Shipbuilding industry on the brink of closure due to sharpest-ever collapse of orders

The shipbuilding industry looks set for a rash of insolvencies as one of the sharpest-ever collapses in order levels combines with banks' reluctance to finance ship construction to starve many yards of cash. Only 28.8m deadweight tonnes (dwt) of ships were ordered between January and November in 2009, according to London-based Clarkson shipbrokers, against 272m dwt for the whole of 2007, the peak of the shipping boom. The dearth of orders means yards are barely receiving any of the down payments on new orders that previously smoothed out their cash flow. Half the orders placed this year have been in China, the world's number two shipbuilder, whose state companies are the only ship owners worldwide ordering vessels in any numbers.
The past year has already seen three shipyards in Korea, the world leader, several small yards in China, a yard in Japan, three German yards and a Norwegian and US yard file for insolvency. Denmark's only yard is to be closed.
The crisis looks set not only to force more yards into insolvency but also to stymie plans to expand shipbuilding capacity further, with some of the proposed new yards in China unlikely to be built.
The rush by the governments of major shipbuilding nations to support failing yards has also led to concerns that the industry faces years of chronic over-capacity and dependence on subsidy. Such conditions dogged the industry in the 1970s and 1980s.
"There is considerable concern all round," said Danny Scorpecci, secretary to the working party on shipbuilding of the Organisation for Economic Co-operation and Development. But he pointed to widespread disagreement between countries over whether the sector should receive state support and how much any intervention would distort a market that has seen plenty of distortion in the past. Supporters of state aid point to the government support received by other sectors of the economy, such as carmaking.
Until last year, yards were taking record order volumes because of optimism about growing trade demand.
Since most markets are now over-supplied with ships - and hundreds of container ships are laid up out of use - hardly any new orders are being placed. Many owners have been forced to seek postponement of deliveries or cancellations because of the problems of raising finance for the final payments on orders.
Charles Morrison, a director of London-based Braemar Shipping, said shipyards traditionally used initial down payments to finance work on ships that were being constructed.