Something old, something new, something borrowed something blue; these are the traditional accompaniments of the blushing bride as she walks down the aisle. Similar items could also be part of the marriage perhaps more likely civil partnership between ship owner and shipbuilder. Old ship, new ship, bank loan and something blue? Well, blue was usually the mood of the ship owner when his ship was delivered into a falling market.
Serial Relationships…
In reality the arrangements between ship owner and shipbuilder have tended to be more like serial relationships. A quick two year partnership saw shipbuilders provide the capacity to deliver what the ship owner wanted. As our Graph of the Week shows, from 1996 to 2003, when the total orderbook was 30-40m CGT, shipbuilders were able to deliver 40-50% of the orderbook each year. Owners got their ships fairly quickly; builders had a quick turnaround of work. There was mutual satisfaction.
A New Model…
But the new economic model in China was turning heads and owners started to order more and more ships. Over the next five years the orderbook increased by an average of a third each year to reach 200m CGT. The old shipyards struggled to keep up with the new model of demand. Despite their efforts in raising output from 20m to 40m CGT, the proportion of the orderbook delivered fell to 22% by 2008-09. The “quickie” relationship was now stretching to a demanding four years.
Reconciliation…
Shipbuilders had to bring something more to the party. The upshot was that the number of shipyards more than doubled between 2003 and 2009 to number 612. Of course, many were small or inexperienced or not up to speed, or indeed all three. Nevertheless, by 2010 they had started to deliver. Output reached 52m CGT in 2010 and was almost 50m CGT in 2011, equivalent to 30% and 33% of the orderbook respectively. And in 2012, we expect this to reach 38%, above average for the first time since 2002. But, of course, the orderbook is declining.
Breaking Up...
With the builders able to build up to 50m CGT per annum and an order book already down to 120m CGT, owners and builders may soon be able to get back to their old short term relationships. However, without an (unlikely) ongoing annual demand for c.50m CGT, some builders will inevitably be left on the shelf without partners. We witnessed such loneliness back in the 1980s, when hard decisions had to be taken about the break up of excess building capacity.
Satisfaction Solution
So, there you have it. There may be tough decisions ahead about shipbuilding capacity which have resulted from owners and builders stepping outside their preferred relationship. For most satisfaction they appear to be best kept short and serial. Have a nice day.