Order revival for a contracting industry

While traditional newbuild markets for Dutch yards become weaker, there is

optimisim that financial incentives will throw a vital lifeline to new orders.

Dutch shipyards have shown considerable resolve in being able to compete with other European yards despite an often lower subsidy level.

With less government aid, they were forced to invest in modern yards that incorporate productivity enhancing innovations. Moreover, Dutch shipyards were among the pioneers of transferring hull production to cheaper yards in East Europe and China. Having concentrated on smaller vessels and some niche markets, they had less to fear from Korean competition with its emphasis on large bulkers, container vessels and tankers.

Today, the situation is quite different. China has become a major force in the shipbuilding market with very attractive prices for shipowners ? particularly for those operating small vessels (up to about 10,000 dwt), the building of which used to be the domain of many Dutch and some German yards. The appreciation of the Euro against the dollar has also benefitted China which still maintains its yuan on a par with the dollar. Dutch shipyards have responded by becoming more of a ?knowledge? industry than a ?make? industry.

EU subsidy: a lifeline

Dutch yards can receive, as from September 1st, the same 6% subsidy as most of their European competitors. Until August 1st, orders with a value of only e360 million were booked, while the yards need an order intake of at least e1 billion annually to maintain an adequate level of capacity utilisation.

Fortunately, the Dutch shipbuilders’ association VNSI reported in September that 13 yards had submitted likely orders with a value of e1.8 billion to the government for approval under the subsidy scheme. As a result, VNSI urged the government to double the available subsidy budget of e60 million so that all applications can be honoured.

It is, however, not certain that all subsidy requests will become firm orders because many are still subject to owners being able to arrange finance. After the withdrawal of the favourable tax conditions for limited partnerships (CV’s) in 2000 it has become more difficult to arrange finance. This applies in particular to captain/owners with often limited means to attract equity and bank loans.

To improve matters, VNSI has tried to convince the government during the last two years of the need to introduce other financial schemes, such as a tax lease and/or a guarantee and participation fund. The government actually budgeted, in 2002, e90 million for this purpose, but the amount was withdrawn after the introduction of the 6% subsidy. Therefore, shipbuilders are still at a disadvantage when compared with many of their foreign competitors who enjoy similar financial aids.

Many yards are, however, involved in constructing vessel types which are not eligible for subsidies. Niche markets such as large yachts and dredgers, continue to enjoy favourable market conditions continued which applied throughout most of 2002. However, the disappointing world economic situation has resulted in a decreasing order intake for the specialised yards involved. Even the market for large dredgers is considered to be ?absolutely dead’ by IHC Holland. This has contributed to the decision by parent company IHC Caland to close its subsidiary Van der Giessen-de Noord. This yard was taken over in 1997 for its ability to meet the demand for ultra large dredgers that could not be built at IHC’s Kinderdijk yard.

The difficult market for ferries and offshore vessels, other specialties of Van der Giessen, added to the yard’s problems with an empty orderbook as a result.

In a further dramatic move, IHC Caland decided in September to split the company, with the successful offshore division, structured around Single Buoy Moorings of Monaco and heavily involved in the FPSO leasing market, going its own way. The remaining shipyards ? IHC Holland, Merwede and workboat builder Delta ? will, therefore, have to continue independently without the support of the financially strong IHC Caland holding. The proposed split-up has been delayed in the meantime until there is more clarity regarding the 2003 financial results which are expected to be significantly lower than forecasted earlier due to problems with some FPSO projects. Moreover, to the surprise of IHC, other parties have expressed an interest to take over the shipbuilding division.

Niche market orders

Several shipyards entered the again flourishing market for inland vessels when it became difficult to obtain orders for seagoing vessels. Having the largest fleet of inland vessels in Europe, a home market exists for many Dutch yards. Most hulls of standard inland vessels are now built abroad, mostly in China, with small yards completing the vessels. However, more specialised vessels such as river cruisers and chemical tankers are still being constructed fully in the Netherlands. Shipyard Merwede has succeeded in filling its depleted order book with a contract to construct two river cruisers with an option for a further three. De Hoop of Lobith/Heusden and shipyard Grave have also a number of such vessels on order. Other specialised orders for De Hoop ? which used to build seagoing ships ? are for two RoRo vessels to transport wings for the Airbus 380 and for a floating theatre. The increasing interest for water transport to replace road transport is also encouraging innovative designs such as a vessel for the automatic discharge and loading of pallets for food distribution.

