Image Credit: “Navy’s 306 ship goal faces multiple obstacles,” available at Yahoo Images (11/10/2024).
In 2024, the global demand for new vessels, especially Tankeras, Container Ships, and LNG carriers, continues to rise. However, this increased demand has led to a growing challenge: longer delivery times. The delivery time for tankers is nearing three years, while container ships average 3.2 years. For LNG carriers, particularly those built in China, delivery times are even longer, approaching 4.8 years.
Shipyard delivery times, which measure the gap between placing an order and receiving the completed vessel, serve as a key indicator of market demand and shipyard capacity. Since 2020, the delivery times for major vessel types like Container Ships, Dry Bulkers, and Tankers have steadily increased. This trend continued into 2024, with delivery times lengthening for all vessel types, including LNG carriers. As shipyard capacity becomes more limited, the time required to complete new orders grows. This forces shipowners to keep older vessels in service longer or turn to the second-hand market to meet their fleet needs, which can drive up prices for both newbuilds and used vessels.
The capacity for new shipbuilding has become a critical bottleneck, especially in the largest shipbuilding countries. China, the world’s largest shipbuilder, now faces delivery times of around three years, with Tankers averaging 2.8 years and LNG carriers requiring even longer lead times. For large vessels like Capesize Dry Bulkers ordered in 2024, delivery times are expected to extend to 3.6 years, reflecting the strain on shipyards.
South Korea, another major shipbuilding country, also faces delivery times averaging around three years, with slight improvements from 2023. For example, LNG carriers ordered in South Korea are now expected to be delivered in 3.5 years, down from over four years last year. Other vessels, like crude oil tankers, are built in about 2.7 years, while Product Tankers average 2.1 years.
Japan, in contrast, manages the shortest delivery times, averaging around 2.6 years. Japan’s ability to maintain this relatively fast pace is due to its long history in shipbuilding, especially in smaller tonnage vessels like Handysize and Handymax Dry Bulkers, where it holds a dominant market share. Despite challenges like limited shipyard slots and an aging workforce, Japan remains competitive thanks to its high-quality craftsmanship, innovative energy-efficient technologies, and strong government support.
China is focused on overcoming challenges such as stricter environmental regulations and labor quality issues. The country is investing heavily in technological upgrades and, with government subsidies, is improving its capabilities in building LNG and eco-friendly vessels. Although China is facing capacity constraints, its vast production scale and cost-effective labor force make it the preferred option for large-scale orders, particularly for Dry Bulkers and Container Ships. The emergence of new shipyards in China is expected to alleviate some of the capacity issues in the long term, potentially shortening delivery times and offering shipowners more options. This potential for improvement should instill a sense of optimism in stakeholders.
South Korea excels in the production of technologically advanced vessels, particularly LNG carriers and offshore structures. The country’s shipyards are addressing labor shortages through automation and digital technologies, supported by government incentives, especially in the LNG sector, where South Korea holds a significant market share. South Korea's commitment to advanced technology and high-value vessels enables it to remain competitive in the global market, particularly in producing complex and specialized ships.
The strong demand for new vessels is creating both opportunities and challenges in the market. In the Tanker sector, 2023 and 2024 have seen record levels of new orders, with 41.2 million deadweight tons (DWT) contracted by Q3 2024, the highest since 2006. The Liner market is also experiencing growth, with ordered TEU capacity rising by more than 67% year-over-year through the first three quarters of 2024.
However, this strong demand has led to an expanding backlog, with some orders stretching delivery times far beyond previous averages. For instance, 59 newbuilding orders reported in September and October 2024 are set for delivery in 2028, and nine orders are scheduled for delivery in 2030, illustrating the industry's significant delays. This backlog not only signifies the high demand for new vessels but also poses challenges for shipowners who may face longer waiting periods for their orders to be fulfilled.
As delivery times for newbuilds continue to stretch, the secondary market (S&P) for second-hand vessels has become increasingly attractive. Shipowners looking to expand their fleets or replace older vessels may turn to the second-hand market for quicker delivery, which drives up prices for used vessels. This increased demand for second-hand vessels, coupled with limited shipyard capacity, is contributing to the rising prices in both the newbuild and second-hand markets. Factors such as increased demand, limited supply, and the cost of labor and materials are all contributing to these rising prices.
The increasing delivery times and constrained shipyard capacity highlight significant challenges for both the newbuilding and second-hand vessel markets. Japan’s efficient shipbuilding practices, China’s large-scale production and new yard expansions, and South Korea’s expertise in advanced vessel technology each offer distinct competitive advantages in a tightening market.
For industry stakeholders, understanding these trends is crucial. It enables them to make well-informed decisions about expanding their fleet, investing in second-hand vessels, and adjusting their overall market strategy. The extended delivery times for new orders and shipyard capacity constraints signal a pivotal moment in the global shipping market. While new shipyards in China could help alleviate some of these capacity challenges in the future, Japan’s relatively short delivery times and South Korea’s strength in LNG and high-tech vessels reinforce each country’s competitive positioning.
AXSInsights is a comprehensive platform that provides real-time data and analytics for stakeholders in the shipping industry. It allows them to monitor trends, track market conditions, and make strategic decisions in both the newbuilding and secondary vessel markets. With AXSInsights, stakeholders can gain valuable insights into market dynamics, identify potential investment opportunities, and maintain a competitive edge in the fast-changing shipping industry.
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