NMI 2009 – Volume 14

The good news is that the activity at Norwegian shipyards continued at a very high level throughout 2009 despite the extra strain that the financial crisis caused, and the impact from the downward market trends, including for the offshore market. As a consequence some delays arose, which however caused very few cancellations. So compared to other market sectors, like bulk carriers and tankers, the Norwegian yards were in a fortunate position.

Designing – not building: Wärtsila Ship Design Norway is to design and supervise the construction of a modern oceanographic research vessel for the marine wing of the Geological Survey of India. (GSI)

The other side of the coin shows alarm signals for the years ahead, and in particular from 2011 onwards.
Using newbuilding deliveries from SKIPSREVYEN’s 2009 issues as a basis a total of 112 vessels were delivered from Norwegian yards, which is 21 less than in 2008. The main reason for the decline is fewer Coastal Fishing Vessels being built, – in fact 9 in 2009 versus 22 the preceding year. However it is quite possible that the actual number built in this category was higher, but that the yards have not published the actual deliveries for various reasons. Another explanation could be that more such vessels are being built abroad for Norwegian accounts.

Deliveries
The most important sector for the Norwegian shipbuilding industry is, as before, the Offshore Service Vessels. After 51 deliveries in 2008, 2009 followed up with 57 newbuildings altogether. This number comprises Anchor handlers, Platform Supply Vessels, specialized vessels for construction and subsea works, seismic ships and other vessels with special features. The 2009 figure is probably the highest ever in this sector; in 2007 43 such vessels were built, in 2006 38 units and in 2005 27 ships.

Other sectors
Four fishing vessels were delivered during 2009 compared to 7 in 2008. In addition 4 live fish carriers were built, which is three more than the previous year.
As already mentioned the category coastal fishing vessels featured with 9 new vessels, down from 22 in 2008.
The work boat sector (for fish farming) seems to be maintaining the pace of previous years, and SKIPSREVYEN has covered 22 deliveres in 2009, compared to 25 in 2008 and 29 in 2007.

Ferries
The yard industry is looking to this sector for new orders in the coming years. But so far the number of ferries being built is not that impressive with 3 in 2009, which is unchanged from the year before. In the sector “fast catamaran ferries” some 4 units were delivered in 2009 versus 6 in 2008.

Declining
Nobody within the shipbuilding industry seems interested in engaging in the cargo ship sector. In 2009 three chemical tankers were delivered and only one general cargo vessel. For a long time these types of vessels were considered not hi-tech enough for Norwegian shipbuilding. The same thinking had actually some Asian yards too, but when the freight markets, and in turn the shipbuilding prices, went sky-high those yards turned around quickly and booked highly profitable orders and were thereby able to take advantage of the markets.
If one looks at what types of ships have been ordered this year internationally, which basically means the last 4-5 months of the year (nothing happened before then), it is interesting to note that both bulk carriers and tankers feature strongly, and prices are not all bad.

Norwegian builders for Norwegian Owners
Last year we asked if the Norwegian shipbuilding industry could be isolated from the downturn, and we answered the question ourselves with “if today’s situation continues for another 6/9 months, an increasingly nervous atmosphere will appear in the shipbuilding industry, which in turn will have an effect on the prices for new ships”.
This turned out to be the reality. In the offshore sector, which proved not to be immune against the rest of the shipping markets, a negative trend set in. In 2007 about 670 units were ordered worldwide, in 2008 about 270 and in 2009 about 44 vessels. Some 25% of these were actually recorded in the last month of the year (could this be a sign of more activity to come), but regardless, this is of course a quite dramatic decline. So while Norwegian yards to some extent have been fortunate, or clever, their luck is about to run out.
Only one sector managed to do much better freightmarket-wise than feared at the beginning of the year, and that was the dry bulk sector. The Chineses stimulus package gave imminent help to this sector through import of enormous volumes of iron ore and coal, in addition to large quantities of soyabeans. This led to a revival in port congestion resulting in higher freight rates. It is therefore not surprising that orders for newbuildings have been placed for dry bulk ships, while other segments largely remained dormant.
A year ago we wrote that as much as 83 per cent of the newbuildings were delivered to Norwegian Owners. Interestingly enough the share of deliveries to foreign Owners stayed about the same, ie. 18 per cent, in 2009. Take away the six Mærsk vessels and the three Stolt-Nielsen tankers, that figure is however reduced to 10 per cent.
With Norway’s strong position both as builders and as ship-equipment suppliers for offshore vessels, a timely question is whether the yards could have done more to book newbuilding orders from abroad for these ship types, including in 2009.
But perhaps the nation’s position internationally is not as strong as we like to think. According to Clarkson Research Services’ Ship Type Orderbook there are 446 AHTS vessels on order, 225 PSV vessels and 210 in the category Other offshore ships. Of these 83, or 9.4 per cent, are to be built at Norwegian yards. Roughly one third of these will be built at STX Norway Offshore yards.

