The Shipbuilding market in 2002

General trends  
Orders 
Prices 
Analysis by country
      - Asia
      - Europe
      - U.S.A. 
Prospects

The year 2002 was marked by:

1. A large drop in the volume of orders in the first half, giving the impression that the world orderbook was going to be reduced significantly for the first time since 1993. An important recovery takes place however during the second half and more particularly in the fourth quarter, notably in Japan but also in Korea, to such an extent that the world orderbook ended the year against all expectations on an increase over 2001 with more than 75 million tons.

2. Korea confirms its place as the leading shipbuilding country with an orderbook of about 31 million gt, followed by Japan with nearly 25 million gt. Shipyard mergers take place in these two countries. Chinese shipbuilding is still on a rising trend with a total of 9.1 million gt on order reached at the end of 2002. Yards continue to expand with the opening of new docks despite a global overcapacity in the market. European shipbuilding is struggling to keep up with a modest 6.24 million gt on order against more than 8 million gt at the beginning of the 90's. The number of orders in sectors where it is traditionally strong (ro-ros ships, ferries, cruise ships) remains weak and it is neither taking advantage of the revived demand in chemical carriers, which substantially benefits to Japan, nor of the sustained level of orders for LNG carriers. Lays off and closures are being announced and some shipyards go bankrupt.

3. Newbuilding prices continue to drop in the first half of the year up until the autumn. These reductions (up to 15 % when compared to 2001) are not evenly spread and depend on the type and size of ship as well as the level of competitiveness between the shipyards. It is very noticeable whenever demand is weak (containerships and large-size tankers) and less so for bulk carriers. At the beginning of the autumn, prices for these big ships start to increase with the recovery in demand.

4. The sinking of the 'Prestige', a 26 years old single-hulled tanker which was carrying 77,000 tons of heavy fuel oil, created a new dramatic oil spill, the third in less than four years in European waters, after those of the 'Erika' (December 1999) and the 'Baltic Carrier' (April 2001). Following the initial declarations of European politicians calling for a tightening of regulation, numerous owners rush at shipyards to negotiate early deliveries. These collective requests induce price increases in the order of 5 to 10 % compared to the lowest levels of the year.

With a world GNP increase around 2.8 %, the year 2002 remained a year of little economic growth. It is nonetheless slightly better than 2001, which had a GNP rise of 2.2 %, one of the lowest in the last ten years.

World trade growth has expanded in 2002 by nearly 3 % whereas in 2001 it had been flat.
 

Freight rates in the three principal mainstays of the shipping market, oil, dry bulk, and containers, which had dropped considerably in 2001, stabilise at the start of the summer and go back up as from September 2002.
 

Nonetheless, the economic climate, weak freight rates, a hazy visibility and international tensions have a combined effect and help deter owners from the shipbuilding market during the first half of the year up until the autumn.
Low shipbuilding prices no longer seem to be sufficient to incite potential buyers. Shipyards, whose orderbooks go through up until 2004 or even beyond, are not convinced either they should lower their prices in order to stimulate this new demand, which would allow them to balance their orderbooks and to reach their commercial objectives set at the beginning of the year. Such is the case that the volume of new orders shrinks to the point that in September the world orderbook falls below the 70 million tons mark.
 

This drop in the volume of orders during the first three quarters affects principally Europe and China. Japan which is largely specialised in the building of dry bulk carriers, is able to profit from the new interest in this sector linked to renewal needs, given the very low level of Capesize and Panamax orders. Japan notches up more new orders than Korea, which is more focused on building containerships and tankers.

IIn the autumn, the increase in freight rates linked to shipbuilding prices at historic lows helps provoke a very strong demand, to such an extent that the world orderbook finished the year at a level higher to that of 2001.

In 2002, we enter into a new cycle for bulk carriers with a very strong demand for Capesize (50 units ordered which is the most in the decade) and Panamax (no less than 75 units ordered whereas the orderbook for this type of ship in July 2002 had fallen to 49 units). But 2002 is also marked by a strong demand for Aframax tankers (44 units ordered).
 

Within specialised tonnage, there is a strong interest for chemical tankers (54 stainless steel units were ordered), after two years of weak demand. Orders for ferries and ro-ros are limited and correspond to needs for renewing. Car carrier orders remain steady but important renewal programmes are launched by Japanese operators NYK, Mitsui and K Line.

There is little interest for LPG carriers : only 7 new contracts are sealed exclusively with Japanese and Korean yards. Freight rates in this sector have never been so low and the number of idle ships weighs heavily on the market. Ordering activity for LNG carriers has remained healthy with 16 new contracts concluded, which is the third best figure for the decade.

Cruise ship operators are sitting on the fence : only 3 cruise ships are ordered in 2002, which is far from the 25 contracts of 1999. New investments are hoped for in 2003.
 

As previously indicated, a significant drop in prices was experienced in 2002. Ships least in demand and being normally ordered in series like large containerships, gave rise to a fierce competition between shipyards resulting in important rebates (-15 %) ; the same applies to VLCC (-10 %) which still carry a considerable attraction for shipyards.

It seems that a floor price was reached at the beginning of the autumn. Shipyards revises their prices upwards due to the strong recovery in demand, brought about by improved freight rates but also by the anticipation of tighter regulation following the 'Prestige' disaster (November 2002). In practice, the first declarations by politicians from countries affected by the pollution, calling for an accelerated phasing-out of single-hull tankers or to forbid single-hull tankers to carry heavy fuel oil in European waters, was enough to incite some tanker owners to negotiate with builders for new tonnage, leading to price increases at the end of the year.

This price hike could well carry through into 2003 in the light of the desire by authorities to tighten existing controls and to put them into immediate effect. This will depend equally on the recovery of the economic growth, which is continually getting postponed.