Biggest Replacement Cycle Coming!

"Commercial ship market is still suffering from over tonnage and decreasing rate. However, would people do believe that if one says massive ship replacement cycle is coming?"

Shipbuilding market specialized analyst Lee Sok-Je cast such a question on May 15 and emphasized that the largest-ever commercial ship replacement cycle is coming and South Korean shipyards would meet with the busiest season ever for over 10-15 years.

Two recent trends would trigger the cycle.

The first stirring is fuel efficiency. In order to improve fuel efficiency, additional fuel economizer should be installed. Therefore, instead of burdening cost to install those equipment onto old vessels, replacing them with newbuildings with eco-friendly and high-end engines is better.

Also, international fund for greenhouse gas emissions by IMO and exemption of port terminal rate for fuel-efficient vessels, etc., would further extend profitability gap between owners in terms of difference in fuel efficiency.

The second catalyst is ballast water treatment system. As BWTS is obligated to be installed, it would boost demand for newbuildings.

In case of secondhand vessels, total installment cost would reach 50% of residual ship value.

Analyst Lee added that fuel efficiency and obligatory installment of BWTS would impact shipbuilding and shipping market and cause massive replacement cycle, the largest ever after World War Ⅱ.

As a result, Korean shipyards will see the boom. It can be H2 2012, or next year. Also, economic slump may defer it to come later, but can never stop it from coming.

Korean shipyards would have no fierce competitors in the new ultra-boom cycle. Already many shipyards are under restructuring, even if they survive, it would be few yards.

Also, high-end technology and quality are important in the new cycle. Therefore, it would be almost impossible for late-coming shipyards to catch up leading yards in a short term.

Lee stated, offshore industry is flourishing at present, amidst high oil price, and this would continue for a couple of years. But commercial ship sector will also stand out in the market as a high-value market.

In newbuilding and secondhand vessel market, those ships with 10%-more fuel efficiency are priced 20-30% higher. So, if Korean shipbuilders maintain superiority in technical skills and quality, merchant ship sector would profit them with high-margin.


Published : May 16, 2012