A Sea Change in the Shape of the Orderbook
Since 2009 the orderbook has experienced a steady period of decline, falling by 39.8% in terms of cgt between April 2009 and April 2012 (cgt provides a measure of the work content of each ship type and size, allowing a gauge of yard's relative output). This month’s Shipbuilding Focus looks at the changing shape of the orderbook during this period of decline. Surfs Up! In April 2009, 58.9m cgt was scheduled for delivery by the end of the year. As shown by the Graph of the Month, there was significant forward cover, with 61.5m cgt scheduled for delivery the following year (Year 2 on the graph). This increase in the orderbook schedule was the result of record levels of contracting between 2006 and 2008 (a cumulative 215.8m cgt). This level of contracting prior to 2009 also meant that there was 45.8m cgt scheduled for delivery two years subsequently (Year 3 on the graph).
On the Crest of a Wave
Even though contracting activity declined by 69.9% year-on-year in 2009, by April 2010 the amount of tonnage scheduled for delivery in the remaining months of 2010 had increased to 69.3m cgt. This was primarily a result of the 19.9m cgt of slippage from 2009 into 2010. Slippage was so pronounced because many shipyards, particularly greenfield yards, struggled to deliver vessels contracted between 2006-2008 on time.
The shape of the orderbook had changed by April 2010, with the remainder of that year containing the largest proportion of scheduled deliveries, which then declined year-on-year thereafter. As can be seen on the graph, this pattern was repeated in 2011. Despite a record year for deliveries in cgt terms during 2010 (52.1m cgt), the volume of slippage actually increased to 29.2m cgt.
Chance of a Wipeout?
The current orderbook has seen a further evolution in shape, with a more dramatic decline between scheduled deliveries this year and next. As of April 2012, 48.5% of the orderbook is scheduled for delivery in the next nine months of the year, compared to 32.3% in 2009, and 45.3% in 2010.
Although the orderbook is 19.0% smaller overall than at the same point in 2011, as can be seen from the graph, the difference narrows towards Year 4. This is due to the amount of high cgt specialised tonnage, such as large containerships, LNG carriers and offshore units that were ordered during 2011. Despite this, the relative decline in contracting activity recently means that the shipbuilding industry still faces problems of overcapacity, with the possibility of yard closures an increasing threat. The proportion of forward cover on the orderbook now is 39.2% lower for Year 2, compared to 2009, and 71.2% lower for Year 3.
So, the shape of the orderbook has changed quite dramatically during the last four years, as it has gone through a period of sustained decline. Reduced levels of contracting activity recently have left the shipbuilding industry facing the prospect of overcapacity. Whereas in 2009 a total of 123.3m cgt was scheduled for delivery after the current year, this figure is just 56.4m cgt now. As such, in order to sustain recent levels of work, shipyards will be reliant on a future increase in contracting activity.