NMI 2008 – Volume 13

Aker Yards was sold to STX Europe. Above the Søviknes yard.

Judging from the number of deliveries and type of ships built during the year, 2008 is more or less a repeat of the year before. But what is new, is the general business environment, which changed dramatically during the last 4-5 months of the year.
A year ago everything looked nice and promising, the yards were flooded with orders,  and could pick and choose, – and set their price. As 2008 comes to a close, a lot of uncertainties have crept into the picture, and new orders are not that easily available any more.
A 2008-feature within the Norwegian shipbuilding industry is the sale of Aker Yards to STX where the latest reported order from the shipbuilding group, is in fact the sale of design for four supply ships to be built in the Far East. Whether this is an one off order or a sign of what is to come, remains to be seen. Admittedly the order has a sweetener since it includes sales of ship equipment to the newbuildings, but what happens next time if the same Owners decide to build this type of ship in the Far East?

Deliveries
NMI 2008 features 133 newbuildings delivered from Norwegian yards, which is actually exactly the same number as in 2007. The biggest sector is of course again the offshore industry with 36 offshore service vessels, 7 seismic vessels and 8 units, which can be described as special offshore ships (well intervention, construction etc.). So altogether 51 vessels were built in this category which is 8 more than in 2007. As a comparison 38 such ships were built in 2006 and 27 in 2005.
All the hulls are being built abroad, a factor which has caused quite a few delays during the year, and thereby has been costly for the yards. The delay scenario is one of the features of 2008, and as such one with negative consequences. Imagine the seriousness of the situation if the offshore market had taken a dive à là the dry cargo market, with cancellations of orders etc.
An important sector for some of the yards is the building of ferries, including fast catamaran ferries. In 2008 there were delivered only 3 ferries versus 8 in 2007, and 6 catamaran ferries (8 in 2007). It is worth adding that the biggest builder of conventional ferries sits with a large order book.
The work boat sector is still enjoying busy times, and SKIPSREVYEN has covered 25 deliveries in 2008, down from 29 in 2007, but the same number as in 2006.

Fishing
We have presented 7 fishing vessels in 2008 which is two more than the year before. In addition comes one live fish carrier
The category Coastal Fishing Vessels showed 22 new ships delivered in 2008, five more than in 2007, which confirms the popularity of these boats. It is worthwhile noting that Norwegian Owners have started buying Icelandic built vessels with some 10 boats delivered from one yard destined for Norwegian Owners.

New thinking
When it comes to the cargo ship sector, there is no change from last year. Six ships (or maybe one should say 5.5 units) in total have been built in Norway, 3 tankers, one reefer/container vessel, one cargo/container vessel and one which can alternatively be put in the offshore category, namely a Ro/Ro ROV/Construction vessel.
It will be very interesting to watch whether the Ulstein X-Bow design manages to get an entrance into the competitive cargo ship market. Perhaps it is just as well to start the process at times like these in order to be present when things pick up again.
SKIPSREVYEN has covered the concept of the Ulstein Speedloader for the short sea market (a market which is overdue for a renewal as far as Norwegian coastal trade is concerned) developed in conjunction with the Hagland Group, and also other types, for instance a container version, a box-hold version, Ro-Ro vessel and a chemical tanker.

Dependent on Norwegian Owners
As much as 83 per cent of the newbuildings were delivered to Norwegian Owners. It is interesting though that all three tankers were built for foreign accounts. There should be a big question mark as to why only 12 offshore service ships were built for delivery abroad considering the fact that Norway is the hub for building such vessels. And the picture is actually even greyer since four of the 12 were resales from the Norwegian contracting Owner. Three of the seven fishing vessels were built for Scottish account.
The shipbuilding industry is very competitive, and delays in deliveries are the worst thing that can happen when times are flourishing. In this respect it is worth noticing that Cyprus registered Deep Sea Supply seems to be very satisfied with the performance of an Indian yard for building a series of eight Supply Vessels. “All vessels have been delivered with the highest quality, at the agreed price and on time.”

