Japanese discount for extra orders

Some Japanese shipbuilders are reported to be accepting price cuts on existing newbuilding orders in exchange for owners ordering an extra vessel. The deals hinge on the fact that shipyards costs such as raw materials have come down, in particular steel which accounts for around 40% of the cost of building a vessel.

The yards have got room to negotiate as their building costs have been reduced from when they signed the contracts, and the owners are coming to renegotiate the contract price. The yards involved were not named.

With the dry bulk shipping market already facing a huge oversupply of tonnage due to the number of newbuildings on order, shipowners are extremely worried about the prospect of additional orders being made in this way. “It is quite frightening that people are willing to discount prices to get another order,” said Khalid Hashim managing director of Precious Shipping.

But it is not only the Japanese yards that are willing to drop their prices. Jonathan Le Feuvre, managing director of Fearnleys Asia, said that owners were also managing to renegotiate prices with yards in Korea and China. While he noted that “shipyards are desperate to stop prices coming down” it was something they were seeing across the board.

“The other option is for the owner just to turn around and say “I’ll just walk away from the contract and accept whatever value is lost,” he said. As a result newbuilding prices are coming down so an MR product tanker that would have cost $52m to $53m a year ago can be ordered today for $37m. However even this steep drop in price is not enough to get owners to start ordering again. “We reckon they have to go down to $32m before people start ordering,” Le Feuvre said.