Summary
There is large number of speculators who have placed new building orders at various shipyards. They have ordered ships, in order to sell it at a higher price. Currently 500 million DWT of ships are on orderbook. 7 billion tonnes of trade capacity get added for each million DWT of ships. Hence, close to 3.5 billion tonnes of trade capacity constituting 50% of current capacity is likely to be added by 2012. In this scenario, some orders getting cancelled may not disturb trade dynamics.
Analysis
More than 200 million DWT of ships have been delivered since 2004, constituting close to 25% of the fleet in 2004. Global Shipping fleet is heading towards carrying capacity of 1.1 billion DWT in 2008 and another 500 million DWT is on building berth. The current demand for ships is certainly higher than supply, but future may not remain so tight and there is a fear of oversupply. In the year 2007, 1 million DWT fleet carried more than 7.5 billion tonnes of cargo. Additional, 500 million DWT of shipping capacity will increase carrying capacity by another 3.5 billion tonnes, provided routes remain same.
In the bulk segment, current orderbook is close to 60% of available fleet globally. If at all 10% of the ships on order get cancelled, it would not affect the performance, supply demand scenario or charter rates. This 10% will actually be only 3.75% of the total fleet in 2012. This is a small number, looking at new building orders placed by several aggressive speculators.
New building orders can be divided into three categories.
Regular shipping companies have their funds secured, their business plan intact and will find cargo to transport once their ships get delivered. They know, shipping is cyclic industry and are not tempted for quick money.
Several new entrants such as power plants, ore mines, etc has ordered ships. They must have secured finances, if not they will find good financing as they have assured cargo and business.
There are several speculators who aim to make quick money from rising asset prices. They sell their ships on building berth; sometime the complete company is sold. J. Hagenaes Shipping had ordered Eight MPSV on Tebma Shipyard in India. Later it was acquired by Trico Marine. A Greece registered company, with no ships on its books, has ordered more than 40 bulkers and tankers in S. Korea and Upcoming shipyard in India. These vessel ranges between US$ 40 million to US$ 155 million. During financial crisis, such investments are likely to land in trouble, if they do not find good buyer.
