A Record $90 Billion in Ship Orders Loom Over the Shipping Industry

The world’s largest shipping companies, including MSC Mediterranean Shipping Co., A.P. Moller-Maersk A/S, CMA CGM SA, and Hapag-Lloyd AG, are using their pandemic profits to invest in new vessels. These companies, backed by European billionaires, are ordering record numbers of ships from Korean and Chinese shipyards, creating a global order pipeline estimated at almost $90 billion. However, as freight rates drop and concerns about overcapacity arise, the industry is becoming more vulnerable to the latest downturn. Deliveries are starting just as supply chains stabilize and demand for freight transport returns to pre-pandemic levels, leaving some shipowners financially stretched.

Companies like CMA CGM, Zim Integrated Shipping Services, Maersk, and Hapag-Lloyd have all issued negative forecasts for the coming months due to deteriorating market conditions and the likelihood of new vessel capacity causing a decline in freight rates. The International Monetary Fund predicts that trade volumes will only grow by 2% this year, significantly slower than the estimated 5.2% growth in 2022. Against this backdrop, the container shipping industry faces an order book of 890 ships, accounting for 28% of the current global capacity.

While the motivation to order new vessels and upgrade existing ones is in line with efforts to combat climate change, with the International Maritime Organization aiming for net-zero greenhouse gas emissions by 2050, the availability of emission-free fuels is currently very limited. Maersk and Hapag-Lloyd have both made orders for methanol-powered container vessels, and CMA CGM has an extensive order book, positioning it to potentially overtake Maersk in 2026. However, the industry faces supply-demand imbalances and concerns of overcapacity, which could be mitigated by scrapping older vessels and slowing engine speeds to reduce emissions.

The shipping industry’s plans to build new ships and the increased sophistication of shipowners in risk management resemble the lead-up to past declines in the sector. However, unlike previous downturns, shipowners currently have fuller coffers, leading to muted demand for credit. Bank lending did not increase in line with the order book last year and is expected to remain flat in 2023, with lenders offering better terms for vessels with lower emissions.

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