Bill Moses’ Weblog

20 December, 2007

Shipyards, scale and coastal trade

Filed under: Uncategorized — billmoses @ 8:07 pm

Shipyards have suffered long and hard from the vagaries of global demand, but they are at last clawing back with full order books and enthusiasm tempered only by an interesting mixture of cost inflation and supply chain difficulties. Specialist areas such as newbuildings for the cruise and ferry sectors have tended to be the preserve of European yards as outfitting expertise and quality end up high on the list of priorities. Little wonder therefore that South Korean shipbuilder STX Group has recently invested $800m for a 39.2% stake in Aker Yards, one of Europe’s most impressive builders with 18 shipyards as far afield as Brazil, Romania, Vietnam and Ukraine, a total of 20,000 employees and a very impressive client base. Given that STX now has access to the modus operandi, such a move could change the competitive landscape of future cruise ship orders.

The STX joining fee to access the skills, systems and procedures that ultimately leads to the creation of singular complex cruise vessels such as the Genesis class at a contract price just short of €1bn seems a relatively small investment. As trading entities however, shipyards tend to be as good as their orderbooks and although in general terms they could hardly be better than we see today, their earnings horizon is rarely more that 4-5 years ahead.

Swollen shipyard orderbooks are however only part of the story in a fast changing landscape. With fuel costs increasing on a daily basis we should also consider the wider impact of newbuildings that will be disgorged over the next few years resulting in a significant escalation in the world fleet. One hurdle is crewing. Many vessel owners and operators are already finding it difficult to source good quality crew and a burgeoning global fleet is clearly going to add to the challenge. Absorption of foreign nationals, the enlargement of the EU and reorganisation in the ferry sector have all helped to improve sea-going human resource supply, making earlier doomsday predictions seem premature. There are however clear limitations especially given the time taken to train new recruits coupled with the European phenomenon of finding young people who relish the thought of going to sea; a challenge in itself. The supply/demand curve reminds us that pay rates will increase to an equitable level that renders flagging-out a less interesting proposition.

In the meantime, and thanks to consumer demand the scale of shipping continues to increase, a process that is likely to lead to a change in pecking order. As one example, the largest of container ships, such as the 14,500-TEU Emma Maersk, will be incapable of entering some ports due to sheer size. This in turn provides feeder vessel and barge opportunities as well as increased reliance on, and opportunity for Europe’s smaller coastal port facilities as well as its river system for moving cargo efficiently.

Talking of which, it is difficult to be unimpressed with the barge system within mainland Europe. For many years Luxemotor, Klipper, Kotter, Steilsteven, Tjalk, Aak, Skutsje, Spits and a variety of other fascinating barge types have moved goods around Europe, long before any thought of global warming or any attempt to avoid road congestion entered the debate.

As an island nation it is sad to reflect the loss of much of the United Kingdom’s coastwise trade especially at a time when it should be coming into its own. Similarly residential developments, which result in the erosion of wharves along our rivers and canals together with the lack of suitable infrastructure and riverbed siltation – the ultimate legacy derived from reduced usage – will doubtless exclude us from the opportunity to capitalise on the efficiency of moving certain goods with logistical ease by water.

London’s Mayor, Ken Livingstone has gone to considerable lengths to preserve wharves along the River Thames even though it is undeniable that once a site has been surrounded by residential development it is unlikely that the inhabitants would relish anything other than quiet, clean cargoes and only then during daylight hours. Nevertheless a compromise needs to be found as the environmental lobby will eventually catch on to the beneficial renaissance of water-based cargo movements, the danger being that once river wharves disappear they will not be easily reinstated.

There are also a few positive examples such as the increased and successful use of the 35-mile Manchester Ship Canal as well as the attempts of those in Brussels to maintain some continued interest and benefit to shipowners within the programme named after the famed worldwide traveller, Marco Polo. Largely as a result of the full orderbooks mentioned earlier, decent ferry tonnage is overpriced and in short supply leaving the bureaucrats work cut out if they are to provide sufficient incentive to bump-start fledgling operations.

Ironically one of the most impressive examples of attracting wheels to the waters edge and beyond is non-EU operator, UN RoRo. This upscale Turkish based operator is near capacity constrained while clearly demonstrating the benefits of removing tyres from an over-burdened road system. Impressive EU-built tonnage completes the scene with an equally robust orderbook that was clearly created by luck or judgement at the right time. Marco Polo clearly needs to go that extra mile in order to replicate Turkey’s success story.


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