There’s hardly anyone buying new ships, with orders plunging to a 20-year low due to a potent combination of uncertainty over environmental regulations, the economic fallout from the coronavirus pandemic and a lack of financing. “The IMO has brought in significant, ambitious and important targets around emissions,” said Clarksons Research’s managing director Stephen Gordon. It remains unclear the exact policies and regulations that might be introduced and what technology will be adopted, he said. Ships are long-term investments, and buyers run the risk that their vessels will become obsolete.
“Covid-19 has become the most immediate issue,” Gordon said. While challenges due to lockdown measures are easing, “the economic uncertainty, disruption to trade, and volatility in freight rates” caused by the virus are driving orders lower. Demand growth for containers is expected fall this year due to Covid-19, according to A.P. Moller-Maersk A/S, which predicts a return to 2019 volumes in the early part of 2021. The world’s largest container line ordered only eight vessels in the second quarter, putting its orderbook-to-fleet ratio at 9.4%. Globally, the rate is about 8%, meaning orders for new ships are at a two-decade low, according to Clarksons’ Gordon.
“The virus is a further hit to demand that’s already barely even there,” said Rahul Kapoor, head of commodity analytics & research, maritime & trade at IHS Markit. “With the pandemic’s hit to economic activity and supply chains, ordering new ships is now the lowest priority for companies. They’re concentrating on just trying to maintain profit margins.” The virus has also delayed the completion of shipbuilding projects, he said.
Finance Crunch
Shipowners are also lacking the finances to make purchases, according to Ralph Leszczynski, head of research at shipbroker Banchero Costa & Co. “Most shipping markets are coming from a relatively poor decade, 2009 to 2019, in terms of earnings so most shipowners do not have that much cash in their pockets,” he said. “External finance is also in short supply as banks are now largely steering clear off shipping after the defaults they suffered after 2008.” Still, fewer orders and slower fleet growth will likely bolster shipping rates. Lines are likely to continue to keep capacity in check into 2021 to minimize the impact from slowing global trade, said IHS Markit’s Kapoor. There’s hardly anyone buying new ships, with orders plunging to a 20-year low due to a potent combination of uncertainty over environmental regulations, the economic fallout from the coronavirus pandemic and a lack of financing.