Since 2011, Chinese shipyards have deeply felt the cold snap in shipbuilding industry and the three main industrial indicators further demonstrate the depression. The new orders and orderbook have both seen declines in the last one year while newbuilding output is also slowing down.
As an important section of shipbuilding, the ship parts import in China features big amount, high frequency, CCC involvement. Most yards face following challenges in future development, but also these could be good opportunities for transformation and upgrading.
Firstly, those small shipyards can adjust development path by strategic cooperation with brother shipyards to set up a more solid and coherent external competitive mechanism and better bargaining advantages.
What’s more important is the enhancement of technology and innovation. Shipyards are supposed to strengthen its investments in LNG carrier, offshore plant and other high-value-added ships to improve the overall competitiveness. The transformation from cost advantages to technology and product strength is essential for Chinese shipyards.
Besides, the new international standards and regulations in ship industry should be paid more attention. The development of new ship types is to be in strict accordance with new energy saving requirements to avoid technical barriers.
Profit is the food and blood for an enterprise, how to save cost and make more profits is the forever pursuit of shipyards. To improve management, strengthen efficiency, lower cost and raise steel utilization are all the measures to increase profits and decrease the delay in delivery caused by time and product quality.
Moreover, the adhesion with banks is also of great significance for shipbuilders. Apart from the cooperation with ship finance leasing company, shipyards could also try to set up an industry-chain financing model relying on the ship-related funds.
It is estimated that the depression will go on until 2015 with recessive opportunities. While bulker and tanker sectors go downturn, high-value-added vessels, green ships and offshore plants orders see better performance. Besides, the ending of newbuidling boom means the beginning of ship repairing business peak. In a world, it is an opportunity for Chinese shipyards and supporting enterprises to “grow bigger and stronger”.
The depreciation of a 22,500 bulk carrier by about $2.0m in the past one year makes the shipyards in Zhejiang province feel the cold wind in shipbuilding market, especially the small and medium ones.
Due to the order draught and capital shortage, many small shipbuilders have gone bankrupt in the cold snap. However, some big shipyards in Zhoushan city see a bright future in offshore plant and special vessel sector.
According to Zhejiang Shipping Exchange Market, the indices for secondhand ships and newbuilding have both seen great decline in the past year. Take a newbuilt 22,500dwt bulker for example, the quotation for the ship in February 2011 was about $13.6m but has fallen to $11.8m by this February. The current assessment for a three-year 15,000dwt bulker and a seven-year 13,000dwt bulker are separately $4.76m and $3.17m, but the prices for the same type are over $7.93m in 2005.
Some insiders predict that the annual new orders will come up to 70m-80m dwt and newbuilding output totals 150m in 2012, which means the imbalance in shipping and shipbuilding is to worsen and newbuilding prices are likely to fall further
Zhoushan Hengyu shipbuilding’ bankruptcy has fully embodied the dilemma small shipyards face. Capital weakness, financing difficulty and depressed shipping market have pushed more and more shipbuilders into predicament. Many turned to ship repairing and scrapping for survival but the expected rebounding and prosperity has been too far.
Thanks to the orderbook accumulated after 2008, some shipyards still have outstanding performance in newbuilding output by now but the lasting flourish is still hard to reach.
In the cold and wintry days, some big players still feel the warm of spring based on their strength and innovation in technology. Jinhai Heavy Industry, Yangfan Group Zhoushan Shipyard, Zhejiang Peninsula Ship Industry and other big shipbuilders have successively won new orders for mega tankers, boxships, special ships, tanker conversion and so on. Many are trying to enter offshore plant and luxury cruiser sectors for better profits.
As Zhoushan government programs in the 12th five-year plan, the city’s ship industry output by 2015 is to be $19.0bn with an annual newbuilding output of 10.0m dwt and five shipyards listed in national top ten.
Overall, there is still a glimmer of hope looming in the gloomy market, Chinese shipyards are to make a way out by innovation and upgrade to embrace next spring of shipbuilding.
The day has got warm and the sunshine has become bright with spring coming, however Chinese shipyards are still facing gloomy days.
According to Clarkson, the assessments for bulker, tanker and containership has kept declining, almost near the record low since 2004. The main shipbuilders in China are all confronted with bleak orders.
By the end of February, the value for Capesize, Panamax and Hanymax bulker has declined by different degrees to $47.0m, $27.5m and $25.5m. In tanker market, VLCC, Suezmax and Aframax tankers has seen mild drop in newbuilding prices to $97.5m, $59.0m and $51.5m. Prices for containership also went downturn in recently months.