So long, super-cycle
“In strength, length and scope, it has been the boom of a century”.
These quotes from a Financial Times Analysis of the commodity market could just as well have covered the dry cargo shipping market. And the article goes on “ .. The Reuters-Jefferies CRB index, which includes oil and a range of commodities from copper to cotton, is plumbing its lowest level in six years after October brought the largest monthly drop since it started life in 1956..”
For operators in the shipping field it is a well-known fact that the commodity and shipping markets often goes hand in hand, often with a certain time lag, so for that matter the latest development should be no surprise.
And the question raised, viz. “if this is just a temporary blip within an upward trend” is also relevant to the shipping market. Many believed that the dry cargo freight markets’ downturn during June, July and August was only a pause for breath. It was only when the decline in freights accelerated in September, that a sense of depression started to set in. And with the October development in the same fashion, the panic button was pressed. Suddenly we were back to levels last seen during the Asian crisis in 1998, and before that again, in the ugly 1980’s.
So what relevance, some might ask, has the freight market for dry cargo to Norwegian shipbuilding activity. The answer is that the day-to-day development in the course of just a couple of months has shown how intertwined the global commercial world has become. No single sector seems to be immune.
And, it is a fact that the freight market is perhaps the most important contributor to the development of the second-hand market. This in combination with a credit squeeze brought ramifications also to the newbuilding market – for all types of vessels – and despite the healthy order books for the shipyards worldwide.
And ethics have been thrown out the window in the process; the important thing is to save yourselves. The business world has come to a point where nobody is ashamed to withdraw from contracts entered into when everything looked rosy, and from several sources comes the prediction that as much as 30% or 40% of the orderbook for bulk carriers may never be delivered – in any case not to the contracting Owner. At the same time several secondhand deals done a few months ago have been/are being renegotiated or cancelled.
Ship owners who played careful tactics and resold newbuildings with delivery in 2009 and 2010 at fantastic prices, will in many cases never be able to enjoy the envisaged profit. They in turn approach the shipyards with the aim to get out of the contracts. The snowball has started rolling ..

Isolated from the downturn?
We have from time to time been critical about the fact that Norwegian yards have developed almost solely into beings offshore yards. But as the situation is in the middle of December, it appears that this has put the shipbuilding industry in Norway in a rather fortunate position. For the offshore freight market has been “booming away” all through the autumn and into the start of the winter season (the tanker market has also been fairly well shielded from the calamities).
Despite of this, however, the prices for both new contracts and secondhand sales have come under pressure. Nobody will in the long run be isolated from the effects of the worldwide avalanche. Part of the optimism has evaporated even in the offshore industry, and this leads to a much more cautious approach when it comes to new ventures. Newbuilding contracts today are to a much larger degree based on long-term employment.
The development of the oil price is naturally also a contributing factor, since a going argument has been that with high oil- and gas prices, new fields will be developed creating requirements for the offshore service vessels. Now some oil companies are descaling their activities and revaluing new projects. At the time of writing Opec has just decided to reduce the oil production by a further 2.2 million barrels a day, which means a total reduction since September of 15%. This might be a kicker for the oil price, but is negative news for the tanker Owners.
In the meantime it is fortunate that both the Norwegian and the international shipbuilding industry sit comfortably with very high orderbooks. However 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.

When the clock stopped
When 2008 started many expected a year of consolidation for global shipbuilding, but the first seven months was nothing but that. During July the number of ships on order passed the 10,000 mark for the first time. Both tankers and bulk carriers increased by impressive numbers. There were no clouds on the horizon. On the container side it was the largest one, 8,000 teu plus, which kept up the pace from 2007.
Combined for all ship types July was the year’s most active month for the shipyards internationally. An in line with this the newbuilding prices continued on the upward trend, especially for tankers. As a consequence the yards were filled up with orders and felt very comfortable. The peak was finally reached with a total orderbook of over 200 million CGT/600 million dwt – naturally an all time high.
Then followed four months with falling order books (total for all ship types), but despite this the volume of ships on order remains large in historical terms. In fact as per 1st of December the bulk carrier order book had continued to increase by 23 million dwt during a period of four months to over 298 million dwt (versus an existing fleet of 415 million dwt). As recent as two years ago that order book showed 102.8 million dwt, which actually was an increase of nearly 50% from the preceding year. A classic example of shipping’s nature of long-term decisions being made on short-term emotions.
Another reflection is that it is not more than 6/9 months ago that sales of tankers for conversion to bulkers were still going on. Quite a few today should have liked to see those sales undone.
Price-wise the peak was in September, before the downward trend started. The end result of 2008 as far as total investments in new ships are concerned altered direction from that moment on, and as per 1 December it looks like the year will show an investment decline of over 40%. It is indicative that November gave the lowest number of new contracts in a single month since January 1996. And the world’s number three shipbuilding nation, Japan, did not receive a single new order during the month.

When it comes to forecasts for 2009 the old shipping saying has perhaps never been more appropriate than just now: “The only certain thing is that everything is uncertain”.

zachs@skipsrevyen.no