2013 – The year for building PSVs – New orders with focus on specialized units

Følgende artikkel er hentet fra Skipsrevyens Shipbuilding Norway 2013

2013 –

The year for building PSVs

New orders with focus on specialized units

Offshore Service Vessels

Norwegian shipbuilding industry is today first and foremost associated with building Service Vessels for the offshore industry. Judging from the number of vessels delivered from Norwegian yards the OSV sector kept up the momentum of previous years. SKIPSREVYEN has presented 35 newbuildings this year, which is one more than in 2012. The peak years were 2008 and 2009 when more than 50 such ships were built and/or outfitted at Norwegian yards.

The count comprises Platform Supply Vessels, Anchor handlers, specialized vessels for Construction and Subsea works, Seismic ships and other vessels with special features. In 2013 the majority was made up of Platform Supply Vessels, about 20 in number, and seven units were of the Subsea/Construction type. Value-wise the average ship price was not that impressive impacted by the many PSVs. (It is a different story for the newbuildings contracted during 2013 – see below).

There is no change when it comes to which shipyards are building the OSVs. The Vard yards feature strongly with a total of 15 units. Next in line is Ulstein and Kleven with 5 new ships each.

2013 was the year when the foreign Owner percentage for this sector increased; to 23% vs. 14% in 2012, – and between 17% and 11% the preceding three years. Perhaps one should add that three ships, equivalent to 8.5% of the total OSVs, were contracted by STX’ shipowning company STX Pan Ocean and were sold prior to delivery from yard to Tidewater Inc. As was widely reported, STX Pan Ocean suffered serious losses in 2013, which was probably the cause for reselling these newbuildings.

Other sectors

Norwegian yards delivered 4 Fishing Vessels in 2013 which is unchanged from the year before. At that time there were indications to the effect that the number should increase somewhat this year. And in fact the total number of new vessels built for Norwegian Owners did increase, but as many as 11 of them were built abroad; 6 in Turkey, 4 in Denmark and 1 in Spain. This trend must be disturbing to witness for the domestic yards.

One Well boat and one Fish fodder vessel were built in Norway this year.

The work boats are getting bigger in size and better equipped. In 2013 SKIPSREVYEN presented 31 units of this type, which is down from preceding years’ 37 respectively 52. The salmon price reached new “highs” this year, and increased earnings for the fish farming companies can lead to further contracting of work boats for 2014 deliveries. Such developments have been experienced before.

We have counted 5 new car-/passenger ferries, which is four more than in 2012. One of these is the new Cruise ferry for Fjord Line. In addition Norwegian contractors took delivery of 3 newbuildings from a Polish yard.

The sector Fast Passenger Catamarans featured with only 3 new vessels, down from 8 the year before.

Service vessels for the offshore wind farms. It is satisfactory to note that this “new” sector showed 7 new units built in Norway in 2013 (8 the year before).

It is difficult to get the correct figures for the Coastal Fishing Vessels sector. SKIPSREVYEN has presented only 6 units in this category in 2013, down from 14 in 2012.

Unsurprisingly, there was not delivered a single cargo ship this year either, unless one chooses to put a fish fodder vessel in this category.

To sum it up – SKIPSREVYEN presented a total of 99 newbuildings in 2013 delivered from 34 individual Norwegian shipyards which are controlled by 28 companies.

During 2013 SKIPSREVYEN presented 44 newbuildings delivered from foreign yards to Norwegian Owners. Of these, 15 were of the OSV type and two were large seismic vessels.

Look to Norway

On the other side of the North Sea BAE Systems announced big job cuts in November, and this news hit the headlines, especially in the UK. BBC Radio Scotland contacted SKIPSREVYEN for a live interview on this subject coinciding with a debate at The House of Commons. The subject for the interview was “Why shipbuilding could be so successful in Norway, but not in Great Britain”. Some of the reasons are well known in Norway, such as the close relationship between Shipowners and Shipyards, and to some extent also including the Ship designers. The financing side is of course also very important in this respect. Further, the interview covered topics like ship prices, the quality of the final product and the general performance by the shipyard, the ability to deliver according to the contract terms including “delivery on time”. Another subject was how much more is the contractor willing to pay for building at home?

The BBC interview apart, “the Norwegian way” is perhaps a bit special – not to say unique. The party paying for the final product is the key player and often the originator of a newbuilding project.

The shipbuilding process therefore often starts with the Shipowner placing a contract based on their preferred design (often through a shipbroker) at a chosen yard – some times without having arranged the employment for the vessel. The latter relates more to the PSV/AHTS types of ship than the more specialized vessels.

