Michelle Wiese Bockmann - Monday 18 January 2010

INCREASING numbers of Greek shipowners have used aggressive new tactics to successfully force cash-starved Asian shipyards to keep lowering newbuilding contract prices, as plummeting values make it economical to cancel an older contract outright at one yard and re-order at another.

The Greek orderbook stands at 624 vessels — about 10% of all orders — and includes 360 bulk carriers of 35m dwt and 240 tankers of 20m dwt, according to Piraeaus-based shipbroking group George Moundreas.

With newbuilding prices falling by an average 40% from record highs of 18 months ago, owners have not only re-negotiated or substituted existing contracts, but have found it cheaper to cancel an older contract and forfeit the first instalment payment of 20%, then re-order elsewhere.

The highest-profile Greek owner to cancel and re-order, Goldenport Holdings, said the strategy had resulted in “a better ship at a much lower price”. Goldenport Holdings saved around $5m by cancelling an order for two supramax bulk carriers at China’s CSC Group Qingshan shipyard, and ordering another at South Korea.

However, the yard switch strategy was difficult to replicate on a widespread basis, said commercial director John Dragnis, and was unlikely to emerge on a major scale. “It is not so easy because in China you have the so-called payment guarantees, so the average owner including us, would have the case of guaranteeing to the yard the minimum 40%-50% of the contract value,” Mr Dragnis said. “The yards would not allow this to happen on a major scale; it is not in their interest.”

He suggested CSC agreed not to insist Goldenport Holdings met all payment guarantee obligations because of “good co-operation, longstanding co-operation” between the two companies.

However, George Moundreas, which released its first newbuilding report in nearly 18 months last week, highlighted how some cash-rich owners had confidentially negotiated ships at levels last seen in 2004, aware that a further cancellation crisis could be two months away.

An unknown number of Greek buyers had missed second instalment payments but not disclosed financial troubles for fear of losing their 20% deposit, the shipbroker said. “We fear the time of truth will arrive soon and we can imagine a new wave of cancellations, this time under very unpleasant atmosphere will occur,” its report said.

“All those things are in the dark,” George Moundreas newbuilding consultant George Banos said. “Nobody is willing to disclose what he has paid or what he has agreed. From our point of view we are in a very difficult position when we try to analyse the current market.”

The shipping market’s collapse in September 2008, combined with a bank lending freeze, created a newbuilding order drought for the shipbuilding industry, leading to a cashflow crisis for many yards, especially in China and South Korea. After some allowed delivery delays but refused to cut prices for the first nine months of 2009, yards’ capitulation later in the year sparked an ordering resurgence.

George Moundreas said that it was among the first “to smell any change of feelings among shipping players” and had seen clients gradually resume inquiries over the last two and three months.

c Bloomberg

 

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