Chinese ship supporting industry boasts an excellent beginning in the 12th five-year plan under national supportive policies. However from the start of 2011, many non-state-owned small & medium ship supporting enterprises have landed into a predicament due to “new three mountains” – unredeemable receivables, deficient new orders and unfulfilled contracts.

Unredeemable receivables lead to capital famine
After the financial crisis, many ship supporting enterprises are consecutively plagued with unredeemable receivables due to shipyards’ capital deficit. This greatly curtails these companies’ circulating capital used for materials purchase, equipments update and other operational costs. Moreover, most of the futile receivables are supposed to be dead loans.
Insiders say that high accounts receivable would directly affect corporate cash flows and even lead to financial crisis for those small and medium sized companies, especially in the market downturn. The overdue receivables not only affect the profitability but also increase the risks of bad debts for the company. Funds for private ship supporting enterprises, especially small and medium sized, mainly come from private capital instead of bank financing and therefore its ability to transform financial risks is quiet poor. 

New order deficiency triggers vicious competition
"The competition for new order has been further intensified due to current limited market demand”, a Lianyungang-based ship related enterprise official said. For the purpose of winning new orders, competitors would even quote bid price below cost, which leads to vicious industry competition and badly damage corporate vitality.
Sources put forward that in the sluggish shipping market, declining orders and intense competition greatly cut supporting enterprises’ profitability. Some factory disclose that they are not to make money by securing orders but just to keep normal operation and workers’ daily life. Only in this way would they continue their business in upward market.

Unfulfilled contracts fetter production
Ship owners’ order cancellations since last year have made ship supporting enterprises suffer from losses and hindered their order performance and production activities. It is understand that this ship owners’ contract fulfillment level has further declined this year, which forces some companies to stop ongoing construction and makes some finished products fail in delivery. In addition, ship owners’ requirements for building equipments and product quality are also on the rise which puts greater pressures on those companies. As a result, ship support enterprises have to supply products of excellent quality at awesome low prices.
Under the terrible situations, ship supporting enterprises must adjust production plans accordingly, obtain strong financial operational capacity and look for the market to absorb inventory to get a way out.
However, some industry experts warn that these companies should avoid blind and impulsive operations at the same time. To inspect the shipyards’ qualifications and credibility before accepting orders, to effectively communicate with the yards during construction, to keep a close eye building process are all good ways to ensure smooth cooperation and production.