Archives for posts with tag: Yards

Who would have thought it? Nowadays a surprising number of people around the world seem to know about shipbuilding. Even taxi drivers can sometimes tell you there’s been a shipbuilding boom, and they’re right. For two decades the maritime industry watched in awe as shipyard output grew eightfold from 19m dwt in the early 1990s to 166m dwt in 2011.

Nice Steady Investment Story

Then came the crash. Deliveries dropped to 109m dwt in 2013, a big fall, but not the disaster many expected. Somehow the industry bailed itself out, and while lower deliveries grabbed the limelight, the yards were running flat out to keep up with the new investment profile which was throwing them a lifeline. In the run-up to the boom, 42% of estimated investment was in the tanker and container sectors; 50% in bulk and specialised, and 7% in gas. This pattern was largely maintained during the boom. All nice and steady, but then everything changed.

All Change for the Recession

Since 2008, there has been a major re-alignment in market shares, as structural changes in these segments have altered investment patterns. Tankers and containerships have suffered, falling to 22% (the tanker share fell from 24% in the boom years to 12%, and containers from 18% to 10%). Meanwhile, the bulk and specialised share jumped to almost 70%.

Time for Transition

On the tanker side, high oil prices, sluggish OECD growth and greater US energy self-sufficiency have all nibbled at demand. Meanwhile container trade growth has slowed since the boom and the sector is still struggling to absorb overcapacity. No wonder investors are easing back.

Luckily for the shipyards, bulkers and specialised vessels have stepped up to fill the gap. Bulkers have accounted for 25% of investment since 2008, similar to their share during the booming 2000s. This has been helpful for Japan and China, who dominate bulker building. And they have achieved it without taking too much of a cut on prices, which have been edging up in 2013 and 2014.

A Specialised Focus

But the real star is the specialised sector, which has accounted for 43% of estimated investment since 2008, up from 27% in 2003-2008. Cruise did pretty well, but the super-star, especially for the Korean yards, was the boom in offshore investment, including alternative energy like offshore wind farms. Offshore investment jumped from $34bn in 2008 to $47bn in 2012. Really quite exciting, but challenging for the yards.

Where Next?

So there you have it. For the time being the shipyards have struggled through, thanks to this switch in product range. Although tricky, the bulkers are keeping Japan and China busy and specialised was a nice bonus, especially for the big Korean yards. But switching product range is always difficult, and that really is the issue for the future. The first rule of shipbuilding recessions is “you never know what they’ll order next” but it’s often completely different. Have a nice day.


SIW1086The level of forward cover can often be a useful indicator as to the health of the shipbuilding industry. When times get tough, yards can find the race for the limited amount of cover available very difficult. In today’s tough market environment, just how limited is that?

Long Jump

The last decade has been a roller-coaster for shipyards. At the height of the ordering boom in Q3 2007, 43.8m CGT of vessel orders was placed in a single quarter. In response to the ramp up in ordering, yards expanded and new yards popped up. In China, there were 52 active shipyards in 2000 and 282 in 2008. The more established South Korean yards expanded through a mixture of subcontracting and more intensive production processes and added around 20% extra capacity this way. In 2008 the orderbook was running at more than five times 2007 output levels (over 60 months of forward ‘work’ cover).

Short Run

The financial crash brought an abrupt end to the euphoria. Q3 2008 saw 26% q-o-q decline in ordering and in 2009 only 30m CGT was placed. Although 2010 brought some relief, it was mainly in the dry sector, which kept Chinese yards focusing on bulkers. In 2010 Chinese builders took a 27% market share of orders and Korean yards just 19%.

However, with prices trending downwards, interest in the specialised sectors picked up. Korean yards attracted business and pushed their share up to 27% in 2011. By 2012 the Chinese and Korean shares realigned but forward cover in Q3 2012 fell to the lowest level since the early 1990s at just 23 months.

Back In The Blocks?

1H 2013 saw a slight uptick in ordering with 31m CGT placed. The spiral of declining orders and plunging prices hit many yards hard – already this year 62 yards have come to the end of their orderbook. Consequently capacity levels have reduced (there are 137 fewer active yards than in 2008) and forward cover has improved to around 25 months.

The pie chart gives an idea as to the state of the 40 largest yards. Two yards have less than 12 months of work, 2 more have less than 18 months whilst 15 yards have between 18-24 months. The yards with the shortest orderbooks are vulnerable and in need of work. However, the shift in product mix means other yards, who were able to focus on specialised tonnage, are faring better. In fact almost half of the largest yards have over 24 months work. This is a better position and these yards have a little more scope to wait for pricing levels to trend upwards.

Race Not Run

Nevertheless, global forward cover still remains way down on levels during the boom. But interestingly it’s not too far from the levels seen in the late 1990s and early 2000s. Undoubtedly it’s tough for builders today, but if capacity levels continue to retreat and ordering levels eventually improve then their race isn’t run just yet.