Slump--it German shipyards bank on niche markets

Shipyards in Germany, Europe's biggest shipbuilding nation, aim to survive the economic slump by focusing on niche products as orders for container ships and other staples dry up, a top executive told Reuters. "We are still in the middle of the crisis. For the shipbuilding industry, we cannot see ... any light at the end of the tunnel," Werner Lundt said in an interview.
Lundt is managing director of German Shipbuilding Association VSM, whose members include ThyssenKrupp and marine equipment makers such as MAN SE and Siemens. Of Germany's 131 shipyards, 55 are affiliated to the VSM.
A downturn in world trade forced shipping lines to cut freight rates, capacity and headcount, though Lundt said he thought the market had reached its trough in the first half of this year.
While the global economy has started to rebound and some shipping lines have raised freight rates, Lundt said he expected shipbuilding to be one of the industries to experience a delayed recovery and could not predict when the boom years of 2005 to 2008 would return.
The domestic industry's order book plunged by more than 90 percent in the first half of 2009 compared with the previous year, and Lundt held out little hope of a recovery before 2011 at the earliest.
But he said no more shipyards in Germany -- which ranks fourth in terms of tonnage after South Korea, Japan and China --- are expected to go bust after five filed for insolvency in the past 12 months.
ThyssenKrupp, the country's biggest steelmaker and shipbuilder, stopped work on four container ships in March and is now trimming its civilian shipbuilding units.
"Most of the remaining container ships will be delivered this year in Germany, leaving only a few volume ships on the order book," Lundt said on Tuesday.
YACHTS AND FERRIES
To stay afloat, German shipyards have instead moved to niche markets -- megayachts, cruise liners, ferries and offshore support vessels -- where competition from Chinese and Korean heavyweights is not as strong and where German technology is thought to have an edge.
Lundt said Asian rivals were also hit by the recession but were better placed to ride out it with the help of state support and a relatively healthier order backlog for volume market, which includes container ships, bulk carriers and tankers.
"Owners have also stopped placing new orders (in the niche markets). There are only a few cancellations in these special areas. But we see now some new orders are coming up," he added.
Lundt said worldwide shipbuilding production last year was around 42 million CGT (compensated gross tonnes) and of this 10 million was classified as belonging to niche markets. Germany had 10 percent of that segment.
Germany -- which has capacity for around 1.2 million CGT -- is expected to produce around 900,000 CGT this year, he said.
VSM-affiliated shipyards got a total of five new orders in the first half, including a ferry to transport people and cars to a German island. None of the five was for a container ship.
The total contract value for all five new orders was 113 million euros ($167.3 million) versus around 2 billion of new orders for all types of vessels for the same period last year.
Lundt forecast the overall value of new orders would stay low in 2010. The volume markets "will be bad in 2010 and maybe also in 2011", though new orders in the niche markets were expected to rise.
"It is also important that volume markets improve even though we do not want to go into this market. We want the big yards in the Far East to be busy with the volume markets, then we could keep them out of the smaller markets," he said.
A price war among shipbuilders that VSM had forecast for late 2009 was now expected to materialise next year once major new orders appeared to replenish a global production backlog currently expected to run out in 2012/13.
"Everybody is hungry to get new orders and that will trigger a price war," he said.