World Shipbuilding 2014
World Shipbuilding Challenge 2014 –
“Survive and Change”
Dr Professor Martin Stopford, President, CRSL; SMM 2014 Opening
Press Conference, Hamburg 8th September 2014
1. Shipping Market Trend
 The shipping market continues to be very difficult. Since the 2008 market collapse,
freight earnings have averaged only $12,145 per day, less than half the $27,178 per
day in the 6 years before 20081 (Chart 1: Clarksea Index Earnings Index).
 Today’s rate is $11,270/day. The operating cost of an “average” ship is about
$7,000/day2and the Clarksea index does not take account of slow steaming, waiting
and the other costly problems associated with the recession, there is little cash for
capital and contingencies.
 During the recession the world cargo fleet has increased by 60% while sea trade has
only grown by only 27% (Chart 2: Growth of Sea Trade & Cargo Fleet).
 As a result surplus tonnage has accumulated over the last seven years (Chart 3:
Layup & Shadow Surplus). Layup is low because slow steaming is absorbing the
shadow surplus, but will speed up when freight rates improve, releasing the surplus.
 This surplus must be removed before the market returns to prosperity. The time this
takes depends on demand growth; shipyard capacity and investment.
2. World Economy & Ship Demand
 On the demand side the world economy is performing quite well but faces many
potential problems and the 2013/4 upturn may be running out of steam (Chart 4:
World GDP & Sea Trade). China's industry has slowed to 8% pa growth, down from
the 12-14% of the last decade. Meanwhile the OECD economies remain sluggish
and the “other Asia” region is crawling in low gear at only about 3% pa. Also, six
years into the unresolved banking crisis there is still the possibility of more problems.
 The sea trade 3.8% pa growth trend has been pretty steady for 20 years, excluding
crises. This is the basis for projecting ship demand forward, but expect volatility.
1
Based on the Clarksea Index which calculates the average earnings of tankers, bulk carriers, containerships
and gas tankers in $000/day.
2
A Handymax bulk carrier costs about $6,000/day and a Products tanker about $8,000/day, hence the average
of $7,000/day. Source Moore Stephens OPcost Report 2013. Costs cover crew, running repairs, lubes,
insurance and registration, but not capital or depreciation
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Martin Stopford, President Clarkson Research
World Shipbuilding 2014
Newbuilding Contracts & Major Investors
 On the supply side although many companies are having a very rough ride, those
with cash or investor backing continue to order new ships, at prices which look cheap
compared with pre-crisis levels3.
 After a quiet year in 2012, with contract for only 54 m dwt, in 2013 contracting trebled
to 169 m dwt, the second highest ever recorded (Chart 5: Shipbuilding orders 19632014).
 Europe remains the biggest shipping investor, ordering $51.8 billion worth of new
vessels in 2013, a 47% market share. By country in the first half of 2014 Greece and
China were the biggest investors, followed by Japan, Germany and Singapore (about
$2.9bn each); and USA, Italy and Norway (about $2.2bn each) (Chart 6: Top 10
Shipping Investors).
3. Shipyard Capacity & Orderbook
 On the supply side the shipyards are winding down from the Super-Boom. World
shipyard production peaked at 165.7 m dwt in 2011, and fell to 108 m dwt in 2013.
Looking ahead the orderbook indicates deliveries of 97 m dwt in 2014 and 106 m dwt
in 2015 (Chart 7: World Shipbuilding Cycle). However, as noted, contracting remains
volatile and marine equipment sales were about up 30% from $53 bn in 2012 to $70
bn in 2013.
 Meanwhile the number of active shipyards fell from a peak of 1,168 in 2009 to 696 in
2013 (Chart 8: Number of Active Shipyards). During the same period the average
output of the remaining yards increased 50% over the 2009 level, because the
smaller yards were closed (Chart 9: Average yard output 1998-2013).
 In terms of active capacity, the output of the merchant shipbuilding industry fell 31%
from 52.6 m CGT to in 2010 to 36.8 m CGT in 20134.
 After 2 years of rising demolition, in 2013 demolition fell 20% to 47 m dwt, and in the
first half of 2014 demolition was down another 25% on an annual basis (Chart 10:
World Ship Demolition). Taken with the projected deliveries in Chart 7 this will keep
the world fleet growing at 3.8% per annum. That is also the growth trend of sea trade,
which grew by 3.7% in 2013. At this rate the surplus will not reduce much over the
next two years.
3. Regional Shipbuilding Trends
 China has pulled ahead of South Korea, establishing it as the leading player in world
shipbuilding (Chart 11: Regional Shipbuilding Shares 1903-2013). In 2013 China
delivered 13.3 million CGT compared with South Korea's 12.5 million CGT5 and
Japan’s only 6.8 million CGT (Chart 12: 2013 Output by country). But in the first half
of 2014 South Korea closed the gap, booking 6 m CGT of orders, compared with
China’s 6.1 m CGT. In terms of product mix, this table shows that China and Japan
3
For example a newbuilding Capesize bulk carrier 180,000 dwt could be contracted in August 2014 for $55 m
compared with $97 m in December 2007
4
The forecast for 2014 is 35.7 m CGT and 34 m CGT in 2015, so production has stabilised at 65% of the 2010
peak.
5
Compensated gross tonnage (CGT), a measure of the work content of ships, is used here to compare the
activity level of shipyards, in preference to DWT which measures the cargo carrying capacity of the ships
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Martin Stopford, President Clarkson Research
World Shipbuilding 2014
remain heavily dependent on bulk carriers, while South Korea has a dominant
position in tankers, container ships and gas tankers (see Chart 12: 2013 Output by
Sector).
4. Energy, Environment & Innovation
 Today the shipping industry faces three big issues; the recession; the “step-change”
in energy costs (Chart 13: Fuel versus ship cost 1963-2013); and environmental
regulations. These have been going on for five or six years and are important for
shipbuilding and marine equipment because they add to costs in a difficult
commercial market and call for investment in innovative technology to reduce costs
and emissions.
 The combination of recession, regulatory pressure, limited technical resources and
the lack of “off the peg” technical quick fixes are making this decade a challenging
obstacle course for shipping investors and the shipyards and marine equipment
manufacturers who supply them. Progress to date is still quite modest (Chart 14)
5. Conclusions
 This is turning into a long recession, more like a severe version of the 1990s than the
1980s. The fleet is growing too fast for trade to soak the surplus, so the recession
has a way to go.
 Despite this the shipbuilding market is very active, and orders in 2013 were the 2nd
highest ever. Europe is still the biggest shipping investor, with a 44% market share.
 The shipyards have cut output by about a third, but deliveries will creep up again
over the next 2 years.
 China and Korea are vying for the top position in the shipbuilding market. In 2013
they were "neck and neck", each with 33-35% market share6 and the first half of 2014
is much the same.
 Energy costs are a game changer, but shipping is a conservative industry. The
challenge is to embrace 21st-century technology. A little progress has been made but
in this area to there is a steep hill to climb.
 Change is vital and the new technology is on show at SMM. So enjoy the exhibition
and see how shipping is facing up to the challenge
Martin Stopford
26th August 2014
6
The shares depend differ depending on whether GT, CGT, or Dwt are used to measure output. In CGT China’s
share in 2013 was 35.7% Ns S Koreas was 33%, so China is slightly ahead. In the first half of 2014 both had
33%. So the jury’s still out on the top shipbuilding nation
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Martin Stopford, President Clarkson Research