The ongoing development towards larger short sea vessels presents a problem for the many yards along the canals in the province of Groningen. These yards are limited to vessels with a maximum breadth of 16m. This has stimulated the construction of hulls abroad with completion in new facilities like those at Eemshaven of Volharding Hoogezand. Another small yard, Van Diepen of Waterhuizen, shifted to inland vessels and has become a success story, centred around an energetic woman: Diette Doesburg-Maas. Her engineering firm was the main subcontractor for two stainless steel chemical tankers under construction at Van Diepen when it went into receivership about twenty months ago. She made a deal with the trustees to rent the yard so that the two inland vessels could be completed. When she succeeded to secure more orders for chemical tankers, her next step was to purchase the yard which she renamed Shipyard Waterhuizen.

This summer, with more orders having been booked than the yard could deliver within the contractual time frame, Mrs Doesburg agreed to take over the Damen Hoogezand yard which is adjacent to Waterhuizen and was no longer needed by Damen.

In keeping with the move from ?make? to ?knowledge? based industry, the influential Volharding group is moving more work, such as the accommodation and engine installation, to Daewoo Mangalia in Romania, resulting in the closure of its own facility near Groningen where accommodation modules were built.

The Damen Group has even decided to have general cargo vessels and tankers fully built at its subsidiaries in the Ukraine, Romania and China. It enabled the company to close its Hoogezand facility for completing vessels. Both Volharding and Damen maintain, however, their marketing, design, engineering, supervision and service organisations in the Netherlands, thus contributing to the shift from metal to knowledge workers in the industry.

New designs

An important element of the yard?s ability to attract new orders is their concentration on developing new designs, often in close

cooperation

with interested shipowners, but still suitable for series production.

As an example, shipyard Peters of Kampen introduced two new designs this year: the multi-purpose PCP 6000 which is a larger and improved version of the PCP 5000, and the Maxima, a sea/river vessel, optimised for use on the Saimaa Canal. Orders have already been received for four PCP’s 6000 and two Maxima’s subject to the yard receiving the 6% subsidy. Peters has an equity interest in a Croatian shipyard but maintains some hull construction in Kampen because it has found that some customers still prefer their vessels to be fully built at the yard.

Meanwhile, Peters continues to work on new designs such as an open hold sea/river vessel. Such vessels, without hatch covers are designed to load and discharge faster than closed vessels with large deckloads which have to be lashed.

Stability in question

This renewed interest in open container vessels is probably a result of the investigations following the capsize of the container feeder Dongedijk in 2000. The master of this vessel was blamed for departing from Port Said with insufficient stability, primarily because shippers underdeclared the weight of the containers loaded on deck. However, the Shipping Council, which made the verdict after investigating the accident, also recommended to the government to have a critical look at current regulations for the construction of small feeders. This was based on the testimony of naval architect Ernst Vossnack who explained that other factors such as the low freeboard and the resulting possibility of water accumulating on the main deck, could have contributed to the sudden capsize. A simulation study by the University of Delft, now being followed by model experiments at MARIN, showed indeed that the stability of a vessel like the Dongedijk, although remaining within the rules, approached critical levels when loaded with a full cargo. The study also confirmed that water on deck could have a dramatic impact on stability.

As a result, the Dutch government has now recommended to IMO to have a critical look at the 1969 Tonnage Convention. In its submission to IMO, the Netherlands support the German proposal to have the GT rules, as changed by the Bahamas for the open hold container vessels of V-Ships, apply to all such vessels.

Meanwhile, Rotterdam’s port management has indicated that it is now willing to reconsider port dues for vessels which have a much higher GT than comparable vessels. Therefore, the outlook for open container vessels with a high GT to get their port charges reduced has become more favourable.