Some insiders put forward that the newbuidling prices has been near the lowest level and may see rebounding. However, some others say that the prices will continue the falling trend to an unpredictable low.
It seems that most market players agree with the latter opinion. An analyst in China Fortune Securities says they are not so optimistic about the shipbuilding market this year. The decline of Clarkson indices demonstrates the lasting oversupply in shipping market. Shipowners still face losses and are unlikely to invest in new orders. As a result, shipyards have to vie for the limited orders with even lower prices.
By February this year, global new orders for bulker have come to 1.39m dwt, nearly 60% down against the same period of last year. Among the top 10 shipyards in China, SWS is the only one to win new orders of 745.2k dwt while only 1.29m dwt tonnage was ordered nationally in the whole month.
Early this month, executives from major eight yards in Jiangsu, China gathered to discuss about decreasing new order, profits, etc., and to come up with measures to overcome recent crisis.
President Ren Yuan Lin, Yangzijiang Shipbuilding pointed out, plunging order contract by troubled global economy is the biggest problem. According to official from Dayang Shipbuilding, it now secures 37 vessels, however, with 31 deliveries scheduled this year, decreasing Dayang's orderbook is worrisome.
Besides, order cancellation made by owners is also one of huge problems.
Those who attended the meeting forecast that shipbuilding industry would not see up-phase until after three-to-five years, considering current global economy and Chinese shipbuilding industry.
However, some said that slowing down the rapidly scaling up Chinese shipbuilding industry for some time would be necessary. A sudden growth of Chinese shipbuilders, in numerical terms, has caused oversupply, which would be large enough to accommodate 100% of global demand.
Also, they expected that there would surely be large-size M&A due to lack of human resources, rising cost, etc., and establishment of industrial clusters.
It was pointed out that many Chinese yards construct the same-size and same-type vessels, which should be up-graded and more diversified.
Hence, a small-and-medium size yard Sainty Marine's key product is containership, Nantong Mingde Heavy Industry is highly acknowledged by its car carrier and chemical carrier. While New Century and Yangzijiang are now pushing forward to enter offshore market.
After decades of manufacturing bulk carriers and tugboats, China is jumping ship from the inefficient and dated vessels that are clogging up Chinese shipyards and investing heavily in the rapidly growing market of liquefied natural gas carriers, luxury cruise ships and drillships.
The new course by many shipyards in China, such as Shanghai-based Hudong-Zhonghua Shipbuilding (Group) Co Ltd, of abandoning low-end vessels that are quickly fading into disuse in maritime commerce, comes at a critical time for the nation and the world. Shipyards around the world reported losses in 2010 and 2011 because of overcapacity and surging prices in energy, raw materials, and ship parts.
The reason for the new strategy is an oft-used one: the global economic recession. Orders for bulk carriers - once dynamic in China's boom years before the economic crisis - have dwindled, creating an oversupply. The European debt crisis added to Chinese shipyards' woes.
Before the crisis, many European shipowners chose Chinese shipyards to build simple vessels in a cheap and efficient manner. But last year alone, global orders declined 13 percent from a year earlier to 146.28 million compensated gross tonnage (CGT), an indicator of the amount of work needed to build a ship.
Orders for Chinese shipyards dropped 3 percent from 2010 to 57.58 million CGT, according to Clarkson Research Studies, a British intelligence provider on the shipping industry.
China is now betting on vessels deemed higher in value, such as LNG and liquefied petroleum gas carriers, as well as marine fishing vessels, offshore pipe-laying vessels, large icebreakers and chemical tankers. Shipyards hope the new foray will help them tap into more buyers and reach new and farther destinations.
Hudong-Zhonghua Shipbuilding, a State-controlled enterprise that is China's only builder of LNG carriers, is one large shipyard that has responded to this national shift. The company is expanding its manufacturing capabilities to not only LNG carriers but mega containers, drilling vessels and luxury cruise ships.
"Industrial nations are all eager to purchase natural gas from abroad. LNG carriers are exactly what they need to own," says Jin Yanzi, Hudong-Zhonghua vice-president. "Our LNG carrier-building capacity has grown along with their consumption demand and import of natural gas."
The company has invested $320 million in technologies to build LNG carriers more efficiently. It has also increased spending to set up more research and development centers and has formed partnerships with shipowners in the energy transportation industry and ship-designing companies around the world.
