When the Market Is Hot
Builders of smaller vessels such as OSVs are riding high at the moment, but they are mindful of tougher times.
(Article originally published in May/June 2014 edition.)
Norway reputedly has the highest paid shipyard workers in the world. Although few, if any, hulls are currently made in Norway, that hasn’t stopped the country from producing more steel than ever before. Norway specializes in the offshore vessel market, building the kinds of advanced vessels that Asian yards can’t match.
The hulls come whole or in sections from places like Romania, Turkey and Asia with complex sections such as the engine room sometimes being built in Norway. When everyone was building ships back in 2008, Norwegian yards got their fingers burned when the hulls they were importing were late or of substandard quality. “That made the Norwegian yards bleed,” says Lars Gørvell-Dahll, Director of the Maritime Sector of the Federation of Norwegian Industries, “but now they are much more in touch with the foreign yards. They have their own inspectors, and some of them are part owners.”
The average price of a Norwegian-built offshore vessel has increased six or seven times over the last eight years. A PSV (platform supply vessel) that was $20 million is now $350 million. This hasn’t necessarily translated into increased profits, but a recent survey conducted by the Federation shows that yard profits are now comparable to those of the highly successful Norwegian equipment manufacturers.
European Yards and Their Suppliers
The Kleven Group of Norway delivered a strong $29.8 million in profits in 2013 on record turnover. Among the six vessels built was its first seismic vessel. This year the group has 12 vessels on its orderbook. “We have made comprehensive investments in new production halls and automated and robotized production lines in order to bring a larger part of the shipbuilding process back to Norway, hence ensuring improved control and reduced risk,” comments CEO Ståle Rasmussen. “We expect to see positive effects from these investments in the near future.”
Kleven’s growing workforce is now set to share in the success of the firm with profit-related bonuses due to be paid out. Staff numbers at the business have climbed from 518 in 2012 to 770 at the end of 2013.
Another Norwegian yard, Vard Holdings, reported a five-year high for its orderbook in April. That includes Vard’s largest ever single vessel order, a dive support and construction vessel for Technip. Vard expects continued strong demand from this segment despite rising production costs in the oil and gas industry. Average vessel size and complexity are also expected to increase.
Norway is not alone in its success in Europe. Shipyard De Hoop of The Netherlands is building a wide range of offshore support vessels (OSVs) and ferries. The yard is currently working on an order for 10 PSVs from Abu Dhabi National Oil Company. It is also building an intermix/transmix vessel for Awaritse Nigeria Limited.
Designed to operate in the Shell and Chevron offshore oilfields near Nigeria, the vessel will be deployed for the discharge of transmix liquids, a byproduct of oil production and oil transport through pipelines. The industry is seeing a greater variety of different drilling fluids and other chemicals requiring transport, so there is a general trend towards more complicated tank arrangements in PSVs.
Those countries that many European yards rely on for steel work are building their reputation beyond the role of hull makers. Tersan Shipyard of Turkey, for example, delivered six special ships in 2013 and was recognized as Turkey’s leading exporter in the ship and yacht building sector. The company built a new yard in Yalova and aims to deliver 12 advanced newbuildings per year there. Besides a repair organization in Istanbul, the new yard has been operating as a repair yard as well and has a new floating dock. In the near future, Tersan will expand its capacities even more with a new horizontal newbuilding lane in Yalova and another new shipyard in southern Turkey.
Tersan’s recent deliveries include a series of chemical tankers. “We are very much focused on building specialized custom-made vessels,” says Business Development Director Sakir Erdogan. “Last year we delivered an advanced platform supply vessel and five special freezer factory trawler vessels, all successfully and with high standards. Our shipyard’s organizational structure is very well adjusted to delivering these kinds of state-of-the-art, specialized vessels. We implement the owner’s demands in every detail to deliver a tailor-made ship.”
Specialization and Niche Markets
Specialization in shipbuilding is an ambition of many yards but one not easily achievable, says Venkatraman Sheshashayee, CEO of Jaya Holdings in Singapore. Jaya builds high-value and high-specification vessels and is one of the few shipbuilders in Asia to have built ice-class anchor handlers and subsea vessels. “Yards would like to build a niche specialization but will still need to bow to the demands of the market and their clients,” notes Sheshashayee, “and there are efficiencies from standardization and economies of scale when ordering equipment and building. So yards are pulled in both directions.
“The issue is further complicated by the fact that offshore vessels are not assembly line vessels and require some level of customization depending on the buyer’s and their clients’ needs, and on the different regulations across the different OSV markets around the world. Ultimately, what distinguishes a shipyard in the marketplace is its track record, its commitment to quality, its ability to consistently deliver on time, and the value-add provided to its clients.”
Australia’s Strategic Marine has taken a critical approach to delivery time and is building stock in its core products including 40-meter crewboats. The company recently finished a 10-vessel order for a customer in Brunei with a 16-month lead time. Over 15 similar vessels are on the orderbook, and the company fabricates over 60,000 tons of steel and aluminum a year from its yards in Vietnam and Singapore. Australia itself has become uncompetitive for newbuilding activities, so the Australian office now handles logistics, management, service and repairs.
