Greek Shipowner Reportedly Seeking Compensation After Exiting Billion-Dollar Boxship Order: Arbitration Battle with Chinese Shipbuilder Yangzijiang

Greek Shipowner Reportedly Seeking Compensation After Exiting Billion-Dollar Boxship Order: Arbitration Battle with Chinese Shipbuilder Yangzijiang

In the high-stakes world of international shipping, where timing and market cycles are key, a significant legal dispute is brewing between a prominent shipbuilder and a shipowner over a cancelled multi-million-dollar order. As box ship owners scramble to secure orders in China amidst a booming global shipping demand, one shipowner is taking a different route, seeking compensation after exiting a massive $900 million deal. At the centre of the controversy is one of China’s leading private shipyards, Yangzijiang Shipbuilding, which is currently fighting an arbitration case to prevent the payout. Chinese media outlets have reported that the shipowner in the case may be the Greek shipping giant Costamare.

The Billion-Dollar Deal Unraveled

In a regulatory filing on October 12, 2024, Yangzijiang Shipbuilding, one of China’s largest private shipbuilders, notified its shareholders that it is in arbitration over the termination of a $900 million contract. The order, which included 10 vessels, was placed by an unnamed shipowner in late 2021—a time when the global shipping industry was grappling with surging demand and rising costs due to pandemic-related supply chain disruptions.

However, just months after the deal was finalized, in early 2022, the shipowner abruptly moved to cancel the order. The contract termination led to the initiation of arbitration proceedings against three subsidiaries of Yangzijiang, signaling the start of a high-profile legal battle over the cancellation. The shipbuilder, which is listed on the Singapore Exchange, disclosed the arbitration to its shareholders but downplayed its significance. Yangzijiang stated that its legal counsel believed the shipowner’s claims were “highly improbable to succeed.” The company also emphasized that it did not expect the arbitration to have any material impact on its earnings for 2024, presenting a confident outlook despite the ongoing litigation.

Yangzijiang’s Growing Backlog and Strong Position

The $900 million order, while significant, is relatively small in the context of Yangzijiang’s expansive business portfolio. The company boasts an order backlog of 224 vessels, amounting to more than $20 billion in total value. This backlog positions Yangzijiang as a leading player in the global shipbuilding market, with enough work to sustain its operations well into the future.

The shipbuilder’s dominance is part of a broader trend in the global shipbuilding industry, where Chinese yards have seen a surge in orders in recent years, driven by the rising demand for new, more fuel-efficient vessels and the push for greener shipping solutions. Despite the arbitration, Yangzijiang’s strong financial footing and robust order book mean that the outcome of the case is unlikely to significantly affect its long-term growth.

Greek Shipping Company Costamare Reportedly Involved

While Yangzijiang has not publicly identified the shipowner involved in the arbitration, Chinese media outlet Xinde has reported that the shipowner could be Costamare, a major Greek shipping company. Xinde pointed to several lines of evidence that suggest Costamare’s involvement, including the timing of the orders and cancellations.

In late 2021, Costamare placed orders for at least eight boxships, aligning with the timeline of the $900 million order in question. Then, in early 2022, Costamare announced the cancellation of eight new-build contracts, which also coincides with the timeframe in which the arbitration was initiated. This timing, combined with other details, has led Xinde to speculate that Costamare is the shipowner seeking compensation in the ongoing legal battle with Yangzijiang.

Neither Yangzijiang nor Costamare have confirmed the identity of the shipowner involved in the arbitration. Both companies have maintained a degree of silence on the matter, leaving much of the speculation to media reports.

Costa Mare’s Strategic Shift and Market Timing

Costamare, which owns and operates a large fleet of container ships and dry bulk vessels, has long been a major player in the global shipping industry. The company, founded in 1974, has built a reputation for its strategic timing of new building orders, often opting to place large orders during downturns when ship prices are lower and market conditions are more favourable.

In mid-2022, around the same time that the order in question was cancelled, Costamare’s Chief Financial Officer (CFO) expressed the company’s concerns about the high cost of new builds. During an earnings call with analysts, Costamare’s CFO indicated that the company believed new building prices had become too inflated due to the red-hot demand at the time. He suggested that Costamare preferred to wait for a countercyclical opportunity to place orders, a strategy that has served the company well in the past. This aligns with the broader narrative that Costamare may have been the shipowner behind the arbitration, seeking to exit what it deemed an unfavourable deal amid escalating costs.

Legal Disputes in the Shipping Industry: A Common Occurrence?

Legal disputes over contract cancellations are not uncommon in the shipping industry, especially in times of market volatility. Shipowners and shipbuilders alike are often faced with the challenge of navigating rapidly changing market conditions. For shipowners, the decision to cancel a contract is typically driven by unfavorable economic conditions, such as a sharp rise in newbuilding prices, which can make previously agreed-upon contracts financially unviable.

On the other hand, shipbuilders are reluctant to allow cancellations without compensation, as these deals represent a significant portion of their business. Arbitration is a common mechanism for resolving such disputes, allowing both parties to make their case before a neutral tribunal. In the case of Yangzijiang, the company has expressed confidence that it will prevail in the arbitration, citing its legal team’s assessment that the shipowner’s claims are unlikely to succeed.

Outlook for Yangzijiang and the Broader Market

As Yangzijiang continues to pursue its defence in the arbitration case, the company remains focused on fulfilling its substantial order backlog. With more than $20 billion in orders on its books, Yangzijiang is well-positioned to continue its growth trajectory, even as the global shipbuilding market faces challenges from economic uncertainty and evolving environmental regulations.

For Costamare, if it is indeed the shipowner involved in the arbitration, the decision to cancel the order reflects the company’s cautious approach to market conditions. By potentially avoiding what it viewed as an overpriced deal, Costamare may be positioning itself to take advantage of future opportunities when new building prices decline.

The outcome of the arbitration could have broader implications for the industry, as it may set a precedent for how future disputes over contract cancellations are handled. Regardless of the final ruling, both Yangzijiang and Costamare will likely continue to be major players in the global shipping arena, each navigating the complex dynamics of a rapidly changing market.