Morgan Stanley warns on bulker cancellations

London: As much as $22.7bn of newbuilding dry bulk contracts could be deleted in the the next three years, as well as delivery delays for up to 20% of the scheduled order book, Morgan Stanley said in a research note yesterday.

The US investment bank said around 28.9m dwt of the 407m dwt tonnage on order could eventually be cancelled, while a further  6.2m dwt of vessels due to be delivered in 2008 could be delayed, with a further 13.3m dwt for 2009 and 21.8m dwt for 2010.

The bank noted that in 2007, delivery delays affected 2.6m dwt, or 41 vessels, representing 10% of the scheduled dry bulk order book. Delays were down to equipment shortages.

"We believe that the degree of order cancellations could be particularly high by speculators who are unable to get financing and have placed orders with smaller unlisted China yards," Morgan Stanley said.

"Anecdotal evidence from shipping industry participants indicates that up to 75% of newbuild orders across all ship types may not have secured financing and 30% ($150bn) of the newbuild orders could face a shortage of debt financing.

"Assuming an order book period of three years, this implies a potential funding shortage of $50bn a year,"said Morgan Stanley.

The upside of all of this though is that the supply/demand ratio would work out very favourably for those owners with ships, Morgan Stanley saying it expects average Baltic Dry Index (BDI) rates of 6,800 in 2009 and 5,400 in 2010. [29/8/08]