Last year, Hudong-Zhonghua signed a $1 billion contract to build four LNG carriers in a joint venture with Mitsui OSK Lines, Japan's major merchant fleet operator. It also finished developing the technology to build container vessels that have a capacity of 13,000 twenty-foot equivalent units (TEU), the unit of cargo capacity for container ships.
Last year, Hudong-Zhonghua delivered 28 ships to different shipowners throughout the world. More than 80 percent of the buyers were from Germany, the Netherlands and Greece. The company's sales grew by 4 percent from 2010 to $2.06 billion last year. It hopes to make $2.14 billion by producing 26 vessels this year.
The company's next move is to sell small- and middle-sized cruise ships to the United States in the next few years by investing 2 percent of its annual revenue. New ships will be built at its new shipyard on Changxing Island near Shanghai.
"We discovered that individual tourism has become more popular in America as many US and Canadian tourists are keen to take special cruises to visit the South Pole or Arctic areas. This will be an appealing market for us to make a profit," Jin says.
As Chinese shipyards become less dependent on the European market, there have been more deals with the US, Canada and the nations of Scandinavia, where there is a growing demand for Chinese ships.
Yangzijiang Shipbuilding Holdings Ltd, based in Jiangsu province, obtained the biggest order in its company history in signing a $2.5 billion contract with Canadian shipping giant Seaspan Marine Corp last year for 25 10,000-TEU container vessels, the biggest container vessel contract in China. These vessels will be delivered in 2014 and 2015.
"Having these big contracts in place shows that large Chinese shipbuilders are fully capable of producing high-value-added ships to compete with South Korean rivals and shake their monopolistic position in the global market for mega-containers," says Yangzijiang Shipbuilding spokesperson Zhang Yao.
Zhang says the Chinese shipping industry is facing increasing challenges from buyers to reduce the operating costs for ships and improve energy efficiency.
"We have all seen the dramatic transformation caused by the global economic crisis, which has created a buyer's market," Zhang says.
Yangzijiang Shipbuilding signed a preliminary agreement with China Development Bank and Germany's Peter Dohle Schiffahrts-KG to build eight 10,000-TEU container vessels last year. China Development Bank will provide $1 billion in financing over the next five years to enable the German company to purchase ships from Yangzijiang Shipbuilding.
But there are major problems for the shipbuilding industry in China, which saw total revenue of $95.3 billion in 2010 and revenue in exports of $40 billion. Under the current global economic climate, a number of shipowners from Europe do not have sufficient funds to support long-term shipbuilding projects that generally take one to two years to complete. Many Chinese shipbuilders, as a result, are struggling to complete their orders quickly and cheaply.
Officials at Nantong Mingde Group, a private-owned shipyard also based in Jiangsu province, said the company is more inclined to increase business activities with foreign buyers that didn't suffer as greatly in the recession or have at least recovered quickly from the recession.
Mingde stopped its business partnership with southern European nations, especially with Greece, four years ago. The company has been betting on the rising demand of chemical tanker ships and vehicle carriers.
"I would rather make deals with giants from North Europe, US and Canada, who are capable of making payments and don't have credit problems in their countries," says Ji Fenghua, board chairman of Mingde.
Countries such as Norway, Denmark and Germany, major manufacturers of chemical products, reportedly have a rising demand for chemical tankers to transport high-contamination liquids or materials.
In 2011, Mingde delivered 12 ships to buyers from Norway, Denmark, Germany and Singapore, including four chemical tanker carriers and two vehicle carriers. Sales reached $410 million last year, with a profit of $20 million.
Ji says one reason for Mingde's success is that it has adopted new designs for ship buyers. Japanese and South Korean shipbuilders, he says, insist on using their own design to build ships to avoid financial risks.
"(Adopting new designs), even though it is quite costly, has played an important role in gaining a favorable impression from (buyers)," he says.
Torbjorn Sjoblom, a Swedish site team manager who works for Norway's Jo Tankers, one of the world's main providers of deep-sea transportation services for chemicals, says China's ability to "offer high-quality design and after-sales services significantly improves the marketing credibility of Chinese shipyards on the international stage".
Sjoblom and his multinational team are responsible for overseeing a new deal signed in 2011 for two chemical tankers being built by Mingde.
Mingde plans to work closely with shipowners such as Germany's Schulte Group, Danmark's A.P. Moller-Maersk Group, Norway's Wilh.Wilhelmsen Group as well as P. D. Gram & Co AS.
The company also secured an order for one chemical tanker for the US and two self-unloading bulk carriers for Canadian shipowners in 2011.
Ji says selling these type of vessels to new buyers can make up for declines in other markets such as Italy, Spain and Greece.