What Goes Up …

Monday, May 12, 2008

Global credit woes have largely had little affect on the historic shipbuilding orderbook … yet.  According to a Bloomburg report, there are signs that shipbuilding’s bull run may be coming to an end, fueled by the largest credit-market losses ever, which is starting to make attaining credit more difficult and putting in peril a number of shipbuilding orders.

According to the Bloomburg report, as much as $14 billion in ship orders is threatened by cancellations and delays. With the potential for cancellation comes a silver lining, as a loss or delay in deliveries of about 250 cargo ships, or 10 percent of orders, would tighten the supply of vessels and support rates when demand from emerging markets in China and India for everything has never been greater. Based on the current orders for 2,561 new cargo ships, shipping rates are expected to decline 56 percent during the next three years, futures markets show.

At stake is not only shipping rates but also the profits of shipping companies in an industry that has outperformed the market amid a U.S. economic slowdown due to China's appetite for raw materials. The Bloomberg Dry Ships Index, which includes 12 shipping companies, has gained 69 percent in the past year, compared with a loss of 7.8 percent for the Standard & Poor's 500 Index. STX Pan Ocean Co., a Korean shipping company, gained 62 percent in the last year; DryShips Inc., an Athens-based shipper, has more than doubled.

The tighter credit standards are making it particularly difficult for smaller shippers to expand their fleets and making it more expensive for even the largest companies such as DryShips and New York-based Genco Shipping & Trading Ltd.  A year ago, banks would finance as much as 80 percent of an order, with 12- to 15-year loan terms. Now, financing usually doesn't exceed 65 percent, and terms are 10 years or less.

(Source: Bloomburg & Staff Reports)


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