The surge in new vessel orders is straining the shipbuilding industry’s capacity to meet demand. This high level of shipbuilding activity is reminiscent of the period before the 2008 financial crisis, reports the Economic Times.
Significant Increase in Orders
Shipowners have invested over $188 billion in new builds in the first 11 months of 2024, indicating a strong surge in shipbuilding activity. This pace is likely to be the highest in terms of both value and capacity since 2007, according to Clarkson Research Services. Two major shipbuilders have reported that new orders placed today would have a delivery timeline of 2028, highlighting the high demand and limited shipyard capacity.
Driving Factors
This surge in shipbuilding orders is driven by the continued expansion of global trade, despite economic challenges such as rising interest rates and a slowing Chinese economy. While the proportion of new ships entering the fleet remains relatively small, the sheer volume of orders this year is unprecedented, putting significant pressure on shipyard capacity. “You’ve had very little development in shipyard capacity, other than it has reduced in size,” said Jan Rindbo, chief executive officer of D/S Norden A/S which operates both bulk carriers and oil tankers. “You can’t quickly increase production.”
Space Constraints
Samsung Heavy Industries Co., the world’s third-largest shipbuilder, has cautioned that long delivery times are expected due to high demand, particularly for LNG carriers, and limited shipyard capacity. HD Hyundai Heavy Industries Co., the second-largest, has received a significant number of orders, exceeding its annual target and leading to a backlog of orders that will take approximately three-and-a-half years to clear.
Both companies are focusing on high-value vessels like gas carriers and green-energy vessels, which offer higher profit margins compared to bulk carriers or oil tankers.
The construction of large gas and container ships is significantly more expensive than building bulk carriers, with costs exceeding $250 million per vessel. In contrast, large bulk carriers typically cost around $80 million.
Due to high demand and limited shipyard capacity, average waiting times for large vessels have reached their highest levels since the mid-to-late 2000s.
Sustained Demand
Global seaborne trade is expected to continue expanding in 2025 and 2026, despite concerns about global manufacturing and the Chinese economy. This sustained demand is a key driver for the strong shipbuilding activity.
The ongoing conflict in Ukraine and the Red Sea diversions have led to longer shipping routes, further increasing demand for vessels.
Ship owners are actively investing in fleet modernization to replace aging vessels. The average age of the global fleet has reached its highest level since at least 2005.
This period of strong shipbuilding activity also coincides with a growing shift towards cleaner fuels, particularly within the container shipping sector, where major companies are directly exposed to end-user demand for more sustainable shipping options.
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Source: The Economic Times