Designing – not building
The last quarter of 2009 brought news about contracting of ships based on Norwegian designs, but the vessels will not be built in Norway. While this is fine for the design companies, it surely does not help the yards and the general employment pattern.
One such order was for six newbuildings of Ulstein designs (P801, PX105 and PX106) to be built in Brazil for DSND Consub and CBO.
Another order covers two newbuildings to be built by STX Europe for the Siem Offshore subsidiary Siem Consub SA in Brazil. The ships are of PSV 09 CD design (a new STX Europe design) for delivery in 2012 and 2013 worth about NOK 900 million. The building yard is STX Brazil Offshore. In the press release a point is being made of the fact that the company’s divisions for design, trading and electrical systems is located in Ålesund.
Previously Deep Sea Supply had ordered a vessel of the same design from STX Europe to be built in Brazil for delivery first quarter 2012. The Shipowner used the opportunity to form a new company, Deep Sea Supply Navegação Marítima Ltda., with the ambition to run a fleet of 6/8 vessels.
Wärtsilä announced a major ship design contract for 12 Offshore Supply Vessels to be built in India at the Pipavav yard. The Shipowner here was ONGC – Oil and Natural Gas Corporation Ltd., so it would perhaps have been a long shot to think that these ships could have been built in Norway. On the other hand, why not with the expertise within design and technology? (Wärtsilä acquired the Norwegian designer Vik-Sandvik in July 2008).
Wärtsilä Ship Design further announced the strengthening of its presence within the Brazilian maritime industry by incorporating Wärtsilä Ship Design into Wärtsilä’s Brazilian operations.
Should such examples be interpreted as a warning signal of a possible fragmentation of the tightly-knit Norwegian shipbuilding industry? No doubt shipbuilding in both Brazil and India has another advantage, the hull building. Norway gave up the hull building a long time ago, but both these countries have a large steel industry, and the yards will definitely be able to buy ship plates at very advantageous prices.

Between a rock and a hard place
If it is correct that the main equipment prices in Asia have fallen some 30/40 per cent from the peak newbuilding price levels in mid 2008, and that shipbuilding plate prices have halved in value from their peak, this gives a grave message to Norwegian shipbuilders and -suppliers about future competition.
At a time when the yards have to “sharpen their pencils” in order to be competitive, they also have to fight with labour unions regarding foreign workers’s wages. At the time of writing it is not known what will be the outcome of the case against the Tariff Board for general application of wage agreement. The case is presented by NHO and Norsk Industri on behalf of STX Europe, Kleven Verft, Myklebust Verft, Bergen Group Maritime Service, Bergen Group Shipsbuilding, Ulstein Verft and Havyard Group. One could in fact wonder if the Norwegian labour union suffers under the illusion that STX is still Norwegian owned?
In shipping the ITF (International Transport Workers’ Federation) has outlined minimum acceptable wages internationally, including flags of convenience. Perhaps it is a pity, that there is not a similar system for shipbuilding, for wage-wise the competition is definitely unfair from country to country. And it is surprising that the union in Norway is not eager to save the bulk of jobs instead of putting everybody’s jobs at stake. After all the wages’ purchasing power in the respective home countries should also be taken into account. Or is there a hidden agenda, and the real issue is a different one?
Regardless, in the long run shipyard workers in Norway cannot be shielded from international competition. The yards have given away the hull building, some are now selling ship design (and thereby the boasted high technology) for building world-wide, the equipment industry will move where the work takes them, foreign workers and their wages have assisted in making shipbuilding in Norway competitive, but that is supposedly to end.
So what competitive edge is left to the Norwegian shipbuilding industry? Is it possible to build up a unique expertise in the expanding service industry to offshore wind farms? By applying knowledge already at hand Norwegian designers and shipyards should be in a good position to come up with creative proposals for this “coming industry”.
Can any help be expected from the oil sector in 2010. In 2009 the price went from low $30’s in January to over $80 in the last quarter of the year. Is it realistic to hope for another hike in the price in 2010?  The International Energy Agency estimate an increase in demand of about 1.5 million barrels per day for 2010, but some of the biggest oil traders think that growth of one million b/d is more likely. These traders further believe that the price will stay in the $70/80 per barrel range for the first half of the year. In any case, there would have to be a significant price increase in order to stimulate orders for further offshore newbuildings in the short term.

Help, please
The Norwegian yard industry could definitely do with some government help the forthcoming years. Building of more ferries seems as the most realistic scheme, while a large-scale renewal of the short-sea fleet appears to be a tough nut to crack. Some of the yards are capable of building ships other than for the offshore industry. At the time of writing an order is reported for 4 Ro-Ro newbuildings ordered by an Italian Owners at a Korean yard at very good (high) price. Did anybody in Norway make an attempt?
We maintain our previous view that while Norwegian yards have been clever on the technical/design side, some of them have not been equally capable commercially. We were then primarily referring to the “giving away“ of cheap options, leaving all the profit to the Shipowners’ pockets as the newbuilding prices were rising during the 2006-08 boom. It seems as if there has been a lack of knowledge about the international shipping markets, their trends and behaviour.
During this boom-period the yards were presented with an excellent opportunity to build a buffer against leaner times. How many have succeeded in doing so?

zachs@skipsrevyen.no