What’s driving record container ship orders?
With the long lines of container ships waiting to gain access to ports around the world, it may seem puzzling that some experts worry whether there will be enough of them in the future.
But there are many dynamics in play that could contribute to such a scenario. After all, those long lines aren’t a result of an overage of container ships, but an unprecedented amount of congestion created by broken links and other factors throughout the global supply chain.
In “Run the Tide – Containership Ordering and Trade Momentum,” IHS Markit underscores the growing complexities of the maritime industry, which also influence container ship ordering dynamics: “Container shipping has never been as much under the spotlight as this year. ...One debating question could be whether there's a shortage in container shipping capacity or it is more of a misplacement in supply and demand, the answer of which might be a factor for the long-term market outlook.”
Surging rates, profits, and new-build orders
A recent Economist article describes how shipping was enjoying a “rare period of sanity in the run-up to the pandemic,” balancing capacity and new ship orders.
However, when Covid-19 hit, the Economist notes that in anticipation of a collapse in trade, shipping firms “idled 11% of the global fleet.” And when that collapse didn’t happen but trade started to surge instead, shipping rates did too. A chart in the article showing spot container-freight rates as of September 10th, 2021 indicates just how much rates from China have increased compared to 2019 averages:
To North Europe: up 886%
To South-East Asia: up 567%
To Latin America: up 507%
To Middle East: up 436%
To U.S. (east): up 345%
To U.S. (west): up 314%
To West Africa: up 238%
To West Japan: up 32%
With rates going through the roof like that, shipowners are building up lots of cash—and pouring some of those profits into orders for new ships.
The surge in new orders is reflected in a September 1st SupplyChainDive article.
The BIMCO analysis cited in the article noted that “the previous yearly record for new container ship orders has just been broken (measured in capacity) in less than eight months.”
Quoted in the BIMCO post, Peter Sand, BIMCO’s Chief Shipping Analyst described the dynamics involved: “Today the container ship order book holds 5.3m TEU of shipping capacity which is scheduled to be added to the fleet from 2023 and onwards. Entering 2021, the order book stood just at 2.5m TEU. Since then, a record high 3.3m TEU has been ordered, indicating that shipowners are going big on investing in new capacity.”
With ever-evolving trade patterns occurring, BIMCO noted that orders for 13,000-16,000 TEU ships that offer more versatility have been outranking the Ultra-Large Container Ships (ULCS). Additionally, scrubbers are being included in many newbuilt orders: “Out of the 168 ordered container ships year-to-date, with a capacity of at least 11,800 TEU, 117 will be delivered with a scrubber fitted directly from the shipyard (71%). A total of 29 units will be scrubber-fitted but also made LNG-ready, whereas 34 units will be delivered as ‘LNG-capable’, meaning that they will run on gas from day one. Lastly, 17 ships appear to be without any such modifications upon delivery.”
In its shipbuilding update for Q3 2021, IHS Markit says shipbuilders in China and South Korea are benefiting from the surge in container ship orders: “According to the latest IHS Markit Maritime & Trade newbuilding data, Chinese shipbuilders picked up the lion's share of shipbuilding contracts during the third quarter of 2021 with some 68% in terms of gross tonnage (GT), of all new orders in Q3 2021 being placed in China … Fuelled by rising demand for new containerships, over 60% of orders in GT terms contracted at Chinese shipyards in Q3 were of this vessel type. …Driven by an exceptional container shipping market which is driving record margins for liner operators, and a requirement for more efficient and less polluting vessels, China and South Korea have been the main beneficiaries for this liner shipping order boom.”
Regardless of the current state of newbuild orders, there will be no quick fix to address a potential container ship shortage in the near future. As the Economist notes, it will be several years before new ships can be put into service: “…with a two-to-three-year wait, this release valve will not start to operate until 2023. And the race to flood the market may not match torrents of the past. There are far fewer shipyards today: 120 compared with around 300 in 2008, when the previous record was set. And shipping, responsible for 2.7% of global carbon-dioxide emissions, is under pressure to clean up its act. Tougher regulations come into force in 2023.”
And even if those ships could be placed into service sooner, with the current state of the supply chain, it still may not help. As one expert in the SupplyChainDive article noted, the overall capacity of the system must be addressed as well.
In this DW News video, BIMCO’s Peter Sand and other experts weigh in on some of these dynamics as they discuss the current state of cargo shipping and potential future ahead.