Dry bulk cancellations to reach $22.7bn

• Text size
•  
•  

The report on the dry bulk shipping sector also predicts that 6.2m dwt of vessels due to be delivered in 2008 could be delayed, with a further 13.3m dwt for 2009 and 21.8m dwt for 2010.

In 2007, delivery delays affected 2.6m dwt, or 41 vessels, representing 10 per cent of the scheduled dry bulk order book.

For the first seven months of 2008, delivery delays have worsened, affecting 3.8m dwt, or 24 per cent of the scheduled deliveries for this period. Industry players have previously warned of a high number of cancellations due to banks tightening their finance for new ships in the wake of the credit crunch that has affected the US and European markets.

Abdullah Al Shuraim, Chairman of Gulf Navigation HoldingGulf Navigation Holding also warned that prices of dry bulk new builds were likely to go down as owners sell them off at give away prices due to lack of financing for them.

Although equipment supply shortages have eased, delays in delivery of new dry bulk vessels have been exacerbated by skilled labour shortages, especially engineers. Morgan Stanley said in a report that the magnitude of delivery delays was evenly spread across all vessel sizes and types.

This implied that even experienced and reputable shipyards building the larger capesize and panamax ships were having problems delivering ships on time.

"We believe that the degree of order cancellations could be particularly high by speculators who are unable to get financing and have placed orders with smaller unlisted China yards," Morgan Stanley said.

Morgan Stanley said potential cancellations was equivalent to approximately $22.7bn over the next three years, based on existing vessel prices.

"Anecdotal evidence from shipping industry participants indicates that up to 75 per cent of newbuild orders across all ship types may not have secured financing and 30 per cent ($150bn) of the newbuild orders could face a shortage of debt financing.

"Assuming an order book period of three years, this implies a potential funding shortage of $50bn a year," said Morgan Stanley.

According to analysts, new building orders in the handysize dry bulk sector are those most at risk of cancellation with up to 60 per cent contracted at yards with little or no track record.

With established shipyards unwilling to build smaller vessels, handysize bulk owners have been forced to order from either greenfield yards, or those with little experience in building internationally trading vessels, primarily in China, according to shipping analysts.

However, this week, shares at Daewoo Shipbuilding and Marine Engineering Co, the world's third-largest shipbuilder, fell the most in more than six months in Seoul trading, pacing declines in South Korean shipyards on concerns of more order cancellations.

Cancellations at Daewoo Shipbuilding and Hyundai Mipo last week raised concerns that slowing global economic growth may end five years of record orders for shipyards.

The declines dragged the 47-member Korea Transport Equipment Index down 6.7 per cent, the biggest drop on the Kospi index's 19 sub-indexes. Daewoo Shipbuilding said on August 1 a European customer cancelled a 619 billion won (Dh3bn) order for eight mid-sized container vessels, amid worries by investors that the super cycle in the shipping industry may be drawing to an end.

Hyundai Mipo, the world's fourth-largest shipyard, said the same day another European buyer pulled a 197 billion won order for four chemical carriers.

Hyundai Heavy Industries, the world's biggest shipbuilder, dropped 9.9 per cent to 277,000 won last week, while Samsung Heavy Industries, the world's second-largest, fell 7.8 per cent to 35,550 won.

Shipping companies, including Hanjin Shipping, also fell on concern over the mortgage crisis in the US.

By Staff Writer

© Emirates Business 24/7 2008