Order depletion triggers restructuring wave among global mid-sized shipbuilders

2020-11-16 09:00

The continued decline in the new shipbuilding market has put increasing pressure on medium-sized shipbuilders. The long-term slump in new ship orders has not only driven consolidation in the shipbuilding industry, but also prompted shipyards around the world to reconsider their business models.

The Danish Shipping Association's latest report last month pointed out that the current backlog of orders, as a percentage of the existing fleet (by deadweight tonnage), has fallen to just 7%, the lowest level since 1989. The report stated that from 2020 to the present, the total number of new commercial vessel orders globally has reached 26.5 million deadweight tons, close to the level of 2016 (when the annual order volume was 30 million deadweight tons). Globally, the total backlog of merchant ship orders is only 150.3 million deadweight tons.

The depletion of orders has undoubtedly posed a greater threat to medium-sized shipbuilders. Japan's Sanoyas Holdings is the latest victim of this market downturn. On November 9, the company announced that it would transfer its wholly-owned shipbuilding subsidiary, Sanoyas Shipbuilding (registered capital of 2 billion yen), to New Lai Island Shipbuilding, completely ending its more than 100-year shipbuilding "ancestral business" since 1911. The transaction is expected to be completed next March. Sanoyas Holdings frankly stated that the shipbuilding industry will inevitably experience a long-term downturn, so it decided to end its shipbuilding business.

It's not just Japan; medium-sized shipbuilders in South Korea are also facing crises. Although South Korea's large shipbuilders have been receiving continuous orders in recent months, and the South Korean shipbuilding industry has therefore won the top spot in global order intake for four consecutive months, medium-sized shipbuilders in South Korea have been struggling. Data from the Export-Import Bank of Korea shows that the order volume of South Korean medium-sized shipbuilders has been reduced by nearly half this year, and the decline rate will further accelerate in the second half of the year.

Affected by this, South Korean medium-sized shipbuilders are facing a "wave of sales." Following the successful acquisition of Seongdong Shipbuilding and Daesun Shipbuilding, the creditors of Hanjin Heavy Industries and STX Offshore & Shipbuilding have also initiated sale procedures. On the other hand, mergers and reorganizations in the South Korean shipbuilding industry are not limited to medium-sized shipbuilders; the merger of South Korea's two major shipbuilders, Hyundai Heavy Industries Group and Daewoo Shipbuilding, is also continuing.

The consolidation of the shipbuilding industry is not limited to Asia. Havyard, a veteran European shipbuilding group from Norway, announced earlier this month that it would abandon new shipbuilding and shift to ship repair and maintenance services, planning to lay off about 100 people next year. According to Havyard's plan, its shipyard in Leirvik, Norway, is currently building six new ships, all of which will be delivered in the next two years. As the new ships are completed, the shipyard will gradually shift to ship repair, service, and maintenance, and streamline its workforce.

Although Havyard has not completely ruled out new shipbuilding activities, the company believes that in the near future, the new shipbuilding market and the possibility of obtaining financing for construction projects will face significant challenges, while the ship service market is relatively stable and profitable. Havyard also warned that under the additional challenges brought by the novel coronavirus pandemic, the Norwegian shipbuilding industry is facing a serious crisis and urgently needs more support from the government.

Before Havyard's restructuring, Kleven Verft, another medium-sized shipbuilding company in Norway, initiated bankruptcy proceedings in early July this year and subsequently found a new buyer—the Norwegian ship recycling company Green Yard Group. According to Green Yard's statement, the Kleven Verft shipyard will continue its shipbuilding business, but also plans to expand its core competitiveness into new business areas, including ship recycling.

In addition, the German medium-sized shipbuilding company Flensburger Schiffbau-Gesellschaft (FSG) also underwent bankruptcy restructuring this year and was acquired by the investment company Tennor Holding.

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