Shipyards test the water with discounts

Not all shipbuilders are taking the knife to prices — but the bargains are there if you look

Newbuilding contracting levels are down a painful 72% on last year but the orders slump so far has come without the huge, eye-catching discounts that usually make the headlines when yards struggle.

The Clarkson newbuilding index, which reflects average newbuilding prices in all shipping sectors, has fallen gradually rather than precipitously, from 138 in 2014 to today’s level of 124. And over the past three months of very limited newbuilding activity, the index has slipped only 1.2%.

One recent order has fuelled optimism that yards can hold out on prices: the Islamic Republic of Iran Shipping Line (IRISL) deal at Hyundai Heavy Industries (HHI), the world’s largest yard, which has had little work for its mammoth Ulsan facility to feed on this year.

The deal was done at market levels of $110m for each of the four 14,000-teu boxships and $35m for each of the six medium-range (MR) tankers — even though it was one of the few tenders out in the market and consequently keenly contested.

Yet the $650m order may not reflect what is currently available from some other yards that are putting offers on the table at a considerable discount to the currently quoted newbuilding average prices. Chinese yards, with a strong focus on bulkers, have been affected the most by the market slump and have been offering owners generous terms.

One owner told TradeWinds that it had been offered newbuilding contracts in China based on a 10% downpayment and 90% yard financing.

That would be in line with earlier reports of the deal arranged by Maersk Tankers at Dalian Shipbuilding Industry Co (DSIC) for up to six 114,000-dwt products tankers plus options.

Maersk’s ‘3% downpayment’

According to TradeWinds sources, the Danish shipping giant was able to use the difficult seller’s market to secure even better terms, including a downpayment of just 3% of the total newbuilding price.

There is also talk of substantial discounts on the headline price of ships. Analysts who gathered for a discussion on yard prospects in the current edition of TradeWinds’ sister magazine TW+ spoke of discounts of up to $10m available on Chinese VLCC newbuilding deals compared with current average prices of $85m.

In another example, one owner told TradeWinds he had been approached by an unnamed Japanese yard offering a new panamax bulker “in the low 20s” (million of dollars). The current market price is around $25m.

However, the suggestion is strongly rejected by yards in Japan; many of the main bulker suppliers claim they have built up substantial three-year order backlogs and do not need to resort to such price levels.

Analysts point out that yards have to set their pricing to take account of owners’ lack of interest in newbuildings because of the poor trading market but also the attractiveness of the secondhand market, which currently looks like a better investment opportunity.

One factor that might support prices at current levels could be South Korea, accounting for just over a third of the newbuilding market, which appears to be going through the downturn without so far turning to heavy discounting to generate business.

The three big yards, DSME, HHI and Samsung Heavy Industries, are in deep financial trouble, which some observers suggest has prevented them from cutting prices.

Another factor is that the country’s shipbuilders are being closely monitored by other governments to see whether Korean government support that has been given to the troubled yards through state-backed creditors works through into lower pricing. That could lead to anti-dumping trade disputes.