Once quite a niche market, competition for crewboats is now coming from all directions, even Europe, but Strategic remains competitive through its established name and reputation for quality. Southeast Asia is the place to be if you want a really competitively priced vessel built, says business development manager Reece Newbold.
Like Strategic, Damen is finding the offshore wind support vessel market strong, and it has found a market for smaller offshore wind crewboats. The company’s new Twin Axe FCS (Fast Crew Supplier) 2008 is a smaller, 20-meter version of its successful 26-meter FCS 2610, which launched in 2011.
Peter Robert, Damen’s Business Development Manager for Offshore Wind, says: “The 20-meter version is the perfect boat for near-shore wind farms and ideal for transferring personnel safely, as well as light cargo. With this move the Twin Axe offshore wind range is completed. Damen decided to row against the current in 2011 when we introduced the bigger 26-meter vessel. We saw that there was simply nothing suitable available at the time. The turbines were getting larger and wind farms were going farther offshore, so developers were less interested in the smaller 14 or 15-meter vessels. We started with the large vessels and now others have followed.
“But of course you don’t need a 26-meter vessel for every wind farm. Damen needed a smaller vessel in its portfolio. It is important for shipowners to look into the optimum spread of vessels to have the best total cost of ownership for their fleets, as well as for the wind farm owner. We think this new type will be used to replace the older, smaller vessels.”
Damen has the yard’s seventh new mid-size PSV 3300 design currently under construction for Monaco-based Compagnie Maritime Monégasque. She will work in Brazil for Petrobras. Already, more than 20 Damen OSVs operate in Brazilian waters.
U.S.-based Eastern Shipbuilding is also achieving success in the Brazilian offshore market. The company recently delivered Bravante VI three months early. STX Canada Marine and Eastern Shipbuilding provided the design for the vessel from the successful Tiger Shark Class Series. Ten other OSVs in this series have already been delivered to Eastern’s clients worldwide, and the yard is currently building 15 vessels of similar size and complexity for customers in the U.S. and Brazil.
U.S. shipyards in general are prospering but still keeping an eye on the future. For Brad Matte, Director of Sales at Leevac Shipyards in Louisiana, it is important to diversify despite the company’s reputation as a premier builder of OSVs: “We are in a peak time right now for shipbuilding. Customers who have not jumped in yet are probably not going to, and it’s usually a five-year cycle. So around 2020 we’ll see another uptake. That’s typically how history goes.”
He adds, “When we go into a low, it is important for us to be able to diversify into other markets, whether it is inland tow boats and barges, offshore tugs and barges, casinos or river cruise boats. We have the experience and expertise to handle those requests. We have two repair yards, Lake Charles in its fifth year, and Houma in its first, and both are capable of supporting our newbuild projects.”
Portland-based Vigor Industrial has methodically increased its newbuilding capacity and now has a 60-acre yard, an oversized 800-foot buildway, and extensive fabrication bays to provide the capacity and flexibility for newbuilds of all types. The yard is currently building three new tugs for Tidewater Barge Lines. Vigor expects the tug market to continue growing, driven by a growing fleet of oil barges, renewal of the line haul tug fleet, and changing U.S. Coast Guard regulations. Additionally, the needs of the U.S. ship-assist tug fleet are directly linked to changes in the international shipping sector. As that sector grows and changes, it will drive demand for new ship-assist tugs in U.S. ports.
Joe Corvelli, Vigor’s Senior VP of Fabrication, says specialization and general capabilities are not an either/or proposition for the yard: “We’re developing specialized fabrication capabilities to serve a wide range of customers in the vessel construction market. Rather than look at it as ‘we’re going to focus on building vessel X,’ we’re specializing in market segments where advanced engineering, detailed planning and world-class project management pay off. This tends to happen in markets where customers need large, complex, self-powered vessels and want to build them in runs of multiple units. This includes areas like marine transportation, offshore oil and gas, fishing, passenger vessels, and articulated tug-and-barge sets, but it’s definitely not limited to those areas.”
Horizon Shipbuilding in Alabama has found success not so much in specialization as in diversity. The company prefers to keep its orders spread over the various vessel types it builds in steel, aluminum and fiberglass: barges, towboats, tugs, high-speed crewboats and other marine-related products. Last year Horizon accepted an order for vessels requiring fiberglass cabins, so it converted one of its production facilities to manufacture resin-infused products. Significant growth has been evident in the inland water towboat industry, and vessels currently under contract are a series of 2,000, 3,000 and 4,000-hp towboats.
Despite the OSV boom in Europe, the U.S. and elsewhere, Asian yards are still ahead of the market when it comes to large cargo vessels. VesselsValue.com’s statistics for newbuilds and orders through 2018 show over 17,000 vessels being built in Asian yards compared to their nearest competitors, Eastern Europe with 783 and Europe with 558.
Wendy Laursen is the MarEx News Editor for Asia Pacific.
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.