When steel producers are bullish on the
strength of a given market segment, customers typically run for
cover, knowing that producer optimism means higher prices for
steel. Often times, customers are unwilling to pay those high
Today's shipbuilding market doesn't fit into
that category.There is a great need for vessels, and ship
owners are placing orders at high levels. Even rapidly rising
steel costs haven't dimmed their enthusiasm. Orders are being
placed even though plate prices in the United States have risen
to more than $1,400 per ton, up more than 100 percent this
"Driving all the new building orders is a
super-strong dry cargo freight market for the last four years,"
said Matthew I. DeLuca Jr., chairman and chief executive
officer of Mid-Ship Group LLC, a Port Washington, N.Y.-based
ship broker and supply chain manager. "Most people involved in
the segment-charterers, owners and brokers-believe that with
the rapidly expanding middle class in China, India and Brazil,
the market is expanding and demand is increasing
"Most of the ship owners made a tremendous
amount of money over the last couple of years, so they are not
hesitant to order new vessels even though prices for them are
historically high," DeLuca said.
"The fleet is aging, so this is the perfect
time to renew the fleet and sell off the old ships," he added.
"Having said that, there are a number of people wanting to
become ship owners who will purchase older, second-hand vessels
in an attempt to capitalize on the strong freight market while
There are numerous examples of ship owners
trying to expand their fleets both for dry cargo and tanker
ships. Maersk Line Ltd., Norfolk, Va., recently purchased two
U.S.-flag general cargo and roll-on/roll-off combination ships
formerly under charter to the U.S. Navy's Military Sealift
Command (MSC), according to Marine Log magazine. Both
ships originally were built in Denmark, converted by the former
Bethlehem Steel Corp. and re-flagged for MSC services.
Most global shipbuilding is done outside the
United States, with South Korea home to the world's most active
shipyards, another buyer source said. Other Asian nations,
notably Japan and China, also are very active, he added.
"I think what you have over there is a lot of
demand for products from those countries as they are growing,"
he said. "They need steel raw materials and there just aren't
enough ships to bring in what they need, so it's a good
business to be in right now. The way they are growing, it will
be good for a long time."
The energy market is another factor
contributing to shipyard activity. Aker Philadelphia Shipyard
Inc., a leading U.S. commercial shipyard, recently launched
Hull 009, the fifth in a series of 12 product tankers slated to
be completed in the yard in 2011 for American Shipping Co.,
formerly Aker American Shipping Inc., Philadelphia.
"American Shipping is committed to having the
newest, most-modern and most-efficient vessels in our fleet,"
said Rob Kurz, American Shipping's president and chief
executive officer. "As our build program with Aker Philadelphia
Shipyard progresses, each vessel incorporates improvements over
the previous vessels."
DeLuca said high prices for steel haven't
impacted demand. "In fact, just the opposite," he said. "The
shipbuilders can't keep up with demand. On older contracts,
some of the less-than-first-class shipyards are trying to
renegotiate the price of ships to offset the soaring price of
steel plate. Needless to say, owners are refusing, which is
leading to lawsuits and arbitrations and cancellations of
orders of some ships."
But for the most part, DeLuca is
bullish on the market. "A number of steel companies are
recognizing the super-high cost of ocean freight and are
electing to buy their own ships, primarily Capes to carry iron
ore," he said.