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Shipyards’ Rebound Hopes Are Coming Up Empty

Shipbuilding demand is sinking, and there’s no rescue on the horizon.

Orders for new oceangoing ships are at record lows as carriers sit on the sidelines amid clouds of uncertainty. The blow to the global trading economy from the coronavirus pandemic has left cargo carriers’ demand forecasts in tatters. Perhaps more important, there’s no consensus on what kind of fuels a new generation of environmentally friendly ships would use in the coming years.

Operators need to order new ships to comply with an industry target to cut greenhouse-gas emissions by half by 2050, compared with 2008 levels. Ships contribute around 3% of the world’s greenhouse-gas emissions, according to the United Nations Conference on Trade and Development.

Research on whether carbon-free fuels like ammonia, hydrogen, batteries or biofuels can propel giant commercial vessels is still under way, and it may take a decade for the maritime sector to settle on a single fuel type.

“Ships last for 25 years, so we have to start thinking about gradually replacing our fleet, but there is nothing out there,” said a Greek owner of two dozen vessels who asked not to be named.

Making choices now is all but impossible, this owner said. “We can’t even fly to China to check on two retrofits that were to be delivered in February because of the pandemic. You can’t run a business like this,” he said.

Shipyard executives in China, South Korea and Japan are now in high-stakes competition to attract the limited prospects for orders. Much of that attention is focused on the tanker and bulk-commodities business, while interest in vessel types like big container ships that have long been seen as fundamental to growing global trade is close to zero.

Earlier plans by big operators like Germany’s Hapag-Lloyd AG and Singapore-based Ocean Network Express to invest hundreds of millions of dollars in giant container ships that can move up to 20,000 containers now are shelved.

“For the past five months we had only two inquiries about boxships, but there were no orders. The business is in steep decline,” said an executive at the state-run China State Shipbuilding Corp. who asked not to be named because he isn’t permitted to speak to the press.

Some owners are looking to order large tankers as demand to move crude and petroleum products has shot up since a nosedive in oil prices early this spring. But many remain cautious until the industry narrows its search for the new fuels that could require radically new hull designs.

Hopes for new orders were pinned before the pandemic to demand to move natural gas.

At $175 million each, liquefied natural gas carriers are more expensive than other ship types. But many shipowners believe over the long term the gas market could create the most profitable new trade in shipping since the 1960s, when crude-oil tankers began powering global maritime fortunes.

LNG demand has withered as industrial demand has waned under the pandemic, however. Energy giant Saudi Aramco put on hold an order of a dozen ships worth around $2.5 billion to next year, and a massive, 40-ship order by Qatar, the world’s largest LNG exporter, that was expected to be signed this year, is no longer certain.

The clouds over that market go beyond the impact of the new coronavirus.

Warm winters in recent years in a world coping with climate change raise questions over potentially diminishing demand for the fuel as a heating source. And renewed tensions between the U.S. and China have led to uncertainty about the direction of trade flows.

The order drought is far more serious than what the industry went through in the wake of the 2008-09 financial crisis.

London-based maritime data provider Clarksons said new ship orders were down 53% from a year ago in the first half of the year. In terms of tonnage, orders over the six-month period were down 66% compared with the post-2009 average.

Activity at yards this year is extremely limited, Clarksons said in a report this month. It said the pandemic had seriously hurt sentiment among investors and amplified concerns over new fuels and ship designs and that around 30% of new ship deliveries this year may be pushed into 2021.

Danish Ship Finance said in a May report that more than 200 yards may close down in the coming months and years. It said half of all active yards haven’t seen any new orders since 2018.

Shipbuilding is a major source of industrial manufacturing employment in several countries. But without answers to major questions over ship power and trade demand, the sector will provide a drag rather than a boost for several national economies.
Source: Wall Street Journal

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