Bulk carrier fleet growth

The Antipodean Mariner has been doing some fleet analysis work, to paint a picture of the current supply situation for a management slide pack. This slide shows the bulk carrier fleet in service at the opening of 2012 and on order by DWT and year of delivery from 70,000 DWT Panamax to 208,000 DWT NewcastleMax Capesize.

Shipbuilding has a normal lead time of about 3 years from contracting to delivery. Up to the 2000's, the global bulk carrier fleet grew incrementally with trade but with no spectacular changes. China's industrial demand increased at the beginning of 2000 and the freight boom started. Between 2004 and 2008, Ship Owners made super-profits with the 'constrained' world fleet while Shipyards booked new contracts at double what they had achieved a few years earlier. In this same freight bubble, container ships, LNG and oil tankers were in demand, leading some Shipyard to spurn simple bulk carriers in favour of higher margin ships. Oil tankers were being converted in to bulk carriers.

Had China's shipbuilding industry not ramped up, the AM believes that Korea and Japan could not have satisfied this spike in demand for new tonnage. But ramp up it has, and the massive increase shown here - in 82,000 DWT KamsarMax and 180,000 DWT Capesize - is testament. This chart doesn't include ore carriers larger than 208,000 DWT. These ships are the workhorses of the coal and iron ore trades

The only way this massive oversupply situation is going to correct is though the voluntary scrapping of young ships - 15 year old ships with another 10 years trading ahead of them in better market conditions. Oil tanker owners have started the painful, but necessary process of scrapping double-hulled ships to reduce supply. Plunging asset values and slow steaming are the other side effects of an over-supplied market. The ship you sold yesterday becomes your competitor tomorrow.

News since drafting this post is that China has officially closed the door to any VLOC larger than 300,000 DWT on 'port safety grounds', effectively bowing to internal pressure from it's own ship-owning community. Will the balance of Vale's 400,000 DWT ore carrier fleet ever see service?

The Antipodean Mariner

VLOC's, China and Vale Beijing

The article below is re-posted from Tradewinds (31st January 2012) as China closes the door to any ore carrier larger than 300,000 DWT

China has officially nailed up a no entry sign at its ports closing them off to Vale’s VLOCs.

Beijing claims the move comes amid safety concerns linked to the giant vessels, but there is widespread belief the government is protecting its own shipowners and charterers.

“We are not optimistic about the safety situation of port operations for large ships, particularly the berthing operations of super large ships whose sizes are larger than design standards permit,” said the Ministry of Transport.

“Considering the sizeable hidden dangers, we have decided to adjust the port management system for the berthing of large ships.”

Its fresh stance comes only a few weeks after a VLOC owned by STX Pan Ocean sprang a leak while loading in Brazil.

Jeffrey Landsberg of Commadore Research said: "While today's announcement was issued by China's Ministry of Transport on the pretense of adhering to safety concerns, in reality the move is being made to aid Chinese shipowners and maintain leverage over Vale.

“Going forward, we continue to view the use of iron ore transshipment hubs as a positive factor as it will result in a larger amount of vessels being used to ship the same cargoes of iron ore.”

China has been under pressure from domestic owners who feared they were excluded from the VLOC project and were suffering as the vessels were stifling earnings in the sector.

George Lazardis of Intermodal told Reuters: "At the end of the day, they (China) want to support their own.

“They are not interested in whether Vale will be able to provide cheap imports in comparison to Australian imports.

"They are interested in giving support to their shipowners, which are starting to become a significant force over the past couple of years, and to help that part of the industry grow."

Macquarie commodity analyst Graeme Train told the newswire: "China is so dependent on imported raw materials that it has a structural incentive to destroy freight prices as much as possible.

"And Vale's strategy with the VLOCs was a direct threat to that because Vale would ... take the lower freight cost themselves, when really what China wants to do is to ensure that there's oversupply in the freight market and to take advantage of that for itself."

Vale will now turn its attention to a transshipment hub in the Philippines to make sure it has work for the bulkers, many of which are still under construction.

By Andy Pierce (Tradewinds reporter) in London

Photo below is Vale Beijing (from the website Maritime Bulletin) at anchor off Sao Luis, transferring cargo using a crawler crane from No.7 Hold forward to No.3 and No.5 Holds. She is already looking lighter aft after be-bunkering. Information on her intended repair location remains tightly held, though for what end now?

AM

REUTERS: China ports not ready to receive Vale's mega ships

Another piece in the complex puzzle that is China. Reuters has reported that China’s ports are not ready for Vale’s (now) 380,000 DWT ore carriers. Debunking this myth is the fact that the ore carrier ‘Berge Stahl’ (364,000 DWT) has called at the Chinese ore ports of Dalian, Majishan and Qingdao seven times since 2006 (from Lloyds Intelligence Network). No-one in China appears to be giving a definitive ‘No’. However, to Vale’s detriment, no one is saying ’Yes’ either.

The Antipodean Mariner

REUTERS 28th November 2011

China’s National Development and Reform Commission says China ports not ready to receive Vale's mega ships

SHANGHAI Nov 28 (Reuters) - Chinese ports are not yet ready to receive Vale's mega iron ore carriers due to a few "small issues" in handling the world's largest dry bulk vessels, an official with the National Development and Reform Commission said on Monday.

