Slowing down the dragon

 Republished by kind permission of: A&A Thorpe, 131a Furtherwick Canvey Island, Essex SS8 7AT Tel: +44 (0) 1268 511300 Fax: +44 (0) 1268 510467 shipaat@aol.com

The views of the Publishers do not necessarily correspond to the views of Lambos Maritime Services Ltd.

Some financiers are predicting that as much as 30% of today’s orderbook may not be built through lack of debt availability over the next two years or so. But the truth is that nobody really knows – even banks themselves don’t have a clear picture. The portfolio management experts brought in to sort out the mess at a number of ship finance institutions are not shipping people and it is thought that, for newly nationalised institutions or banks shored up with government money, international shipping is likely to fall a long way down the funding priority list. 

This could have significant implications for the premier league of world shipbuilding. It is even possible, some experts believe, that China’s dramatic expansion which saw it beating Japan on deliveries in the first half of this year, could slow down sharply. They point to the fact that parts of China’s massive bulk carrier orderbook could be vulnerable. Altogether, Chinese shipyards have some 1,577 bulk carriers on order, representing not far off half of the total 3,324 according to Clarkson statistics, including 366 Capes, 370 Panamax, 500 handymax in the 40-60,000 dwt range and 341 handys in the 10-40,000 dwt category.
 

Whilst it is true that many of these ships have been contracted with specific trades in mind, trades that will be as valid in ten years’ time as they were ten years ago, there has also been widescale speculation, notably at greenfield yards in China which promised early deliveries but which are now struggling to meet their obligations. For many, the slowing down of the Chinese building dragon is a welcome silver lining – the last things they want is to take on more new tonnage in the current market. 
   

According to analysis by Clarkson, almost 23m dwt of new ships were due for delivery from Chinese yards in the first half of this year, 2.3m dwt more than had ever been delivered in a full year previously. However, the analysts report that in the months between January and July, Chinese yards only delivered about 70% of their 2008 total. In the first seven months, over a third of all scheduled deliveries were not made. 
   

But Clarkson also notes that Chinese building capacity continues to expand. Many of the contracts were placed at greenfield sites which have since graduated into newly established facilities, admittedly with no track record and every chance of failing to meet delivery dates in due course. But 20% of Chinese orders were logged at greenfield yards 12 months ago; today the figure is just 7%, indicating that many greenfield sites are now actually building ships. 
   

So they have become newly established shipbuilders. However, as slippage has increased this year, it seems likely that these new yards are not meeting construction schedules and it appears likely, as more greenfield facilities start to produce ships, that the rate of slippage will increase further. This could be a godsend for owners who have ordered on spec, providing them with a vital window in which to get their funding arrangements sorted out. Or not.
   

Slippage is one thing but contract defaults, commonly referred to as cancellations, are quite another. There is no question that a significant number of owners who contracted bulk carriers at Chinese yards will not be in a position to raise pre-delivery finance. And many of them will be neither capable nor prepared to fund the contracts out of their own reserves. The Chinese shipbuilding dragon may not be keeping up today but there could be a very different story tomorrow. Orderbooks could wither quickly and China’s quest for shipbuilding supremacy could be hit by significant delay.