In line with the global economic turmoil, the shipbuilding industry too is facing tough times. The Baltic Dry Index, a barometer of shipping freight rates, has dropped to 663 points during December-2008 (a 22-year low since December 1986) after reaching a peak of 11,793 points on May 20, 2008, (a reduction of 94.4% during the said period). The fall in freight rates has primarily been brought about by the declining dry bulk cargo movement to countries such as China. Further, the slowdown in the US demand has severely impacted the trade volumes of the Asian countries.

In a report `The Shipbuilding Industry Report – December, 2008? by CARE Research, it said that the impact could well be witnessed in the new ordering of vessels which has slowed down during the last few months. ?The cancellation of orders particularly in the dry bulk vessel segment averaging 10-15% of the global order books has been an immediate cause of concern for the shipbuilders as compared to the slowdown in new ordering?, says DR Dogra, deputy managing director, CARE Ltd. However, the ordering in Offshore Supply vessel (OSV) segment has faced negligible cancellations. The Indian shipbuilders have been saved from the economic wrath to some extent owing to their specialisation in the OSV segment and diversified new build orders for all ship types.

The declining freight rates and the fixed expenses of the ship owners arising out of crew expenses, interest charges, etc have forced them to sell their ships instead of incurring the additional dry-docking expenses. This has lead to an increase in the availability of second-hand ships thereby forcing the prices of vessels downwards. The world fleet size also stands reduced due to an increase in the scrapping of vessels with more and more ship owners preferring this route for the reduction of their fleet size (especially wet bulk and dry bulk vessels with age approximating 15 years or more). This would also ensure the ship owners? compliance to the regulatory norms.

The global shipbuilders are, however, optimistic about the future flow of new orders as the increase in scrapping activities would be required to be compensated by an increase in new vessel ordering once the global recessionary phase is over. An efficient analysis of the industry?s demand and cost drivers especially in times of global slump holds paramount importance, the report added.