Shipbuilding Surge Predicted For 90s

Report On SCA Seminar On World Shipbuilding An aura of optimism, albeit a cautious one, permeated the conference room at the recent second shipbuilding and repair program sponsored by the Shipbuilders Council of America.

The very first speaker, Dennis Stonebridge, director of Drewry Shipping Consultants, London, acknowledged that a "relatively rosy scenario" in 1989 and the first half of 1990 was "heavily tarnished" by the Gulf crisis but said that if the Middle East war is resolved this year, "the outlook for shipbuilding and related industries is encouraging." The successful conclusion of the war in March after the meeting adds substantially to Mr. Stonebridge's positive assessment.

Before Mr. Stonebridge spoke, however, John Stocker, president of the SCA, struck a cautious note in introductory remarks warning that his industry was at a "cross roads." "It's very important for us to begin the process of moving away from our overdependence on the Navy as our only customer," Mr.

Stocker said. The SCA president said it was not simply a question of "redirecting" shipyard marketing programs, "but a question of how we interact with our government to ensure that policies pursued by our government give us a fighting chance in the market competing against (foreign) shipyards that have received extensive government support in the past." That is why, he said, the industry petitioned the U.S. Trade Representative in 1989 to enforce sanctions against countries subsidizing their shipbuilders and then agreed with the government to pursue instead an international agreement ending such practices.

Mr. Stonebridge summed up his presentation at the start of the two-day conference by saying he expects a high level of demand, possibly a boom in the second half of the decade. Prices, he said, will continue upward and Japan and South Korea will continue to be market leaders.

Echoing Mr. Stonebridge's optimism was S. Linn Williams, Deputy U.S. Trade Representative, who, as guest luncheon speaker on the first day of the two-day seminar, said that while there were few reasons to be optimistic about commercial ship construction in the last decade, "there are reasons for optimism today." One reason, Ambassador Williams said, is "the growing markets for commercial ships." Another is the government's efforts "to improve competitive conditions in shipbuilding, and therefore your access to those promising markets." As for the government's decision to try to negotiate a multilateral agreement to eliminate foreign shipbuilding subsidies, Mr. Williams said there are "significant hurdles" still to be overcome but that the negotiations "are coming to a head." He believes that a multilateral agreement is the U.S. industry's best opportunity for gaining access to the growing demand for ships worldwide.

The question of how to finance the construction of a new fleet of ships in the decade ahead was raised by Paul Slater, chairman and chief executive officer of the First International, a group of companies that specializes in maritime finance, investment and leasing. It was Mr.

Slater's contention that if the aging world fleet is to be replaced "then it is vital that a major reappraisal of funding techniques be undertaken without delay." He envisioned a new approach that features establishment of "financial shipowners or leasing companies." The main benefit that leasing provides, Mr. Slater said is "the financially effective separation of the costs of owning and operating assets, i.e. the ships." Some of the statistics offered by Mr. Slater showed that by the year 2000, more than 21,000 new vessels will have to be built to take care of trade growth demand and fleet replacements.

He estimated that while this level of construction would cost more than $250 billion, most public and private shipping companies do not have the equity base or equity capital to finance it.

What is needed to finance such construction, he said, is an approach "combining the expertise of financial shipowners with the bankability of cash flows generated by longterm movement of cargoes." The establishment of leasing companies, he said, will bridge the gap between an industry seriously deficient in capital and the major financial markets.

James Godsman, president of Cruise Lines International Association, said he was "bullish" about the cruise industry and expected it to continue to grow "at a very rapid rate." He cited product satisfaction, repeat business, modern ships, heavy involvement with travel agents, and diversified activities offered aboard ship as some of his reasons for optimism.

He stated that the cruise industry expects to add 42 ships through 1994 to the 113 it now operates.

Capt. Aage Linstad, vice president for marine operations of Royal Caribbean Cruise Line, said that all of RCCL's drydocking is done in the U.S., and indicated RCCL, which markets 7 ships in the U.S., will add another 2 ships by 1993. Captain Linstad said, "the overall trend is positive for further expansion with new tonnage as in the 1980s." He noted that the company is currently engaged in an $80 million conversion of the Viking Serenade at Southwest Marine, Inc., San Diego.

The work will increase the capacity of the ship from 960 to 1,510 passengers.

Ben Hackett of Stonehill Consultants, London, tried to give the shipbuilders an idea of what kind of business to expect from bulk operators.

"Unless building yards reduce their price or repair yards increase theirs by very significant margins," Mr. Hackett said, "it is highly probable that life extension (of a bulk vessel) will remain overwhelmingly attractive in commercial terms." Turning to legislative and environmental factors, Mr. Hackett noted that even though there is a shortage of double-skinned tankers for crude imports there is little reason for oil companies to enter immediately into a large construction program because "the U.S. oil pollution act is full of loopholes," referring to the bill's long phase-in period.

Dealing with financing of ship construction was Richard C.

Houseworth of the Export-Import Bank of the United States. Mr.

Houseworth said that commercial demand "has increased dramatically with the aging of the world shipping fleet. Ship prices have more than doubled in the past two years so that, despite foreign subsidies, the gap between U.S. and foreign prices is closing fast." Mr. Houseworth also thought that the government is "very optimistic" about the outcome of negotiations to eliminate ship production subsidies and reduce export financing subsidies. If they succeed, he added, "the financing gap can be closed." Mr. Houseworth said that while Eximbank supported $9.5 billion in U.S. exports to over 100 countries in 1990, it has not participated in financing U.S. shipbuilding for many years.

"But we stand ready to do so," he added. "We have no prohibition on shipbuilding finance. Eximbank is prepared to consider financing for U.S. exports of new ships and major rehabilitations." Frank Paine, president of Frank Paine & Associates, Stamford, Conn., predicted that in a few years, "one will be able to build a tanker in the U.S. for only about 10 to 20 percent premium over the Japanese and Korean prices." Capt. David L. Wood of the DLW Group, Wilton, Conn., also pointed out that with the declining value of the dollar and rising comparative labor costs overseas, "there is a clear indication that U.S. shipbuilding and ship repair yards are becoming more and more competitive with, for example, yards in North Europe, Japan, Italy, etc."

Other stories from April 1991 issue


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