The demand for new vessels in the global merchant fleet, particularly Tankers, Container Ships, and LNG carriers, continues to grow in 2024. With it, a new challenge is emerging - the delivery time for new orders has steadily increased, impacting stakeholders across the board.
Importance of rising delivery times
Shipyard delivery times - the period between an order placement and the ship delivery to its owner - offer a critical view into yard capacity and market demand. Since 2020, the average delivery time has been gradually extending for Container Ships, Dry Bulkers, and Tankers. After 2022, the trend has been going upwards for all four major segments, including LNG carriers. As a result, average delivery times are now approaching three years for Tanker vessels and 3.2 years for Container Ships. For LNG carriers, it is even longer, especially from China, where average delivery times are approaching 4.8 years.
When shipyard capacity is constrained, the lead time for commissioning new vessels lengthens. Shipowners may then be forced to keep older ships in operation longer, or they might look to the second-hand market to meet their fleet needs. Tight yard space can also affect newbuild pricing, pushing up costs and limiting flexibility.
The impact of constrained capacity
The availability of shipbuilding slots has been bottlenecked, particularly in the most prolific shipbuilding nations. China now averages around 3 years in delivery time, with Tankers at 2.8 years, and LNG vessels even higher. Capesize Dry Bulkers ordered in 2024 are currently expected to be delivered in 3.6 years on average.
South Korea, another major shipbuilder, stands at around 3 years, as well, though it has managed a slight reduction from 2023. Average waiting time for an LNG carrier ordered in South Korea is 3.5 years, down from just over 4 years in 2023. Crude Oil Tankers are built in 2.7 years, while Product Tankers average 2.1 years.
Japan, on the other hand, maintains the lowest delivery times, averaging around 2.6 years, reflecting a relatively higher efficiency and different demand dynamics. Japan’s prolonged shipbuilding history and experience translate into efficiency. With one caveat - size does matter, of course. For instance, in the Dry Bulk sector, Japan dominates the small tonnages - especially Handysize and Handymax - where its market share in newbuilding stands at 61% against China’s 36%.
While Japanese shipyards face constraints like limited slot availability and an aging workforce, they maintain a competitive edge with a relatively low average delivery time. Japan competes globally by focusing on high-quality craftsmanship and innovation in areas like energy efficiency. Additionally, government support, including funding for R&D and initiatives for eco-friendly technologies, helps Japanese shipyards remain competitive.
China faces the challenge of adapting to stricter environmental regulations and improving skilled labour quality. With government subsidies and incentives, Chinese shipyards are focusing on enhancing technological capabilities, especially for LNG and eco-friendly vessels. Despite capacity challenges, China’s extensive production scale and lower labour costs make it a go-to choice for large-scale orders, especially for Dry Bulkers and Container Ships. In recent years, China is also advancing in high-tech vessels like Chemical Tankers and LNG Carriers.
The emergence of new shipyards in China has been a notable trend. On the back of strong newbuilding demand and increasing global shipping requirements, the Chinese shipbuilding industry is showing a notable upward trend. As China expands its shipbuilding capabilities, it could relieve some of the capacity constraints. This development is critical because it diversifies the shipbuilding base and could potentially lower the average delivery times over the long term, balancing the supply-demand equation. For shipowners, understanding these developments helps in strategic planning, as they may have more choices in the near future.
South Korea specializes in high-tech vessels. South Korean shipbuilders are industry leaders in technologically advanced vessels, such as LNG carriers and Offshore Structures. Like Japan, it contends with an aging workforce and a shortage of skilled labour, which South Korea addresses through automation and digital technology. South Korean shipbuilders are supported by government incentives, particularly in the LNG sector, where they hold a strong market position. This focus on high value, technologically advanced vessels helps South Korean shipyards remain competitive and attract premium orders worldwide.
Strong demand for newbuilds - a double-edged sword?
Current market conditions and positive outlook across the shipping sectors have driven robust newbuilding activity. In the Tanker segment alone, we’ve seen record ordering levels in 2023 and 2024, with 41.2 million MT of deadweight contracted by Q3 2024 - the highest since 2006.
The Liner market, too, is experiencing a surge again. Throughout the first three quarters of 2024, total ordered TEU capacity rose by over 67% year-over-year. Contracting remains healthy across the board, though it varies by vessel type and size.
Out of over 210 newbuilding orders reported in September and October this year, 59 are scheduled for delivery in 2028 and 9 for 2030, highlighting a delivery timeframe that stretches well beyond the average of the past 10 years. This indicates a significant backlog and extended lead times, further emphasizing the capacity constraints faced by shipyards.
For the S&P market, this increased demand and limited slot availability means that second-hand vessels may be more attractive, pushing up their prices. Shipowners looking to act on favourable market conditions may turn to the second-hand market for immediate capacity rather than waiting years for a newbuild.
Measured in gross tonnage, ordering activity has been consistently high over the past four years. In fact, the last time we saw such levels was in 2008. The order backlog and the growing need to renew and modernize the fleet with efficient vessels affect the average delivery time.
Newbuilding and S&P markets outlook
The upward trend in shipyard delivery times reflects strong demand against constrained capacity, influencing both newbuilding and S&P markets. By understanding these dynamics, stakeholders can make more informed decisions regarding fleet expansions and investment in second-hand vessels. The insights derived from these trends offer a comprehensive view of the challenges and opportunities within the shipping industry.
Japan’s focus on quality and efficiency, China’s production capacity and emerging yard expansions, and South Korea’s expertise in high-tech vessels each contribute to distinct competitive advantages in a tightening market.
The increasing delivery times for new orders and constraints in shipyard capacity highlight a pivotal moment for these top players. While new shipyard developments in China signal a potential easing of capacity constraints, Japan’s shorter delivery times and South Korea’s expertise in LNG and high-tech sectors underscore each country’s unique strategic positioning. For industry players, understanding these evolving dynamics is crucial for optimizing investment strategies, expanding fleets, and maintaining flexibility in a shifting global market.
AXSInsights is an all-round module, giving its users the ability to monitor and analyze real-time trends in the newbuilding and S&P markets as they are developing for every segment of the global merchant fleet.