But quite often the business in question starts with the Charterer/operator who has a particular project in mind. They have to find a Shipowner who is recognized for quality operation, and who has the financial muscles to contract the specific vessel required for the project. In comes the shipyard and/or designing company, and the ball starts rolling.

The “2013 Ship of the Year” was a good example of such a process. The project was initiated by a frame contract between the End user and an Owner. The latter brought in another Owner who in turn ordered the vessel, giving the first Owner an option to acquire 50 percent of the newbuilding. The designing process involved both these parties plus the design company and the two shipyards (hull building respectively outfitting). In this way the Charterer/operator gets a vessel tailor-made for the intended requirement.

The point of elaborating on the above is to emphasize the importance of having an active and innovative shipping community involving all the parties in a shipbuilding process. Today’s tightly-knit pattern takes a long time to develop.

but … the industry should not be too complacent – see “Norwegians abroad” below.

New orders

We do not pretend to hold information of all the incoming newbuilding orders, but our count should give a good indication of the activity in this sector. This shows a modest 26 new contracts and is a sharp reduction from 2012 when 62 new contracts were registered. 17 of the 2013 orders are for OSVs (vs. 35 delivered).

A price guesstimate for new business in 2013 is a total of about NOK 17/18 billion compared to about NOK 23 billion in 2012. In other words, The decline in value is far smaller than the number of units should indicate.

To put the “Norwegian” figure in perspective, South Korea’s three big shipyards were at the end of December expecting to reach $50 billion (NOK 309 billion) worth of new orders in 2013, up from $37.4 billion in 2012. The record is from 2007 with $68.5 billion. Hyundai Heavy Industries alone secured about $24.3 billion (NOK 150bn) worth of new shipbuilding orders.

The composition of the new orders at Norwegian yards is quite different from the two preceding years. Out goes the PSVs and in come instead the larger and more specialized types. The description of these vessels goes as follows: Diving Support and Construction – Offshore Construction – Offshore Subsea Construction – Offshore Subsea/IMR – Pipelay Support– Ice-breaking Offshore – Construction Service – Service Operation (for offshore windmill installations) – Expedition Support.

It follows from the above that the average ship value is considerably higher than the year before. For instance some of the OSCV ships cost over NOK 800 million, – and in fact one OCV was contracted for NOK 1.4 billion. Furthermore, one order covered two pipelayers at ship price about NOK 1.7 billion.

Price-wise it is therefore hard to compare the 2013 newbuilding prices with the year before due to the difference in types of ship – it would be a bit like comparing apples and pears.

It is interesting to note that one yard in particular – Havyard – has been successful in obtaining orders from foreign Owners. This has contributed to the foreign share of the newbuilding orders reaching 28% based on number of ships.

Norwegians abroad

One is used to the fact that Norwegian Owners order cargo ships and specialized units like LNG carriers and drilling units abroad. 2013 has, as advised above, given en eye-opener for the domestic shipbuilding industry as far as building of fishing vessels are concerned. We can add to that that Norwegian Owners in 2013 ordered more OSVs to be built abroad than in Norway. To our knowledge some 25 new contracts were placed.

In addition comes the large number of costly specialized constructions. Even without taking into account orders from foreign-based Seadrill, some high value Norwegian orders were lost to foreign yards. It is sufficient to mention the order from Norwegian Armed Forces for a logistic vessel worth some NOK 1.32 billion, Statoil’s Dagny order worth NOK 6.1 billion, DNO’s NOK 4 billion order for topside and Edda Accommodation’s order for one (option one) mono hull accommodation vessel designed by Salt Ship Design.

Today it seems like size is a restricting factor for Norwegian shipyards. History tells us otherwise: 40/45 years ago Norwegian yards (in particular one – Aker Stord) built a series of 10 super tankers in sizes of 219,000 dwt (5 units) and 285,000 dwt (5 units) for Hilmar Reksten. Norway was in the lead competing with upcoming (at that time) shipbuilding nations like Japan and South Korea. The famous shipowner in fact also contracted four units of 420,000 dwt each in 1973 for delivery in 1977-78. However these should never see the light of day, .. but that is another story.

Chemical tankers

With the benefit of hindsight one may question the timing for the decision to quit building of specialized tankers at the Florø yard. During 2008-10 the yard built six chemical tankers for Stolt-Nielsen, each about 45,000 dwt.

