Cargo Ships Cost Less Than You Think!
To build a new cargo ship, it could cost you anywhere from a few million dollars for a small general cargo ship up to $145 million for one of the world’s largest container ships, and even more for specialist ships such as LNG tankers. A large second-hand cargo ship could be yours for somewhere between $15-35 million.
Cargo ships are absolutely vital to world trade and new vessels are being built all the time in shipyards around the world. There are many different types of cargo ship and the type of ship being built will be the main factor in determining its cost.
Let’s take a look at the different types of ship and their costs, as well as why cruise ships are by far the most expensive type of merchant ship to build.
How much do different types of cargo ship cost?
There are many different types of cargo ship – bulk carriers, container ships and tankers, to name a few of the most common. Because each type of ship operates in its own unique way, and carries cargo in its own particular way, the build requirements also differ. This leads to large differences in price depending on the type of ship being built.
If you’d like to know more about the different types of cargo ship, and how many of each there are in the world, check out our article: How Many Cargo Ships Are There In The World?
Prices for new ships are at their highest since 2015. Research from 2007 shows the average newbuild price of different ship types. The table below shows these prices from 2007 adjusted for inflation up to November 2022:
| Ship type | 2007 price | 2022 price* |
|---|---|---|
| Dry bulk | $32 million | $49.6 million |
| General cargo | $11 million | $17 million |
| Container | $44 million | $68.2 million |
| Crude oil tanker | $65 million | $100.7 million |
Of course, ships have gotten quite a lot bigger since 2007. This is part of the reason that the cost of new ships has outpaced inflation, but it is not the only reason. Costs of building materials, consolidation of shipyards leading to less business competition, and supply and demand of certain types of ship are all major factors that have led to the price of ships outpacing inflation.
The cost of building a new container ship
In order for cargo ships to be deemed a success, they have to make a profit over their lifetime.
The desire of shipping companies to maximise cargo carried has led to increasingly larger ships being built over the last few decades. For companies with established, long-distance trade routes, larger ships just make sense. As well as being able to carry more cargo, they allow for savings to be made on crew, maintenance and fuel costs.
In 2021, Evergreen Marine ordered 20 new container ships to be built in South Korea by Samsung. It is estimated that the ships – capable of carrying 15,000 containers each – will cost between $115-130 million each.
These vessels will be built with high-specification equipment and fuel-saving devices, so their price is likely to be at the high end of the spectrum for a container ship of this size.
While these ships should soon make a profit from carrying cargo all around the world, it is certainly a lot of capital to invest in one asset.
Bulk carriers – why are they cheaper to build?
Ships with simpler construction requirements such as bulk carriers cost much less to build. According to price data from one Chinese shipyard, the biggest bulk carriers will cost around $60 million to construct – no small sum, but around half the price of a large container ship.
The construction of a bulk carrier is simple and therefore requires less steel, less technical equipment, less accommodation space due to lower crewing requirements, and less manpower to build. This all leads to lower costs when compared to other types of cargo ship.
Supply and demand is one of the main factors in the cost of a new ship. When the bulk cargo trade was booming in the early 2010s, the demand for new bulk carriers increased and shipyards could therefore increase their prices because they knew that shipping companies would pay high rates. This soon came to an end, and shipowners who had invested heavily in bulk carriers were the ones who took the biggest hits.
In 2015, the bulk carrier market imploded. The market had been strong for around a decade before this because of huge demand from China for coal, steel, and iron ore to fuel the Chinese government’s enormous building projects.
When the Chinese stock market bubble burst in 2015, China’s demand for coal, steel, and iron ore diminished rapidly. Other industries were affected, but bulk carrier demand was hit particularly hard.
Since then, the bulk carrier market has recovered, with bulk carriers representing the most popular type of ship currently on order to be built in global shipyards according to data from Lloyd’s List.
Tankers – more steel, higher prices
A Very Large Crude Carrier, which is a crude oil tanker of between 200,000 and 320,000 deadweight tonnes, will cost around $95 million to build from scratch at current market prices, according to Lloyd’s List.
One thing that sets tankers apart from other types of ship is that tankers are legally required to have a ‘double hull’. A double hull is exactly what it sounds like – an extra layer of hull that extends the full length of the cargo carrying area, to offer greater protection should the ship run aground.
It was the disastrous environmental consequences of the grounding of the Exxon Valdez in 1989 which led to this regulatory change, and it means that building a tanker now requires a lot more steel, manpower and build time, than other types of ships which do not require a double hull.
Specialist product carriers such as LNG tankers are significantly more expensive, with large vessels costing around $190 million, based on newbuild order figures.
Cruise ships
As you might expect, cruise ships cost significantly more to build than even the most expensive cargo ships.
Royal Caribbean’s Oasis of the Seas, which was the largest cruise ship ever built when it was launched in 2008, cost an astonishing $1.4 billion. Even a small cruise ship will now cost around $500 million to build, with larger ships of 2000-3000 passenger capacity costing around $1 billion to construct.
There are many reasons for the huge difference in cost between cruise ships and cargo ships. They are significantly larger than cargo ships in that they have several accommodation decks above the waterline which span the length of the ship, which cargo ships do not.
