The Shipbuilding market in 2000 (6)

Aker-Finnyards succeeded in securing four ferry orders for the account of foreign shipowners: SeaFrance, Tallink and Hesbrides Islands. Kvaener-Masa for its part firmed up its orderbook with three newbuildings for Carnival Corp. and two for Royal Caribbean Cruises.
 

The only significant remaining shipyards are Odense and Orskov, this latter which has taken over some of the activities of Danyard.

The Association of Danish Shipbuilders has expressed concern that the disappearance of Danish shipyards could have a domino effect on the other segments of the maritime industry in Denmark, similar to what happened in Great Britain or Sweden and that the Danish expertise in the maritime sector will fade away over time.
 

BITHAV 6,400 dwt, built 2000, high heat 250'C - owned by Tarbit Shipping

The orderbook for Holland is stable at about 598,000 gt as of the third quarter 2000, with a distinctive feature of an important production of smaller vessels, generally below 10,000 dwt.

Up to now, this specialisation in construction of all types but in small sizes has shielded Dutch shipbuilders from some of the competition from Asian shipyards, when supervision and positioning costs are factored over the smaller size and earning power of these vessels. Competition has also been avoided due to the fact that Korea's builders have targeted larger sizes. Japan's shipyards for smaller sizes limit themselves to building for the less demanding standards of their domestic owners.

However, the special niche in servicing the demand from European shipowners for smaller sized vessels is now being challenged by many of the shipyards in China who are very keen to build any size of vessel.

This challenge from China might be accelerated by the ending of shipbuilding subsidies and the tax incentive schemes in place during the 1990's for Dutch owners to build their fleets in Holland.

Shipbuilders in the Netherlands are being aggressively proactive compared with other Europeans in using their expertise in design and project management to a competitive advantage by combining their skills with the experienced low labour cost in Eastern Europe. The Damen Group has been one of the leading innovators in this trend of subcontracting the construction of hulls in countries like Romania (where Damen has now taken control of the Galatz shipyard) and then bringing the hulls for completion in Holland, Germany, Norway or elsewhere.

This trend has already led to a sustained rebirth of shipbuilding in Romania that is expected to expand to larger sizes and whole completed vessels being built as standards and efficiency increase to internationally accepted levels. A similar set of developments is already underway in Ukraine. There is expectation that this trend of marrying Western finance, design, production and management skills with post-Soviet collapse under utilised shipbuilding capacity will accelerate, given the cost advantages obtainable and proximity of the players involved and the customers they are serving.

CHASSIRON 5,100 dwt, built 2000 by Niestern Sander - operated by Petromarine

Almost 15 billion kroner (about US$ 1.68 billion) of orders came from the offshore sector which consisted of more than 70 orders for all types. Another significant order was for an ocean going resort ship at Fosen Shipyard. The Kleven Floroe shipyard was also successful in signing orders for four large sized chemical tankers.

The owners who were willing to contract in Norway were able to benefit from the weak exchange rate between the kroner and the dollar as well the opportunity to take advantage of remaining shipbuilding subsidies available for contracts signed before the end of 2000.
 

In the summer months of 2000 Croatian yards were able to offer delivery dates much earlier than shipbuilders in the Far East at prices that were competitive as well. These factors combined with Croatia's excellent reputation and experience in building product carriers placed the country in good position to participate in the new product tanker market cycle and sign a number of orders from both Northern European and Mediterranean shipowners.

Most noteworthy was the ability of Trogir, after a number of painful years without orders to take numerous contracts for product tankers of 47,000dwt.

The Croatian orderbook as of the fourth quarter 2000 stood at about 970,000 gt (compared with 765,000 gt in 1999). There was a great deal of active negotiation taking place in the fourth quarter 2000.
 

If Croatia was notable for the number of Mediterranean owners it attracted, then Poland was even more successful in concluding business with German, and Scandinavian owners looking for very specialised newbuildings such as LPG tankers, product carriers and stainless steel chemical carriers, ro-ros and ro-pax.

Poland's evolution into the top ranks of the world shipbuilders has been accompanied by aggressive corporate restructuring, management rationalisation, improved use of assets and expansion of capacity and modernisation.
 

Ingalls shipyard, is currently building two cruise ships for the account of American Hawaiian / AMCV for delivery at the beginning of 2003 and 2004. This is an important development to follow and one, which, if successfully concluded, could be the source of unexpected competition to the European shipbuilders who presently dominate the special niche market of cruiseship building.

Year 2000 also saw BP placing orders for three tankers of 185,000 dwt with NASSCO (average price about US$ 210 million each). They were followed by Polar Tankers who placed an order at Avondale.

The majority of the large American shipyards continue to survive in servicing the needs of the US Navy. On the civilian side they operate under the protection of the Jones Act which obliges the very few owners who wish to trade in American short-sea trades to employ vessels built in American shipyards. Civilian shipbuilding consists predominantly of vessels serving the specialised needs of the US offshore and oil industry.

Shipbuilders in the United States do not have to face foreign competition and can obtain prices well in excess of the prevailing international market levels. The disadvantage is that US shipbuilding prices are so high that civilian US flag merchant marine transportation activity has been driven to near extinction and as a result almost all domestic transportation for lower value bulk cargoes in the US is performed by trucks, trains or barges.

Given the indirect subsidies provided by American military spending and the occasional need to build high priced Jones Act vessels for high value cargoes like crude oil, the American shipbuilders have no need for direct subsidies and have been recently absent from the debate between the European, Korean and Japanese shipbuilding associations.

Nothing could be less certain.

2000 can be considered as an exceptional year, as an unprecedented level of economic expansion was experienced. Freight rates reached historical highs, and almost all market sectors were reaching these new levels at the same time.

Demand was particularly strong. Numerous shipowners clearly anticipated the need to renew their fleets. Trade expansion also required fleet increase for tankers, containerships and bulkers simultaneously.

We must recall that newbuilding prices still stay at levels equal to or below the pre-Asia crisis ones, in an ever increasingly competitive environment.

However for the moment the world major shipbuilders are sitting on full orderbooks.

Thus, the fleet on order for tankers has reached 16 % about the same figure as in 1991, the bulk fleet 15 % about the same figure as in 1994 and finally for the containership sector the orderbook, as percentage of existing fleet, was 28 % (passing the last historical high of 25 % set in 1996). Table "Percentage of the active fleet on order by type" shows high ordering points reached and already passed.

History has demonstrated that freight rates go down each time these maximum high newbuilding ratios are reached, followed by a reduction of investment in newbuildings, unless newbuilding prices follow the same trend down as freight rates. Will this pattern repeat itself?

For the near term, the volume of orders is likely to decline, as shipyards with full orderbooks can afford to wait before cutting prices in a fight to get orders, and also because shipowners along with their bankers would like to know, or at least have a more clear indication of what direction the global economy is headed before deciding on any new investment.