2013 has proven to be a year when many Norwegian (and other) shipowners have contracted new ships in this sector. Bergen-based JO Tankers, Stream and Westfal-Larsen are among these. Above-mentioned Stolt-Nielsen ordered a series of five, plus three options, 38,000 dwt stainless steel parcel tankers at a Chinese yard with deliveries from December 2015 onwards.

Furthermore both Odfjell and Stolt-Nielsen are becoming very active in the LPG sector.

It is tempting to ask if some parts of shipbuilding have been neglected in Norway, and is this caused by the strong focus on offshore vessels?

Ship design

The trend from the previous years continued in 2013 whereby foreign yards build ships based on Norwegian designs. But the total figure from 2012 could not be matched according to information to hand. We have counted about 44 firm contracts placed in 2013, and these contracts hold close to 20 options. It is illustrating that in December Rolls-Royce Marine announced that 22 ships of UT-design were under construction in China.

Rolls-Royce Ship design and systems thus features strongly on the 2013 list, but also Ulstein Design & Solutions, Wärtsilä Ship Design and Skipsteknisk have been active on this front, and new design orders for building abroad have also be registered by Havyard Design & Solutions, Salt Ship Design, Marin Teknikk and Seacon.

China is the major builder of these designs with more than half of the new orders ending up there, and the balance is spread between Poland, Turkey, USA, South Korea, Malaysia and Italy.

The shipbuilding industry performs

The general impression today is that there is an ongoing de-escalation within the shipbuilding industry in the Far East (read: China) which perhaps could also give cause for some optimism for the industry elsewhere. But experience has shown time and time again that given the right circumstances speedy expansions will take place.

During the lengthy boom period which culminated in a total collapse of the freight markets in the 4th quarter of 2008, the flow of new orders for the shipyards was enormous and reached about 580 million dwt at the end of 2008, equivalent to close to 50 percent of the existing fleet.

With the market situation turned upside down “over-night”, almost every shipping expert, including owners, brokers, analysts, banks and financiers forecast that a large proportion of the order book would never be delivered.

How wrong they should be … Naturally cancellations and re-negotiations took place, but in volume very far from the “besserwissen” predictions. In fact the shipyards delivered ships equivalent to more than the whole orderbook of 2008 during the next 3-4 years. Even today the industry operates at about 80 percent of the peak level measured in Compensated Gross Tons. Who would have thought that five years ago? So all credit to the shipbuilders who have shown flexibility and been clever to diversify.

And surprisingly to some, – 2013 has been a year when shipowners again have shown great faith in the old work horse, the bulk carrier, and placed new orders for over 900 ships – nearly a trebling in number from 2012.

Actually, on a global basis many ship types experienced an upswing on the newbuilding front this year, and contrary to the development in Norway. Both Tankers and LPG ships were in vogue, and the same goes for Container ships. All these sectors increased by impressive numbers.

Wild card

“When China sneezes the rest of the world catches a cold”. This is particularly relevant for shipping, and a negative development in China could put the shipping markets’ future in jeopardy.

Who was the party mainly “responsible” for the longest boom-time in history, which brought the shipping markets to unbelievably high levels, – and could the same nation also ruin the markets? Is there today any shipping sector which is not influenced by China directly or indirectly?

There is nothing new in asking such questions, but at the time of writing there are renewed fears about China’s debt levels. According to an official audit by China’s National Audit Office the local government debt levels have soared to almost $3 trillion, – an increase of almost 50 per cent in less than three years. Most other reports actually point to an increase of 70 per cent, according to Financial Times.

Several parties in the country have worried about the amount of debt taken up by local governments, which are not allowed to tap banks directly, but establish special purpose vehicles to borrow money. As if this is not enough FT writes: “Most crucially, the major concern for China is corporate debt, which has surged to more than 100 per cent of GDP, unusually high by international standards. This did not show up as a contingent liability in the audit, but Chinese governments have consistently stood behind failing local champions, whether state-owned or private, meaning that many corporate debts could yet end up as public debts”.

As Beijing now enforces fiscal discipline on local government borrowers, there are increasing fears of a hard landing. A representative of Bank of America Merrill Lynch expressed the view that the markets and the Chinese Government should be alarmed by the rapidly rising leverage. A senior Chinese auditor warned earlier in the year that local government borrowing was out of control and could spark a massive financial crisis.

We should add that not many believe in such a drastic scenario becoming a reality, but as a reminder: practically nobody saw the Asian financial crisis coming in 1997/98. The crisis struck “overnight” with serious consequences, and shipping was one of the sectors most hurt.

zachs@skipsrevyen.no

January 2014