Global slowdown leaves harbors awash in unwanted ships

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

31 Mar 2009

Like unwelcome guests who will not leave, 453 container ships, 11 percent of global capacity, now float outside the harbors of Hong Kong, Singapore and other Southeast Asian ports. They are unwanted by their hosts as well as their customers. In recent days, China has quietly let it be known that it wants to rid its territorial waters of those nautical squatters. Only five years ago, huge demand from China meant that all these ships, and more, were desperately needed. This had a dramatic effect first on shipping rates, and then on supply. Between the end of 2006 and July 2008, shipyards received enough commissions to double the world's fleet. Now those new ships -- more than 9,000 vessels -- are taking to the water just as demand has collapsed. The world is awash with ships.
To see how the recent boom and bust have affected value, a Hong Kong broker cites a 150-ton "Cape class" ship that sold in 2003 for $18.5 million in the used market. Critical to the price was the prevailing charter rate, then $15,000 a day. By last summer this had risen to $175,000 a day, and an identical ship sold for $85 million. Rates peaked shortly thereafter at $300,000. Today rates are back where they were in 2003. Rather than try to find a buyer for another identical ship, albeit one that needed repairs, the owner dumped it for $7 million to be used as scrap.
Orders for new ships have collapsed, and scrutiny has shifted from what can be bought to what can be canceled: nothing, it turns out, without great effort. South Korea's shipyards, the global leaders, have learned from previous busts. They typically demand 20 percent up front, a further 60 percent during construction, and the final 20 percent payment upon delivery. Walk and you lose a fortune.

Source: The Economist