Falling Confidence Cuts Container Ship Orders

In a report with uncomfortable implications for industrial property owners and developers, Clarkson Research Services Ltd. reveals that orders for new container ships have effectively “hit the floor.” The London-based research company, a division of Clarkson, the world’s biggest ship broker, says sharp declines in vessel charter rates, ocean freight rates tumble and volume growth on key liner trade routes have all but curtailed not only new orders but even inquiries about potential orders. “With volumes and earnings stalling, owners’ taste for new builds has slowed right down,” says the report.

According to Containerisation International, the precipitous decline follows five years of historically high deliveries. Clarkson reports only 179 container ships contracted through August, a 49% decrease from the 355 ships put in contract for the same period a year ago. At the current rate, the year’s total would reach only 270 ships, compared to 530 in 2207, 479 in ’06 and a record 566 in ’05. The report says the industry has been experiencing a steep falloff in orders since Q4 ’07, with a single upward spike in June when Maersk posted an order for 70 new vessels.

Clarkson attributes the decline to what it calls “a good old double whammy” of slowing trade volumes and rising shipyard prices. On an annualized basis, global container trade growth this year has dropped below the double-digit level for the first time since ’01, leading to an approximately 20% slide in ocean freight rates and ship charter rates. Containerisation International says a 3,500-TEU gearless Panamax vessel earns $26,000 a day on charter, down from $29,500 a day in June and $38,000 a day in ’06.

The drop in ocean freight volumes is particularly evident in North America. Panama Canal volume is expected to show no growth this year, with the total projected volume of 312 million tons essentially matching last year’s number. The plateau follows nine straight years of growth. Though Panama Canal Authority chief executive Alberto Aleman says growth may resume in 2009, outside analysts are less optimistic.

Container volume at the Port of Tacoma, WA declined nearly 8% in August to 142,570 TEUs. Though statistics for the first half of the year showed the port defying the general downturn affecting the rest of the West Coast, a slowdown in export volume has begun to reverse the pattern. From July to July, Tacoma’s container imports decreased 6.9% to 424,918 20-foot equivalent units (TEUs), while exports rose nearly 20%, to 338,645 TEUs. But the rate of container export growth dipped significantly in August. Though still positive, it was not sufficient to compensate for a continued decline in imports.

August also brought reversal to the Port of Portland, OR with total container traffic for the former declining 12.8% to 22,329 TEUs. And at the Port of Seattle, a downward trend that began in mid ’07 continued, with volume plunging 22.6% compared to the same month a year ago to 145,519 TEUs. It was Seattle’s fifth straight month of weakening volume. From January to August container volume there declined 10.1% to 1.17 million TEUs. The only major exception to the trend was Port Metro Vancouver, BC, which posted overall growth of 3.5% through August to 1.67 million TEUs. Full import containers increased 2% to 838,744 TEUs, and full export boxes climbed by 8% to 649,431 TEUs.