One aspect that is very often little considered within the shipping world and more specifically within the maritime insurance world is related to newbuilding price trends. Recent research conducted by Clarkson Research shows that newbuilding prices are just 8% lower than the all-time high recorded in 2008 (one month before the global financial crisis). Specifically, the index compiled by Clarkson, defined by a basket of prices of major ship types, reached 176 points at the end of October, up 36%from the end of 2020, 9% from the beginning of 2023, and the highest level since December 2008.
The reasons why we have returned almost to 2008 levels are related to several factors, including the limited availability of shipyard slots (as orders are already scheduled for the next three years), high inflationary pressure that has led to a general rise in prices (labor, raw materials and repair costs) and finally a demand for new construction driven mainly by LNG and Bulker (the Bulker’s orderbook has reached 490 vessels only for 2023).
Obviously, this situation entails quite a few difficulties for the major market players, namely shipowners, shipyards and insurers. Shipowners in the tanker market, for example, face a 50% increase to purchase a new VLCC (today’s value around 128 million). A further example, which is also very useful in terms of the profitability a vessel might produce, can be given in the dry market: nowadays, a new capesize costs the equivalent of 24 years of today’s earnings net of OPEX, compared to 12 years on average in 2021 (vessel employment that is strongly influenced by freight rate trends).
As far as shipyards are concerned, it is useful to note how we are facing a kind of risk of congestion of activity, which could cause a reduction in hold capacity in some maritime fields (LNG above all). In fact, Asian shipyards, despite having a long orderbook until 2027, risk seeing deliveries already planned slipping and not being able to acquire new orders due to the lack of sufficient manpower and the slowdown in the supply chain to acquire raw materials.
Finally, coming to marine hull underwrites, it is imperative that they are able to cope with the rising purchase price of newbuilding. The latter, in fact, could generate a considerable risk for marine hull underwriters, going to increase their exposure (in terms of value) in the face of favourable coverage conditions (price/deductible and wider conditions) since newbuilding.
