Ship owners crushed by new supply and bad rates

Now that the cash flows are disappearing owners are now left with spare capacity, what will it do if rates do not recover asks KMPG?

Some estimates are that up to 10 percent of the world fleet is currently laid up. However, laying up isn't the only option, and many shipowners are deferring this decision. On new orders it may still be possible to cancel, substitute or delay.

Shipbuilders, mindful of empty yards, may be willing to renegotiate. Some are accepting delays to the schedule, as long as they have received a down payment.

Others may offer short term docking facilities after completion (within the order price) and some yards are offering raw material rebates, recognising that making lower margins over a longer period is better than taking huge profit today and being idle tomorrow. Shipowners should be thinking of negotiating over contract modification, some might find willingness to compromise.

Scrapping is always an option. Many will use the downturn to refresh fleets – retire older, inefficient and smaller ships, and make the right structural changes. An upgrade in the quality and efficiency of the fleet may put owners in a strong position as we come out of a recession.

There are other options too – some are slow steaming or accepting lower rates; deploying more vessels but consuming less bunker oil; drifting or temporarily
anchoring (idling), suggesting that things, particularly in some niche markets, may not all be bad or at least not bad enough to incur lay-up costs.

Read the whole thing here.