USD 32.5 billion) of global investment in the shipbuilding sector in the first nine months of this year driven by relatively high oil prices and daily rental rate for rigs. Korean shipyards, with their strong engineering skills and long expertise in building such platforms, were key beneficiaries of offshore orders. In 2013, these shipyards expect orders for offshore production platforms and rigs to support order recovery although there is a chance that some orders/projects might get delayed because of political or technical issues [1].

The introduction of energy efficient designs by shipbuilders added a new factor to the equation in 2012, forcing down prices for the less efficiently designed second hand ships and re-sales, which in turn had a knock-on effect on newbuilding prices [3].

Shipbuilding has now been in crisis for four years and there is no end in sight.

There are still many reasons for the crisis to continue in 2013:

• Shipbuilding overcapacity.

• Continued delivery of large numbers of ships, albeit at a lower level than in previous years, into a depressed freight market, marked by an overcapacity of transport supply. At end 2012, the world fleet had increased by 8% year-onyear and by 40% since 2008.

• Stiff competition between shipbuilders due to shipbuilding overcapacity, competition that is likely to be aggravated in 2013 by a possible exchange rate war: the Yen fell by about 20% between October 2012 and January 2013 improving Japanese competitiveness and posing a threat to their rivals.

• difficulties encountered by ship-owners in securing financing.

• A reduction in profit margins for shipbuilders and owners [2].

Despite the reduction in sales prices, they remain high compared to the level of the charter market.

However the situation is changing:

• If, on paper, there are still a lot of shipyards, in practice, the number of active ones internationally is reducing. There are perhaps 75 left in China, 10 in Korea and 15 in Japan. Many shipyards are also voluntarily reducing the number of orders they take on.

• The large-scale and much awaited reduction in deliveries from 2013, plus the acceleration in the rate of demolition, could stabilize the world fleet.

• Greater resistance from shipbuilders not to give in to pressure from buyers. They have already been forced to agree to a reduction in prices of more than 55% since the highs of 2008. These same shipbuilders now balk at giving away further price reductions. Certain deals agreed to by the sales directors of the shipyards have subsequently been overturned by the boards of these yards.

• A possible increase in building costs in 2013 brought about by the increase in the cost of steel, which rose in China from $640 per tonne in September 2012 to $700 at the beginning of 2013.

• Greater selectiveness by ship-owners when choosing a shipyard.

• A growing feeling amongst shipbuilders and ship-owners that prices have reached an all-time low and that a rebound is always possible in 2014 even if they do not increase in 2013 [2].

LITERATURE

1) Міжнародний оглядовий портал http://gcaptain.com/– [Електронний ресурс]. – Режим доступу: http://gcaptain.com/global-shipbuilding-outlook-global/

2) THE SHIPBUILDING MARKET 2012-2013: ANNUAL REVIEW – [Електронний ресурс]. – Режим доступу: http://www.brs-paris.com/annual/annual-2013/pdf/02-newbuilding-a.pdf

3) Quartz – Top News– [Електронний ресурс]. – Режим доступу: http://qz.com/100909/chinas-big-shipbuilding-companies-are-taking-on-water/