Strong Markets Helps Change Yard Philosophy

Friday, October 22, 2004
News that a new alliance between Dutch builder Volharding Shipyard and Um Deniz Sanayi of Turkey has been formed is further evidence that some shipbuilders are considering strategic partnerships to take advantage of booming markets. The companies will combine their efforts to build a series of six chemical tankers – reportedly ranging from 12,000 dwt to 40,000 dwt – whilst envisaging further scope for co-operation in the future.

Meanwhile India’ shipping ministry is hoping to promote the country’s new construction and repair capabilities in a series of international presentations in November. In a bid to endorse the country’s yards as an alternative to stretched-out deliveries three or more years hence, the Indians are hoping to win more international orders from shipowners frustrated by the order backlog at many mainstream facilities. Although the Indian initiative is aimed primarily at the newbuilding sector, there are signs too that repairers are also thinking of establishing key alliances.

As surging business volumes place both newbuilding and repair yards under pressure, there may indeed be scope to forge new alliances and partnerships. There is no precedent for today’s market: on the one hand, the world’s leading builders are in practical terms full for the next three years; repair yards are booking healthy volumes of business and look set for even better times as the world fleet continues to expand; whilst ship owners are making more money than many ever even dreamt of. Despite notes of caution from certain quarters, the dry and liquid bulk markets continue to thrive whilst the world’s liner companies are still struggling to believe their sector’s dramatic turnaround in little over two years.

There has of course been widespread consolidation in most other areas of the shipping business. Liner companies are a case in point, with once-fierce competitors joining forces or else absorbing one another – names like American President Lines, Sealand, Safmarine, P&O and Nedlloyd spring to mind but the scale of consolidation in the container business goes much further. Elsewhere in shipping, there has been significant rationalisation too. Private tanker companies have gone public; listed tanker operators have acquired privately operated competitors and, of course, consolidation in the oil sector has brought together a number of oil major fleets, even if they are today a shadow of their former selves.

The ship construction business, however, has never been a keen follower of the consolidation ethos. When mergers or acquisitions have taken place, it has generally been at a time of crisis for one or other, or both, of the parties – perhaps even a survival strategy based on the belief that there is safety in numbers. Mergers and acquisitions have rarely been orchestrated by highly efficient shipbuilding partners as a way of making their respective businesses even more productive. Today, however, some believe that day may have come.

Certainly, in the newbuilding sector, some of the world’s leading builders are looking at ways to increase their capacity in the short run. Few have either the space or the resources to build new green-field site shipyards but there is certainly scope to team up with other smaller builders, either as partners or owners. There are various recent examples and various forms of co-operation, including Graig Shipping’s deals in China and Vietnam. However, some analysts believe this change in philosophy could herald the start of a new business trend in the newbuilding and repair sectors.

Daewoo Shipbuilding was a leader in the field when it took over Romania’s Mangalia shipyard in 1997 with aims to transform newbuilding construction from relatively small locally trading vessels to major ocean-going ships. Former East German yards, meanwhile, have also proved an attraction for high-cost north European facilities looking to shave their labor costs.

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