Scandinavian shipbuilders cautiously optimistic about the future

A weak dollar has reduced ordering of cruise liners from Finland while a depressed offshore market has hurt the industry in Norway. In Denmark, the giant A.P. Moller-Maersk group continues as the sole survivor of large-scale shipbuilding, although in Sweden the last newbuilding shipyard has left the scene.

In Norway, the government?s 2005 draft budget promises good news for the country?s shipbuilding industry as it will mean that yards will again get government guarantees for loans they need to finance the construction of newbuilding orders. TBL Maritim, the Norwegian federation of shipbuilding and marine equipment manufacturers, says that the guarantees will be sufficient to cover NOK 2.5 billion ($367 million) worth of orders.

Tough times

The Norwegian shipbuilding industry has faced tough times after 2001, when the government followed the European Union?s lead and terminated subsidies to yards. The combined value of orders at Norwegian yards amounted to NOK 32 billion at the end of 2001, but this had declined to a mere NOK 1.4 billion in the middle of this year, according TBL Maritim managing director Egil Holland. Norwegian yards have a newbuilding capacity in the region of NOK 12 billion per year that can be extended to NOK 15 billion by extensive use of outsourcing work. Consequently, deliveries in 2002 and last year were at the top end of the output range, but the flow of new orders declined dramatically.

The industry depends heavily on specialist vessels, such as offshore tonnage, and Holland says that a nascent recovery in the offshore sector is brightening the prospects for the future. He forecasts new orders amounting to NOK 2.8 billion for 2005 and 2006.

Holland went on to say that the guarantee scheme is very important for those yards that had to temporarily close down due to lack of work. The government withdrew the guarantees in the 1990s, but in the boom years towards the end of the decade this had little impact as yards were able to raise building loans on the commercial market. However, in the slump that followed, the absence of state guarantees became a crucial shortcoming but this has now been addressed.

Fosens Mekaniske Verksteder in Rissa near Trondheim is one of those yards that had to mothball its facilities due to lack of orders. It delivered The World, the first cruise ship with long-term residential accommodation, in the spring of 2002, but the 43,188gt vessel was seriously behind schedule and over budget. The company came close to collapse, but it has recently teamed up with the Baltiskiy Zavod shipyard in St Petersburg, Russia, to build two large Seabridger class RoRo vessels for Stena RoRo in Sweden. Baltic will build the hulls for the 212 metre long vessels that will have a 3,100 lane metre capacity and berths for 200 passengers. Both ships will be fitted out at Fosens.

Kjell Inge Rokke, the Norwegian tycoon, restructured his businesses earlier this year and the shipbuilding activities of Aker and Kvaerner groups are now in Aker Yards, a listed company with 12 yards. Only Kvaerner Philadelphia, in the US, remains in the hands of Kvaerner, an industrial holding group.

The move will mean that, in Finland, the Kvaerner Masa-Yards (KMY) name will disappear and all three yards of Aker will trade under Aker Finnyards? name, currently used by the facility in Rauma. The yard in Helsinki, threatened by lack of work, has won an order for a 14,500 dwt, 650 TEU container vessel from Norilsk Nikel in Russia that will be used in the Arctic waters of that country. A high price of oil could help Aker Finnyards to secure more deals with Russian principals.

Aker Finnyards also recently signed a Letter of Intent with the Swedish B & N Nordsjöfrakt for the construction of three ice strengthened 15,000 dwt container ships at a total cost of approximately $188 million. Each of the 188 metre long vessels will be capable of carrying 155 SECU containers (StoraEnso Container Unit) and all three vessels are planned for delivery in 2006.

Meanwhile, Royal Caribbean Cruises Ltd (RCCL) took up an option for a second 160,000 gt Ultra Voyager class cruise liner to be built at Turku, the largest of the three yards, in a crucial deal for the yard. It also has signed a conditional contract for a 200 metre residential ship that will be operated by Four Seasons, the Canadian hotels group, provided that advance sales of apartments leads to a firm contract. However, industry analysts note that contracts such as the Four Seasons deal are unlikely to involve several ships. Building prototypes, meanwhile, is both challenging technically and often expensive financially, they point out.

In Rauma, delivery of the 33,000gt Birka Paradise cruise liner, which features a 95,000 watt ?artificial sun? under a retractable glass roof, will take place on 10 November. The ship will introduce a new concept, based on genuine cruise experience rather than the traditional wining, dining and shopping of the Baltic cruise ferries.

In Denmark, shipbuilding may have declined as it has done in many European countries, but the maritime sector nevertheless employs 25,000 persons and has an annual turnover in the region of DKK 30 billion ($5 billion). The A.P. Moller-Maersk owned Odense Steel Shipyard is by far the largest shipbuilder in the country and last year, it made a pre tax profit of DKK 295.3 million, a marked increase from DKK 157.1 million the year before.

However, the picture is not quite as bright as it might first look, because the company says the improvement resulted from advantageous exchange rate between the US dollar and the Danish Krone. Weakness of the dollar has offset a rise in newbuilding prices but, at today?s rate, the yard would have booked “a significant loss” instead of the profit it reported in May when the company announced its 2003 results

Danish Maritime, the shipbuilding and marine equipment industry?s organisation, opposes state aid to the industry, but its managing director, Thorkil Christensen, noted that Denmark had to offer a level playing field with the rest of the EU for its shipbuilders. The European Commission agreed in June 2002 to allow subsidies of 6% for a limited period for the construction of container ships plus chemical and product tankers in response to the on-going dispute over alleged aid to shipyards in South Korea. On 15 December last year, the Danish government introduced aid based on the EU rules.

Danish Maritime notes that the EU at the same time relaxed the ceiling for state aid to innovation projects from 10% to 20% of the total project cost and also adopted a more flexible interpretation of what innovation is. Although such moves distort competition even further, it does have the positive effect of focusing the industry towards developing and maintaining cutting edge technology, leading to more efficient production processes and better designed ships.

In Sweden, the troubles of Fosen led to the bankruptcy of its subsidiary, Bruces Shipyard, in Landskrona on the south west coast of Sweden. Bruces constructed hulls for Fosen and the demise of the company led to the effective end of commercial ship building in the country. Three decades ago, Sweden was the second largest shipbuilder in the world, but the deep crisis in the industry that followed the first oil crisis in 1973 sent it into freefall and, by the late 1980s, very little shipbuilding was left.

Shiprepair, however, does continue but, as Gotaverken Cityvarvet has experienced, prices are under a heavy downward pressure due to tough competition from the Baltic countries. Although the company, currently owned by the Dutch shipyard group Damen, dry-docked some 80 vessels last year, profit was almost halved. n