Vale, the world's largest iron ore producer, is spending billions of dollars to build an unprecedented fleet of very large ore carriers (VLOCs) to transport the steel-making ingredient to China and other major consumers.

The Brazilian mining firm has received at least three of the huge ships this year, sending them to Italy and Oman as it awaits the lifting of travel restrictions to its biggest market, China.
"Chinese ports are not entirely ready for accepting Vale's carriers due to some facilities and technical issues," said Luo Ping, head of the transportation planning division at the NDRC's Institution of Comprehensive Transportation.

Among the issues still unresolved is how the VLOCs will be safely guided into the ports.
Vale can also submit applications for each mega ship to local maritime authorities, who will then decide on whether the ports can receive them or not, Luo said on the sidelines of an industry conference.

Vale plans to operate as many as 35 VLOCs before the end of 2013, as it ramps up iron ore production to 469 million tonnes by 2015 from 308 million last year.

China, which buys around two thirds of seaborne iron ore cargoes to feed the world's largest steel industry, will add 390 million tonnes of large-scale iron ore port capacity and build an extra 440 deepwater berths by 2015, the NDRC official said.

Reporting by Ruby Lian, Writing by Randy Fabi; Editing by Miral Fahmy

Shipbuilding - Korea vs. Japan

I have just returned from a flying visit to shipyards in Korea and Japan. The purpose was to discuss proposals from the various Yards on ice-classed HandyMax (40,000 DWT) bulk carriers. This was my second trip to Korea, but the first time visiting some of the big names of the Korean ship-building industry.

One of the key differences is the fact that Korea itself doesn't have a mature ship-owning sector, Japan has. Where the Japanese Yards can do business with Japanese Owners (often via the Trading Houses), the Koreans are almost totally reliant on selling their designs for export to the shipping capital centres of London, Piraeus and New York.

What does this mean at a practical level? The Korean Yards are early adopters and have developed innovative designs to meet the emerging sectors - LNG, mega-container carriers, deep water oil and gas exploration. At Daewoo (DMSE) we saw the 14,000 TEU container ships under construction for CMA-CGM and MSC. These vessels are innovative for their separation of the accommodation and bridge forward for improved visibility, and engineroom aft for a short tailshaft.


'MSC Daniella' built by DSME Ulsan

Japanese Yards build excellent quality ships, but the initial Outline Specification submitted is often steeped in the last century. Japanese Yard today are offering, and Japanese owners are contracting, new ships where the crew share a common toilet and shower. Hulls are protected with passive zinc anodes, even though imprest cathodic systems have been in use for half a century. My company bareboat chartered a 1996 Japanese-built Panamax bulk carrier, only to find that it had no UMS automation. UMS (Unmanned Machinery Space) automation has been standard since the 1960's. The financial cost of employing additional engineers to keep watch and maintain the machinery was crippling.

Korean Builder's early adoption stance has had a cost though. Shipbuilding is a cyclical business, and Yards must be prepared (and financially resourced) to continue production in the loss-making years as well as the boom years. In the mid-2000's, as shipping rode the spectacular China-driven upturn, the Koreans turned their back on low-margin bulk carriers. The large Yards like Hyundai, STX and Daewoo reasoned that high margin building was best use of capital and resources, and actively targeted LNG, container and VLCC's. The Japanese were less aggressive, and maintained their development of bulk carriers from Handy through to Capesize.

Chinese Yards played catchup during the 2000's, though with a few exceptions these vessels will probably not see 15 years in service such is the overall poor quality of coatings and steelwork.

With the economic crash of 2008 still working its way through the shipbuilding industry, three clear trends have emerged.

The Chinese Yards have experienced significant cancellations of speculative newbuilding orders. However, the Chinese shipbuilding industry is regarded as a strategic State asset by the Central Committee, and China will support those Yards deemed essential for economic growth. Chinese Yards suffered when bulk carrier asset values tumbled in early-2009, but with many 'greenfield' Yards still undeveloped have effectively lost less that had they been in full production.

Japanese Yards, through a more conservative portfolio mix of vessels have maintained forward orderbooks of about four years production. Korean Yards, by targeting high-margin vessel funded through IPO's and aggressive capital raising structures, experienced the 'perfect storm' when the collapse of asset bubbles in LNG and container shipping decimated their existing and forward order books. Many of the Yards visited has forward order books of less than two years, half that of the Japanese Yards. In an Analyst's Note just published, UBS estimate that Korean Yards carry 75% exposure to CMA-CGM's potential default on its current containership order book.

So whose won and lost in the global shipbuilding race? China will undoubtedly become No.1 in the world as they harness low-cost labour and adopt modern technology. Quality as a philosophy is their next step change, and is nacent at Yards like Nantong COSCO KHI and Shanghai Waigaoqao. Japan will maintain a No.3 position through looking at the 'long game' with their traditional Customers, and maintaining a diverse product portfolio. Korea will continue to battle with China for top spot, and have already embraced Demming quality and production philosophies. Some consolidation over the next two to three years may feature as the Korean Yards rebuilt their orderbooks and profitabilty. The financial fallout from the collapse of the LNG and container asset bubbles should make the the Korean Yards and their Export Bank reconsider their aggressive financiang packages. It has been Korea, and not the Owners, who have suffered through the string of newbuilding defaults plaguing the Korean Yards.

The Antipodean Mariner
5th October 2009