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Changing Fortunes for Chinese Shipyards

Since the onset of the economic crisis in late-2008, Chinese shipyards have had quite a hard time. Since the beginning of 2010, the Chinese-owned orderbook has shrunk continuously. As of start 2013, 1,832 vessels of 109.4m dwt were on order at Chinese shipyards, which is a sharp fall of 47.3% in dwt terms when compared to the orderbook as of start 2010. Graph of the Week The Shrinking Orderbook As is shown by the inset on the Graph of the Month, this decline accelerated during mid-2012, mainly as a result of the huge delivery rush (247 vessels of 12.1m dwt) during June 2012. At this point, shipyards were pushing to complete delivery of non-PSPC compliant vessels, which did not meet a more stringent regulation on ballast tank coatings which came into force on the 1st July. This, combined with the lower, but still very rapid, pace of deliveries in the rest of the year, means that only 153 Chinese shipyards still had an orderbook at end 2012. This compares to 243 yards with ships on order at the end of 2010.
Whats in the Past?
Along with the recent record deliveries, there have also been fewer contracts placed at Chinese yards. A total of 1,284 ships of 73.6m dwt were placed at Chinese shipyards in 2010 and during 2012, only 420 vessels of 19.0m dwt were ordered. This has been due to a lack of tanker and bulker ordering, which Chinese yards have tended to rely on, despite newbuilding prices having fallen significantly over this period. The percentage of orders at Chinese yards which are not tankers or bulkers rose to 48% in 2012, up from 29% in 2010.
Contracting is also becoming more consolidated: fewer yards are managing to gain new orders. 149 shipyards received new orders in 2010, but during 2012 only 69 shipyards managed to take any contracts. Additionally, some local yards have lost existing vessels on the orderbook as their owners have failed to access finance to meet stage-payments, resulting in their cancellation. Meanwhile, as orderbooks decline, it is unlikely that local yards will be able to access any sort of state financial aid.
Whats Next?
This has led Chinese shipyards to attempt to diversify so as to win more business. The government’s 12th Five Year Plan for the shipbuilding industry actively encourages yards to focus on making offshore contracts a greater proportion of the total. Additionally, the Chinese government has suggested that Chinese sources of finance should be more willing to offer funds to owners who wish to order complex vessel types in China. More Chinese yards are now marketing capabilities in the more specialised sectors. For example, Rongsheng H.I. has established an offshore R&D centre in Singapore; while Sinopacific has been developing AHTS and PSV designs at its Zhejiang and Dayang subsidiaries.
So, Chinese yards now have significantly fewer vessels on order and indeed there are now 90 fewer yards with an orderbook than at the start of 2010. The weak bulk contracting environment means that plenty of other yards risk running out of work. Those yards which are most successful at continuing the diversification process begun in 2011 and 2012 will be the yards most likely to endure.
Source: Clarkson Research Services