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Lloyds List Comment

Newbuilding wake-up call

By Lloyds List Comment

Tuesday 28 April 2009

TO BUILD all the ships now on order would be utter folly. The world will not need most of this additional capacity for years, and many of the newbuildings that are coming off the production lines are destined to go straight into lay-up.

That makes little sense, and it is not too late to halt some of the building work. In a world of diminishing resources, producing great steel hulks that no one wants and letting them rust away in some harbour, fjord or estuary clogged with other mothballed cast-offs is ridiculous.

Yet how can this threat, which has the potential to leave shipping in the doldrums long after world trade starts to recover, be removed? The industry does not have the leadership with the influence or mandate to thrash out a solution.

One thought being mooted is to allow owners to take collective action to confront the shipyards. Crisis cartels, permitted during exceptional circumstances in the past, could be formed to consider ways of removing structural capacity surpluses, although participants would have to be very confident that these complied with competition law in Europe and elsewhere.

But that does not guarantee that the big shipyards, particularly in South Korea, will accept mass cancellations or agree to greatly extended production schedules.

So who should take responsibility for sorting out this mess?

It is hard to see how the industry alone will reach a solution, unless market forces are allowed to prevail. If pre-delivery finance dries up, as it will, half-built ships may the next phenomenon. That is hardly satisfactory either.

Will government intervention be necessary? Should the European Union, where many of the owners with large orderbooks are based, come to some accommodation with shipbuilding nations?

Looming in the background is a new banking crisis if undelivered newbuildings are auctioned off cheaply, thus depressing all asset values. The thought of more toxic debt could be the wake-up call for politicians.

Comments (3)

Comment by Mr Barry Parker - Thursday 7 May 2009
i don't entirely agree with this part: Looming in the background is a new banking crisis if undelivered newbuildings are auctioned off cheaply, thus depressing all asset values There is vulture money massing to invest in cheap ships. Clearly not the hundreds of billions needed to buy all the new buildings. But I am not convinced that this crisis is different from any before, which will work themselves out.

Comment by mr hans heynen - Tuesday 28 April 2009
Every new containership delivered probably prolongs the crisis in the shipping industry with several month. The sooner orders are posponed or cancelled the better it is for the recovery of the shipping industry and indeed for the financial industry and the environment as well. Shippping industry must look at the automobile industry and slow production fast.

Comment by Anonymous - Tuesday 28 April 2009
I have been at sea since 1971 and a master since 1983 and I have seen the ups and downs of the industry. Owners buy ships to speculate and assume that it will be worth in a few years time. This will not stop until the banks refuse to finance these follies. The industry does not need support, it just needs a good old fashioned recession (like now) to bring the bankers to their senses and only finance ships that have paying charter to work. Stop treating shipping like floating real estate and start being professional and provide a real service for the charterers.

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