The shipbuilding industry has strong periodicity, and the mismatch of supply and demand is the underlying logic of cycle initiation

Summary of shipbuilding industry attributes: The shipbuilding industry has a strong cyclical, supply and demand mismatch is the underlying logic of cycle start

Strong cyclical: the shipbuilding industry has a mature market trading mechanism and a free circulation market, and there is a clear valuation for both new and second-hand ships (shipping exchange or brokerage institutions evaluate the value according to the use of ships inspected by classification societies). Therefore, during the shipping bull market, speculative funds have a role in promoting the cycle of the shipbuilding industry, for example, the price of second-hand ships will have a certain expected guidance effect on the price of new ships. The resonance of "quantity" and "price" leads to sharp fluctuations in ship prices, when the economy is rising, the industry performance is "volume and price rise", and when the cycle is down, it is "volume and price fall".

The shipbuilding cycle lags behind the shipping cycle: Usually when the shipping industry is highly prosperous and shipowners are profitable, shipyards receive a large number of new ship orders. The manufacturing cycle of new ships is generally 2-4 years, so the peak of new ship delivery is generally 2-3 years after the order is obtained. If there is a large fluctuation in the global economy and shipping during this period, it will cause a mismatch between supply and demand, and a large excess of shipping capacity will lead to a long-term depression in the shipping industry. Therefore, the industry has a typical "boom-bust" huge cycle.

Long cycle: the downstream shipping industry of the shipbuilding industry mainly undertakes the transportation of crude oil, dry bulk cargo, LNG and other commodities, and the commodity cycle is often related to the rise of great powers, monetary policy easing and global industrial changes, and the demand cycle of shipbuilding is more consistent with the commodity cycle, generally up to 20-30 years. In addition, the service life of merchant ships is generally 20-25 years, and the replacement needs of products take longer to be released.

Industry with the transfer of manufacturing: the shipbuilding industry is labor-intensive, capital-intensive and technology-intensive characteristics, history shows that the transfer of shipbuilding industry is always with the transfer of global manufacturing, from countries with high labor costs to countries with low labor costs, the global shipbuilding center has experienced four transfers: Europe - Japan - South Korea - China. In terms of revised gross tonnage, China's global ship delivery market share in 2022 has exceeded 50%, but in the field of high value-added ships such as luxury cruise ships and large LNG carriers, the core technology and manufacturing capacity are basically mastered by Europe and South Korea.

Globalization and the rise of China spawned the 2002-2008 maritime and shipbuilding supercycle

Globalization and the rise of China led to a severe mismatch between supply and demand that spawned the 2002-2008 maritime and shipbuilding supercycle. From the demand side, the economic prosperity brought by globalization and China's accession to the WTO have better integrated into the development of the global economy and become a global manufacturing center to export cost-effective commodities to the world. Meanwhile, the rapid development of China's industrialization and urbanization has also increased the demand for bulk commodities. Since 2002, the demand for global maritime trade has maintained rapid growth. On the supply side, the long slump in shipping and shipbuilding in the 1990s led to massive capacity dismantling and shipyard capacity liquidation. Since then, although demand has maintained moderate expansion, new ship orders and new capacity supply have remained low, in the face of rapid demand growth, idle capacity began to show a significant decline in 2003, and new capacity will take time. To sum up, the long-term clearance of supply and the sudden surge in demand led to a serious mismatch between supply and demand, and the BDI and BDTI freight indexes began to rise sharply in 2002 and remained high until 2008. The dramatic increase in shipowners' profitability and the urgent need to replenish capacity also led to record new ship orders and ship prices from 2003 to 2007, creating this shipping and shipbuilding supercycle.

This cycle: the supply side of the rigid clearance and lack of elasticity is the main contradiction, the head ship enterprises benefit significantly

Since 2020, the driving factors of the shipping cycle have more appeared on the supply side and different ship type cycles have formed misalignments. The supply chain disruption caused by the epidemic in 2020-2022 combined with monetary easing policies led to a substantial increase in consumer demand in Europe and the United States contributed to this round of consolidation super cycle. The surge in demand for LNG seaborne trade caused by the European energy crisis and the Russia-Ukraine conflict in 2021-2022 and the tight capacity of the spot market contributed to this LNG seaborne super cycle. The continuous fermentation of the Russia-Ukraine conflict from 2022 to now has led to the European oil ban and price cap, which has reshaped the global oil trade pattern and routes on an unprecedented scale, and is pushing oil transportation into a strong cycle. Overall, the shipping cycle drivers from 2020 to the present are more due to supply-side factors such as global supply chain chaos and restructuring, and different ship type cycle processes have also formed corresponding dislocation. In the future European and American economic recession and China's economic recovery is expected, the demand side will become a key factor in the continuity of this cycle.