This means significantly more steel must be used, and steel represents one of the highest costs involved in building a new ship.
| Costs unique to building passenger ships |
|---|
| Accommodation and interior decoration for thousands of people |
| Plumbing and electrics for thousands of people |
| Medical facilities |
| Lifeboats and liferafts for thousands of people |
| Entertainment spaces and equipment |
| Power supply for an entire hotel department that runs 24/7 |
| Galleys and space to feed thousands of people |
| Luxury amenities such as multiple gyms, spas, saunas, swimming pools, bars, nightclubs and theatres |
| High-quality decoration and aesthetics |
Because they carry passengers, cruise ships are required to comply with even stricter safety regulations than other merchant ships. This all leads to even higher costs and more audits and inspections.
Second-hand ships – worth the risk?
One popular alternative is to buy a ship second-hand, which is much like buying a second-hand car. You get it for cheaper, of course, but she will have travelled many miles and might need some care and attention before she’s up to standard again.
It is very common for ships to be sold between shipping companies, and running an entire shipping company with second-hand ships is a legitimate and common strategy. It is even common for cruise ship companies to buy and sell ships to each other, and some cruise companies operate solely with second-hand ships.
Sites such as Nautisnp and Maretec deal with the sale and purchase of ships. Second-hand ships vary in price and more often than not you’ll have to enquire with a shipbroker to learn the price of a ship which is up for sale, but the cost of buying a used ship is certainly much lower than buying a new one from a shipyard.
Second-hand ships are cheaper, but they can still cost a lot of money. For example, the 179,000 deadweight tonne bulk carrier True Endurance (now known as Beks Leo) was sold in 2021, nine years after she was built, for $32.3 million – certainly cheaper than building her from scratch, but no small change.
| Ship name | Ship type | Year of build | Size | Price |
|---|---|---|---|---|
| Step Forward | General cargo | 1995 | 117,000 dwt | $3.5 million |
| Super Emerald | Crude oil tanker | 2005 | 51,000 dwt | $17 million |
| A Bote | Container | 2007 | 907 containers | $22 million |
| U Glory | Bulk carrier | 1998 | 46,570 dwt | $8.75 million |
Understandably, the second-hand ship market reflects the newbuild market – the more expensive it becomes to build a new ship, the more desirable a second-hand ship becomes, and thus all prices rise.
When a second-hand ship is bought, there are many costs involved. As well as maintenance and repair work, the buyer will want to ensure that their new vessel fits in with the rest of their fleet.
This means painting it in the company’s colours, perhaps changing its flag and home port, amending all relevant documentation, and ensuring that crew are familiar with its equipment – either through re-training or by replacing the ship’s equipment to match the rest of the fleet.
| The hidden costs of buying a second-hand ship |
|---|
| Surveys to ensure that all regulations are complied with |
| Inevitable repair, maintenance and modernisation work |
| Painting and rebranding |
| Either replacing current equipment to match the rest of the fleet or re-training crew |
| Change of flag and home port |
Are ship prices going up or down?
It is difficult to precisely pin down the cost of new ships for a couple of reasons – firstly, shipyards don’t often publicly disclose figures on their prices, and secondly, the market for cargo ships fluctuates rather wildly.
However, it is a fact that the cost of both building new ships and buying second-hand ships has risen rapidly in the last 18 months. The best example of the volatile cost of building and buying ships can be seen in the crude oil tanker market.
According to tanker brokers Poten & Partners, newbuild prices for Very Large Crude Carriers (VLCCs) rose 35% between 2021 and 2022, from $88 million to $119 million. However, this is still nowhere near the all-time high price of $162.5 million in 2008.
The price of second-hand VLCCs has also risen between 23-31% in the last year, so it is not only the price of newly built ships that is rising above global inflation levels.
What affects the cost of a ship?
Global events affecting oil prices have understandably had an impact on the demand, and thus the price, of oil. This increased demand has driven shipyards’ prices up, but the demand for oil is not the only reason – or even the main reason – for increased shipbuilding costs.
| Category | % of shipbuilding cost |
|---|---|
| Equipment | 40 |
| Steel | 30 |
| Labour | 15 |
| Overheads | 10 |
| Profit | 5 |
The choice of shipyard will affect both the cost and quality of the ship being built. Once the shipyard has been decided upon, there are two areas where decisions can be made by the shipping company that will determine the final cost and quality: equipment and steel.
Equipment
One of the easiest ways for a shipping company to cut costs when building a new ship is to buy cheap equipment. This could mean installing a fixed-pitch propeller instead of a controllable-pitch propeller, buying cheaper machinery for the engine room and bridge, and buying the most basic cargo equipment possible.
If you’d like to learn more about the different types of propulsion that ships can have, and how this might affect building and fuel costs, check out our article: Do Ships Have A Reverse Gear?
Steel
The above table shows an estimated breakdown of the various costs involved in building a new ship. Lloyd’s List estimates that, due to a surge in steel prices around the world, steel is now responsible for around 40% of newbuild costs.
There are different qualities of steel available and the most reputable shipyards around the world will use the best steel – for a price.
How long do ships last?
Cargo ships are usually built with an expected lifespan of between 30-50 years, provided that they are well looked after and properly maintained throughout their life.
It is unusual for a ship to remain with the same company for its entire lifespan, so ships will tend to get a renovation whenever they are sold to another company.
This means that while the initial outlay may be high for a new cargo ship, it will be good for decades of trade.