Despite signs of a cyclical slump in container shipping, a bull market is developing for construction of large, fuel-efficient ships. Major container lines and owner-charterers are ordering with gusto.
“I think we’re going to see a lot of opportunities in the next two or three years to continue to build this fleet, especially more efficient ships,” said Graham Porter, director at Seaspan and chairman of container ship investor Tiger Group.
Owner-charterers such as Seaspan and container lines such as Maersk, APL, Evergreen and Orient Overseas Container Line have ordered an estimated $12.5 billion worth of new ships in the first five months of this year, compared with $8.4 billion for all of 2010, according to London-based Clarkson Research Services.
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Those numbers don’t include Maersk’s orders last week of 10 additional ships with capacities of 18,000 20-foot-equivalent units, bringing to 20 the number of “Triple E” ships the world’s largest container ship operator is adding, and APL’s order of 12 new ships, including 10 with 14,000-TEU capacity.
The rebound in container ship orders, which all but ceased during the recession, comes amid growing signs of weakening carrier profits as rates soften and ship lines are reluctant to lay up tonnage as they did during the global economic slump in 2009.
Peter Keller, a consultant and former executive vice president at NYK Group Americas, was among several speakers who offered a bearish outlook for container shipping at last month’s 24th Annual Marine Money Week conference in New York.
“After the disaster of 2008-2009, the industry came back very strongly in 2010, and, normally, we would expect the up cycle to last two or three or four years,” Keller said. “It would appear, however, that there are a lot of lessons not learned, and it looks like we are going into another down cycle already, at least in the trans-Pacific and Asia-Europe trades (see related story, page 40).”
Loli Wu, managing director at Bank of America Merrill Lynch, noted carriers are forecasting healthy earnings before interest, taxes, depreciation and amortization. But he said declining rates and rising capacity make it “questionable whether all the liners will generate a positive net income.”
The unsettled outlook is contributing to divergent strategies by owner-charterers. Some are building large ships with new, fuel-saving designs, and leasing them to carriers on long-term charters. Others are booking short-term charters, generally for ships of 5,000 TEUs or less, and betting they can time the ship-sale market by buying low, selling high.
“There’s very much a two-tier market developing. There will be asset owners, and there will be leasing companies,” Porter said.
Aristides Pittas, CEO of Euroseas, acknowledged larger vessels are making inroads in markets such as north-south trades. But he said there always would be a need for smaller ships offering speculative opportunities for companies such as his, which specializes in feeder ships of less than 3,000 TEUs.
“We like playing the market. We like trying to time the market, and we’re very happy being in this sector,” Pittas said. “If the big ships are doing well, the small ships should do well, and vice versa, for some time.”
John Coustas, CEO of Danaos, said he prefers long-term charters based on long-term relationships with carriers. “You cannot develop a long-term relationship with your customers if you are really using your container ships just as tradable entities,” he said.
The recession’s aftermath also is changing the way ships are financed. Porter said European banks that worked with German KG investment vehicles to bankroll the last boom in container ship construction are largely tapped out.
He said European shipping banks face adjustment to stiffer capital requirements and are exposed heavily to the European Union’s sovereign debt crisis. “I think bank capacity is probably 20 percent of what is needed,” he said.
One result, Porter said, could be a renewed appetite by U.S. banks in ship finance. “We might see several American banks stepping up in the next five years with large portfolios in shipping finance,” he said.
Contact Joseph Bonney at email@example.com.