European Yard Initiative - Will it Work?

The European Intership initiative to breathe new life into Europe's flagging ship construction industry could provide a pointer for repair yards in the region, some believe. The seven yards in five countries have secured €19 million in EU funding and will stump up the same amount between them. They aim to win 95 percent of the newbuilding market for cruise vessels and 60 percent of contracts for ferries and RoRo passenger vessels by the end of the project, while cutting building costs by 25-30 percent and slashing ship life-cycle costs by 30- 40 percent.

Meyer Werft's Thomas Witolla said it has taken a lot of planning amongst the seven member yards even to reach this stage, with yards working closely on the initiative for some years before the fouryear EU- funded project was launched in November 2003. The Intership grouping consists of Chantiers de l'Atlantique, Estaleiros Navais de Viano do Castello.

Fincantieri. Flensburger Schiffbau, Izar Construcciones Navales, Kvaerner Masa and Meyer Werft. Through a series of working groups co-operating closely with some 60 technology suppliers from 13 EU countries. 19 projects have been designed to assess the potential for improving efficiency in areas such as early ship design, knowledge and quality management, hull production and modularisation, pre-fitting and out-fitting, logistics and e-procurement.

One key area that will come under study is an assessment of the means by which ship construction periods can be reduced. In today's buoyant market, this is particularly relevant as owners look to lesser-known newbuilding yards in Eastern Europe, for example, for prompt deliveries.

Some 13 of the Intership projects will commence in the first two years of the four-year initiative, with the remaining six undertaken later, being largely dependent on the outcome of those 13.

Six research clusters will involve 250 individual researchers from the seven partners, which will exchange and exploit the results. While Intership will have common ownership of the project results, the yards are expected to make available their findings to other shipbuilders in the EU. This is likely to take place in the future through a series of workshops and seminars, perhaps on a twice-yearly basis.

Scope for the introduction of new procedures in ship repair is constrained, to some extent, by the fact that it remains a largely "spot" business, with owners calling the shots on complicated repair specifications, required yesterday, and thus providing limited opportunity for repair yards to plan their forward books effectively. However, this could change, certainly in some sectors of shipping, as owners plan further in advance and require more sophisticated services from their repairers.

Some yards are already looking at more modern project management procedures.

Block bookings are a relatively simple case in point. Maintenance partnerships between repair yards and owners are another area believed to offer potential. And. of course, as more super post-panamax container vessels join the fleet, fewer repair yards will be capable of taking on such work and will have to make available advance repair teams.

while offering precise dates and times and a comprehensive after-sales service.

But there is a range of other challenges faced by repair yards. Waste management, for example, is of increasing concern, with suppliers supposedly responsible for the removal and, in some cases, recycling of waste packaging. How often this happens in practice is dubious, say industry insiders. Then there are questions such as the environmental impact of blasting and painting. Experts say there could be significant scope for the sharing of analytical work in such areas, but for the moment, no means of doing so.

The Shipping Lottery Seasoned shipping executives can be forgiven a smug smile or two as plummeting stocks have left share speculators reeling with the speed of their descent. Having reached record levels a recently, both U.S. and European shipping shares have come tumbling down, following warnings from U.S. analysts.

Amongst them are leading tanker companies like Frontline — down from almost $55 to just under $48 in a week.

General Maritime was sharply down too, registering a fall of almost 14%, from over $40 to about $35. Other leading shares were sharply down too, including Teekay, Knightsbridge and Tsakos Energy Navigation in New York and P&O Nedlloyd, A.P.Moller-Maersk, Norden and Torm in Europe.

And, as oil prices continue to rise the effects on the world's economy will soon to be clear to see. If energy prices stay at their present levels, analysts believe global growth could be cut by 0.5-1%. Add to that the largest ever world merchant vessel order book extending years ahead, with recent contracts booked at near record prices, and you could have the ingredients for a spectacular crash.

London broker Clarkson sounded a note of caution less than a week ago. In a weekly report, the firm's analysts noted four key points. "We are at the top of a cycle and cycles are unstable. Next year supply growth will speed up. A world recession is due. so demand growth will slow down. The imbalance will drive rates down." Of course there are always bulls and bears in shipping and Clarkson is careful to point out that there are two sides to the argument. There are still plenty of bulls who believe the Chinese boom will continue, with the momentum generated by that vast economy growing so fast that it is seemingly impossible to slow down or stop.

But other more cautious observers look at the scale of the orderbook. In tankers of more than 10,000 dwt, for example, the volume of ships currently on order is equivalent to approximately 27 percent of the existing fleet.

Meanwhile bulk carrier owners have signed up for ships equivalent to a fifth of the existing while, in containers, some figures indicate that tonnage equivalent to almost half the existing fleet will be commissioned between now and mid 2008. Trends in the box sector are particularly daunting, with the vast majority of tonnage contracted recently lying in the post panamax and super post panamax sectors.

Clarkson appears to hedge its bets on the China question. The increase in seaborne trade has averaged around 3 percent since 1990, faster than the fleet and leading to today's tight supply. Says Clarkson, "In addition we have a new player in the game, China". The broker points out that this year Chinese crude demand will have increased by about 800,000 b/d, "far more than was predicted 12 months ago". Moreover the Chinese like sweet crude from the Atlantic, a long haul which itself increases bulk demand by about 1%, according to the analyst.