BIMCO: Ordering Ramping Up in H1 Is Not What Industry Needs

Illustration; Image Courtesy: Euronav

The newbuild activity for the first half of 2017 has surpassed the same period last year by 20%. A total of 5.9 million DWT was contracted in May 2017 and 3.1 million DWT so far in June 2017, which brings the total amount of newbuild orders up to 19.6 million DWT for 2017, BIMCO’s figures show.

For June 2017, 22 tankers have been contracted amounting to a total of 2.6 million DWT. For the crude oil tanker segment, this has been entirely for Suezmax ships with 1.9 million DWT ordered. The product tanker fleet has seen 0.7 million DWT ordered and 0.5 million DWT dry bulk ships contracted.

”BIMCO expected newbuild activity to pick up, so the recent development is not surprising. It is however not what the industries needs given the present challenges in the market, as the earnings in all three segments give little incentive for adding more capacity to the industry. The low level of contracting as seen in 2016 – disregarding the 30 Valemax ships ordered in March and April – is necessary in order to restore the fundamental balance between supply and demand in the shipping industry,” BIMCO’s Chief Shipping Analyst Peter Sand comments.

“As the dry bulk, crude oil  and oil product tanker shipping sectors are all struggling with very low freight rates, it is important that the recent development in contracting activity reflects a short-term trend. A continuous high level of newbuild activity will halt the current slow progressing improvement in the shipping markets.”

Highest newbuild contracting activity for VLCC’s since 2008

The crude oil tanker industry has been the main driver for the increase in newbuild activity covering the dry bulk and tanker shipping industry, as more than 60% of the contracts agreed was for crude oil tankers.

For the first half of 2017, a total of 11.8 million DWT tankers was ordered, with VLCC grabbing the lion’s share of it. Some 71% of the newbuild orders for the crude oil tankers is attributed to the contracting of VLCCs, amounting to a total of 8.5 million DWT and 27 ships.

As all 27 VLCC ships were ordered between January and May 2017, it was the highest level of VLCC orders for the first five months since 2008.

Furthermore, 2.2 million DWT Suezmax ships and 1.1 million DWT of Aframax ships have been ordered.

According to BIMCO, the net fleet growth for the VLCC fleet reached 8.1% in February 2017, which is the highest level since September 2009. This was primarily due to the delivery of VLCCs for the first five months of 2017, being the highest amount since 2011 and only two VLCCs exiting trading so far in 2017.

The surge in deliveries has been injected directly into the supply side, as the demolition activity for the crude oil tanker shipping industry has been close to zero in a large part of 2015 and 2016. Thereby, the demolition activity hasn’t taken any supply out of the market and caused the fleet growth to climb similar to the deliveries.

” If the situation doesn’t ease off, we might see the same fundamental imbalance for tankers, as seen in the dry bulk shipping industry, which will take years to overcome,” Sand adds.

Lowest dry bulk orderbook since 2004

Shipowners and investors in the dry bulk shipping industry have contracted 4.5 million DWT of newbuilds during the first five months of 2017.

No Capesize ships were contracted in the first four months of 2017, while a total of six Capesize ships were contracted in May 2017 alone, with four of those being ore carriers larger than 300,000 DWT.

Thereby, the six Capesize orders added 1.6 million DWT to the orderbook for the dry bulk shipping industry. A total of 2 million DWT of Panamax ships were added to the orderbook during the first five months.

0.7 million DWT has been contracted for the Handymax segment and 0.2 million DWT for the Handysize segment.

The orderbook for the dry bulk shipping industry has declined from 185 million DWT in July 2014 to 61.3 million DWT in June 2017. This is the lowest orderbook level since April 2004 and indicates that a higher level of deliveries is being made every month, than newbuild contracts agreed, BIMCO concluded.

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