05JUL2019 - NEWS - Are new ship orders shrinking on fear of premature obsolescence

An increasingly common mantra among ship owners is that newbuilding orders are slowing in response to the growing pace of regulatory and technological change. Is this true, or just wishful thinking? According to this theory, it is more difficult to order now – and get financing for orders – because the regulations and the technology to comply with them will dramatically change within the lifespan of the vessel (commercial ships are generally depreciated for accounting purposes over 25 years). The shifting landscape would theoretically require new propulsion types, new fuels and new designs. A ship built today would therefore be at a competitive disadvantage to future newbuildings. The risk of premature obsolescence equates to a residual value risk, i.e., the future resale value may be too low, undercutting the rationale for ordering.