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

Improved profitability, tight capacity and IMO's decarbonisation policy have led to an increase in the willingness of ship owners to place orders for new vessels, with container vessels and LNG carriers driving the ship manufacturing cycle. Overall, in 2021-2022, the total global new ship orders were 53.3 million (up 113.6%) and 42.78 million CGT, and the total value of global new ship orders was 117.3 billion (up 129.6%) and 124.3 billion US dollars, respectively. The total volume and total value of orders in two years hit a new high since the last super cycle (2002-08). From the perspective of order structure, in terms of CGT, the shares of new ship orders for tankers, bulk carriers, container ships and LNG carriers in 2021 will be 12%, 23%, 38% and 13% respectively, and the shares of new ship orders in 2022 will be 6%, 13%, 30% and 35% respectively. In addition, under the influence of IMO's decarbonization and environmental protection policy, the proportion of LNG and methanol dual-fuel power ship orders has increased significantly. In terms of CGT, the proportion of LNG dual-fuel power ship orders and methanol dual-fuel power ship orders in 2021 is 9% and 1% respectively, and the proportion will increase to 16% and 3% in 2022.

The price index of new vessels and the number of years covered by shipbuilders' orders in hand have moderated in 2022. In 2021, the global new shipbuilding orders (container ships, LNG carriers) increased significantly, and the continued tight capacity of shipyards led to a continuous rise in the new ship price index. In terms of container ships, due to the recent rapid decline in freight rates in the container transport market, and shipowners' concerns about the continued deterioration of future supply and demand, new orders for container ships have decreased significantly. In terms of LNG carriers, based on the continued tension in the future LNG shipping supply and demand expectations, the recent correction in freight rates has not had much impact on the LNG carrier market, and the new ship price index is still strong. In terms of oil tankers, the continuation of the conflict between Russia and Ukraine will lead to a substantial increase in crude oil seaborne trade, the future new shipping capacity will be at a low level, the tight trend of supply and demand will gradually become prominent, and the price index of new ships will remain high. In terms of dry bulk carriers, the recovery process of China's economy will become a key factor, and freight rates will continue to recover. Overall, the cumulative increase in the price index of new ships in 2022 fell by 16 percentage points from the same period in 2021, and the number of years covered by orders in hand was stable at about 3.5 years, but the current shipyard capacity is still in a tight state.

The EEXI/CII environmental regulations have come into effect and are expected to reduce capacity efficiency while accelerating the exit of older vessels. As of January 1, 2023, ships must obtain an Existing Ship Energy Efficiency Index (EEXI) energy efficiency certification, while also collecting CO2 emissions data and reporting annual Operational Carbon Intensity Indicators (CII). According to Vessels Value, only 21.7 per cent of vessels in the global active fleet (bulk carriers, tankers and container ships) are EEXI compliant. Among them, the compliance rate of bulk carriers is the lowest, the compliance ratio is only 10%; Container ships, one of the largest sources of CO2 emissions, had a compliance rate of 25.6%; In terms of the number of vessels, although oil tankers performed best, the compliance rate was only 30.4%. According to Clarksons' benchmark ship type data, 60% of the current fleet of tankers and bulk carriers in operation will theoretically meet EEXI requirements (including the use of shaft/engine power limiting systems), and 40% of vessels that do not meet the requirements may need to adopt various means to meet the requirements or be forced to withdraw from the market. We believe that the implementation of EEXI and CII will result in a large number of ships reducing speed to meet carbon emission regulations, while also accelerating the exit of some older ships from the capacity market.

The number of active shipyards in the world has fallen sharply, effective dock supply has fallen by two-thirds from the previous peak, and shipyard capacity is tight. Due to the long-term depression of the shipbuilding industry in the past 10 years, a large number of shipyards have closed down, and the rigid capacity of the shipbuilding industry has been cleared. According to Clarksons, the number of active shipyards (with at least one 1000+GT vessel on hand) worldwide has fallen from a peak of 758 in 2007 to 164 in 2022. The number of active shipyards in China declined from a peak of 428 in 2009 to 118 in 2022. The number of large shipyards (> 20,000 DWT) with capacity to receive orders fell from 320 in 2009 to 119 in 2022, leaving only about one-third of the peak. The 2021-2022 new ship orders (million CGT) have been half the level of the 2006-2007 cycle peak, and the tension between supply and demand has intensified, resulting in rising ship prices.