Critical issues in world shipbuilding

An old English saying goes: the word is mightier than the sword. But while it is true that the word can be more effective than the sword, it is also true that sometimes numbers get even more to the point than words. Witness Clarksons Research's elaboration (Table 1) that reproduces the trend over the past decade of a key statistical indicator for those in shipping: a summary of the evolution of the price of a new construction over the past decade.

Basically, a flash on what has been happening in the shipbuilding industry for some time: the prices of tonnage to be placed under construction have been running on sharply rising values. It has been months and months that shipbuilders around the world have been selling their production with the dropper. And not because there is a lack of shipbuilders willing to invest. If anything, it is because of the opposite reason: the slots available at shipyards for deliveries at dates that are not exaggeratedly far off are now in short supply. That there is an imbalance between the availability and worldwide demand for slots suitable for newbuilding is true. From 2020 to the present, the production capacity of shipyards has risen only slightly, while demand for new hulls has grown tremendously over the same period. Even, compared to four years ago, a jump in the order of 50 percent, according to some. We are, however, in the world of arm's-length estimates. Some because negotiations between shipowners and shipyards are one thing, and it is quite another thing to turn the negotiations into an expansion of the order book.

A little because ships are of different types and sizes, so that the same construction dock can serve to build hulls of different types. And, finally, because supply does not depend solely on existing slots, but also on other factors. Such as the length of the docks (slots suitable for the launching of ships over 200 meters in length are especially scarce); such as the entrepreneurial choices made by the shipbuilder, because of the organisation and know-how he boasts; such as the date to be taken into account for delivery purposes. behind the rise in quotations is not only the imbalance between slot supply and demand, but at least the presence of two other factors. First, international political-economic events, which in recent years have led to an intensification of demand first for containerships and then for tankers and LNG carriers. Also, the growth since the beginning of the current decade in the expenses that burden the manufacturer when it starts production of a ship.

A cost inflation having as its mainstay the rise that both steel and labour prices have experienced. For example, today coil pricing in Europe and the U.S. roughly exceeds the average 2020 value by 50 percent, but this is not true for China. It would, however, be simplistic to overlook the fact that the same coil, today quoted in the People's Republic at about the same rate as in 2020, cost about 50 percent more three years ago than in the previous year. It is well true that in South Korea, Japan and China cost inflation is no longer much fuelled by rising steel prices, but it is also true that in these three Asian areas-particularly in Korea and Japan-labour prices are rising. So, it is the entire shipbuilding industry that is producing at rising costs and selling at high prices. So says the graph developed by Clarksons Research. From it, indeed, it is clear both that since the autumn of 2020 the index has left the 120/125 point band almost abruptly, a bottom in which it had been living for years, and that it has been rising sharply for the past forty months or so, to record a jump in the order of 50 percent.

A jump that took the index to 185 points. Thus, almost equalling the top touched by the entire historical series, which had its record high in the fall of 2008. That is, when the index, after a whirlwind climb, stalled at 190 points, as the Wall Street crisis had put an "end" to the freight and order book boom that characterised the early years of the 21st century. As previously reported, today the demand for new ships is focused on tankers and LNG carriers, as the war in Ukraine has changed the game. If one zooms in on tankers and adds two considerations, First, that little by little the world of oil refining has also changed (generating very considerable territorial imbalances between demand and availability, especially in the area of gasoline and diesel). Second, that in the next 2-3 years the new buildings of Medium Range size delivered annually will be no more than 50-60 ships, while the fleet is already quite old, being largely made up of new buildings dating back some 20 years.