Shipbuilding hit by credit squeeze and long lead-times

The chemical industry moves a lot of product by ship. Recent rises in freight rates have therefore had a major impact on costs for producers and consumers. But there was always the thought that rates would soon decline, once shipbuilders began delivering all the new ships on order.

But now Bloomberg is suggesting that 10% of these orders have already been cancelled due to the credit crunch. ‘A year ago, banks would finance as much as 80% of an order, with 12- to -15- year loans,’ according to Fortis Bank. ‘Now, financing usually doesn’t exceed 65%, and terms are 10 years or less’.

And the squeeze is not just affecting ship-buyers, but also those planning to build new shipyards. 20% of current orders are scheduled to be built by Chinese shipyards that are themselves not yet in operation. Equally, there are major delays on critical parts – the waiting time for main engines is now 4 years, and even for diesel generator is 2 years.

Supply chain managers must be starting to wonder whether globalisation and outsourcing will remain viable tools for cost-reduction.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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One Response to Shipbuilding hit by credit squeeze and long lead-times

  1. Chong-Min-Lee 12 May, 2008 at 6:32 pm #

    Cancellation or delay of ship orders implies not only freight rate increase but also could explain some part of recent ‘unusal(?)Korean Won weakness against USD’

    Korean Won was quite over-shoot for past 3-4 years as more and more top five Korean ship-builders (major exporters) are “over-hedging” their future USD revenues.

    Maybe, it’s time for refinery(major importer with high crude prices) to ‘over-hedging’…..

    Interestingly, both are quite ‘Oil-sensitive’ industry.

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