Asian shipyards face overcapacity threat

PUBLISHED : Tuesday, 28 December, 2010, 12:00am
UPDATED : Tuesday, 28 December, 2010, 12:00am

Huge numbers of shipyard workers could be laid off by Asia's shipbuilders if yards, including facilities on the mainland, are unable to tackle rising overcapacity, warns the Baltic and International Maritime Council.

The international ship owners group said a slowdown in the number of new shipbuilding orders coupled with a failure by shipyards to diversify into other areas such as ship repair may threaten the sector.

Bimco has 900 shipowners as members who control about 66 per cent of the world's merchant fleet.

Peter Sand, the Bimco shipping analyst, said: 'Should a slowdown in contracting activity materialise, this will in turn cause a significant shipyard overcapacity from 2013. Unless this overcapacity is converted into repair or demolition yards, massive unemployment could haunt the shipbuilding industry.'

During buoyant periods shipyards traditionally have orders for 18 to 24 months into the future.

But figures from Arrow Shipbrokers, which has offices in Hong Kong and Shanghai, show shipyards have spare capacity from the middle of next year for smaller sizes of dry bulk cargo ships.

Similarly, shipyards have space available for all types of ships, including large dry bulk 180,000 deadweight tonne and 115,000 deadweight tonne tankers, starting from the middle of 2012, Arrow said.

With shipyards in China, South Korea and Japan accounting for about 90 per cent of the global shipbuilding market in tonnage terms based on the volume of new orders and order backlog, a downturn in activity would be felt hard.

Korea's Hanjin Heavy Industries & Construction, once ranked the world's seventh-largest shipbuilder, recently announced another round of redundancies after a restructuring nearly a year ago in the face of dwindling orders at its Youngdo shipyard.

The firm canvassed its staff for 400 resignations just before Christmas. Those who agreed to leave will finish on February 7. The move came after Hanjin Heavy made about 4,000 of its 17,000 employees redundant earlier this year.

Commenting on the latest job losses, the company said: 'We have not been able to win any new orders for two years and are running out of work for the first half of next year.'

The shipbuilder added that slimming the size of its operation was the only way to boost competitiveness and ensure the survival of its Korean shipbuilding operations. It also has a shipyard in the Philippines.

Sand said mainland shipyards are better insulated than their Asian rivals after having won most of the new orders, especially for dry bulk ships.

'New orders equal to 70 million deadweight tonnes have been placed in 2010' for dry bulk tonnage, of which about 60 per cent were contracted with Chinese shipyards, he said. 'This followed the trend from last year, when 62 per cent of all dry bulk orders landed at Chinese yards, up from 46 per cent in 2008.

'It is the Japanese yards which cannot attract investors like they used to before the financial crisis erupted. Some 31 per cent of all dry bulk orders landed in Japan in 2008, but in 2009 and 2010 only 15 per cent and 12 per cent respectively were contracted.'

He added that ships ordered at Japanese shipyards, including many by foreign owners, have become more expensive after the yen appreciation by about 30 per cent against the US dollar between August 2008 and October this year.

Sand said while the order book for dry bulk tonnage is higher than a year ago and shipowners could see shipbuilding prices fall further, charter rates are also likely to slide.

As a result, the surge in new orders seen this year was likely to dry up, increasing the amount of spare shipbuilding capacity and squeezing the margins shipyards made even further should steel prices remain steady, Sand said.

He said shipyards had orders for dry bulk tonnage totalling 277 million deadweight tonnes compared with 276 million deadweight tonnes last year. While the average price of a dry bulk cargo ship is 40 per cent higher than it was 10 years ago, shipbuilding prices have fallen 35-40 per cent compared with the highs seen in September 2008.

Sand said the volume of 'new contracts cannot continue to be signed at the current pace. A slowdown will take place as freight rates come under pressure due to the weight of the oversupply. This will in turn cool the appetite for signing new contracts'.

His views about overcapacity and the impact on charter rates were echoed by Norwegian bank DnB NOR, which said that although the cargo volumes 'are expected to rise, the dry bulk carrier fleet is set to continue its rapid expansion as the order book remains at historically high levels.

'Taking slippage and cancellations into consideration, we still believe fleet growth will keep rates at subdued levels for the next few years'.