Maritime cluster

cooperation

The foundation Nederland Maritime Land (NML), formed in the nineties with government aid by the various maritime industries, already stressed the importance of

cooperation

within the maritime cluster. NML was set up to develop new methods for effective government aid to assist both Dutch shipping and shipbuilding. This resulted in the now famous tonnage tax, developed in close

cooperation

with the European Commission around 1995. At the time, NML emphasised that governments should focus on the maritime “software” such as management, service and equipment suppliers, etc. instead of the “hardware” of vessels under the national flag. This lesson has received a follow-up recently by the builders of large yachts which depend largely on export orders. Their association Hiswa has urged the government to establish a friendly fiscal climate in the Netherlands for the registration of commercial cruising yachts and to develop technical regulations, specially designed for yachts of over 24m, which should be acceptable internationally. Such an arrangement would not only be advantageous for the builders but also for many “software” suppliers. Moreover, the rulebook could replace the British MCA rules, which are currently being favoured by many yacht owners, but which have as a disadvantage that they are primarily designed for large ferries and cruise vessels.

The suppliers organisation Holland Marine Equipment (HME), in the face of a slowly declining shipbuilding industry in the Netherlands, has lately not only focused on such issues as export promotion, clustering, innovation and education, but also on closer

cooperation

with shipyards.

One example is the website SeaQuipment.com which was developed by the shipbuilders’ association VNSI and is operated together with internet company Navingo. The site’s main menu offers a choice of ten systems which are subdivided in subsystems, components, brandnames and suppliers, including links to the suppliers’ websites and with the possibility to send queries by e-mail to the almost 500 participants. One of the site?s main advantages is that SeaQuipment is self-updating ? suppliers make additions and alterations on line.

The European organisations COFRENA (France), VSM (Germany) and APMI (Poland) support SeaQuipment, in addition to the Dutch associations HME and HISWA. Their members get a 50% rebate on the already modest subscription fee. Shipyards and shipowners can log in without cost. Some suppliers have already obtained orders through the website from entirely new customers.

Air-bubble lubrication

Another project to improve communication between shipyards and suppliers is IO Open Mind which should not only improve communication within the yard, but also between yards and their suppliers.

Technical research is often coordinated with research institutes MARIN, TNO and the Technical University of Delft. A current project, initiated by VNSI and MARIN, is air bubble lubrication of hulls to reduce hull resistance. Although the idea is already quite old, it was believed that further research was needed regarding suitable materials to maximise the effect and the best methods of supplying the bubbles and to keep them in place. Initial trials are foreseen with inland vessels, but the research may be extended to seagoing vessels at a later stage. Another experiment involves the use of an electric current to protect the hull of inland vessels. Together with paint manufacturers a project has been started up to develop an environmentally acceptable but still effective Bioprimer. VNSI is also responsible for coordinating research proposals to the European Commission under such programs as Marco Polo.

Notwithstanding the emphasis on joint research, research institutes and individual companies continue to develop new products. Recently, pump manufacturer Marflex developed an electric deepwell pump for large tankers and FPSO’s which up to now needed to install hydraulic driven pumps due to vibration problems with an electric drive on a long shaft. Marflex says that it has solved this problem and can supply its pumps with shafts up to 30 meter length and with a maximum capacity of 1500 tons/hr. Independent research at the University of Delft resulted in a design of a gantry crane whereby the horizontal and vertical movements of containers are separated. The spreaders of the university’s Carrier Crane, a patented design, will lift two containers out of the hold and put them on a trolley for the horizontal transport to the shore side where they will be picked up by a spreader to put the containers down on the quay site or on a lorry. Compared with a standard crane the Carrier Crane will be 50% more expensive, but it is claimed that productivity will be doubled.

In spite of such developments, HME is worried about the shrinking national market. The organisation stresses that it is important to maintain a healthy national shipbuilding industry which can promote new products.

As an example a national market for offshore vessels could be created by allowing such vessels to use the Dutch tonnage tax, possibly resulting in more shipyard orders. The government would also benefit with increased tax revenues and more employment, but continues to react only at a snail’s pace when the industry advances possibilities for strengthening the maritime cluster.