You build ships, I leave! Yang Ming Marine Transport "forcefully" launches shipbuilding plan

Facing a sustained downturn in the shipping market and opposition from two independent directors, Yang Ming Marine Transport's long-delayed shipbuilding plan has finally been launched with a tender. With a significant advantage in available dry dock time, Taiwan's largest shipyard, CSBC Corporation, Taiwan, is expected to collaborate with a South Korean shipyard to win this large order for 5 15,000 TEU dual-fuel container ships.

Cooperation with South Korea for bidding? CSBC Corporation, Taiwan targets Yang Ming Marine Transport's dual-fuel container ship order.

On September 6, Yang Ming Marine Transport officially launched an international tender for an order of 5 15,000 TEU dual-fuel container ships. This new ship construction will be divided into two phases. Currently, the first phase, the "qualification bid," is underway, aiming to select capable shipyards from numerous invited shipyards in the near future. Details regarding specifications, price, and delivery time will be announced later, with selected shipyards participating in the second round of bidding. The open tender is valid until 12 noon on September 6. Yang Ming will submit the bids to the ship selection committee, followed by price negotiations with the pricing committee, and finally board approval. The earliest submission to the board is expected in October.

It is understood that Yang Ming's new ship construction is divided into two phases. Currently, the first phase, the qualification bid (also known as the long list), is underway, aiming to select capable shipyards from numerous invited shipyards in the near future. After entering the shortlist, details regarding equipment specifications, price, and delivery schedule will be announced, followed by bidding from the companies.

According to Taiwanese media reports, CSBC Corporation, Taiwan has decided to jointly bid with a South Korean shipyard. CSBC Corporation, Taiwan executives revealed that they will cooperate with a South Korean shipyard, with the Korean side providing drawings and technology, and CSBC Corporation, Taiwan providing the dry dock for construction. The estimated total cost is around US$1 billion.

Earlier in early August, CSBC Corporation, Taiwan Chairman Cheng Wen-lung confirmed that they were in talks with Yang Ming Marine Transport regarding the order for 5 15,000 TEU container ships. If this order is successfully secured, it will be CSBC Corporation, Taiwan's first LNG-powered ship order.

Yang Ming Marine Transport and CSBC Corporation, Taiwan have a long-term and stable cooperative relationship. To date, CSBC Corporation, Taiwan has built over 100 ships of various types for Yang Ming Marine Transport, including 4,250 TEU, 8,241 TEU, 6,600 TEU, and 4,500 TEU vessels. However, after CSBC Corporation, Taiwan delivered 10 2,800 TEU container ships ordered by Yang Ming Marine Transport in the fourth quarter of 2021, cooperation between the two parties temporarily came to a halt.

Although CSBC Corporation, Taiwan has never built an LNG-powered ship before, it has a significant advantage in delivery time. The dry docks of major shipyards in China, Japan, and South Korea are already fully booked until 2025, with the earliest delivery possible in 2026. CSBC Corporation, Taiwan can offer delivery in the second half of 2025.

Despite this, a 15,000 TEU dual-fuel ship still presents a significant challenge for CSBC Corporation, Taiwan. CSBC Corporation, Taiwan has not built such a large container ship before. The largest container ships previously built by CSBC Corporation, Taiwan were 5 14,000 TEU ships for the independent container ship owner Seaspan, which were also leased by Yang Ming Marine Transport, but these 5 ships were conventionally powered. CSBC Corporation, Taiwan internally estimates that it will take at least two years to deliver an LNG-powered container ship.

Therefore, Yang Ming Marine Transport has decided to cooperate with international shipyards such as those in South Korea or Japan, using a division-of-labor approach to compress construction time and delivery time. If this approach is approved by Yang Ming Marine Transport, it can be used to participate in the second phase of bidding in the future.

In addition, industry analysis also points out that CSBC Corporation, Taiwan enjoys an advantage in dry dock availability, but it also depends on whether the ship engine manufacturers can cooperate with the delivery time. Currently, engine manufacturers, like shipyards, also have full order books.

5 ships for US$1 billion! Yang Ming Marine Transport bets on the future of LNG power and will build another 5 ships.

Yang Ming Marine Transport initially announced in January this year that it would build 5 15,000 TEU container ships, with an estimated delivery time of 2025. In April, Yang Ming Marine Transport's board of directors approved the construction of 5 dual-fuel ships, which will be procured through international tender, making it the first shipping company in Taiwan to build LNG-powered container ships.

With ship prices continuing to rise this year, the industry estimates that the current cost of such 15,000 TEU dual-fuel ships has increased to nearly US$200 million, so the total value of this order is expected to reach US$1 billion, setting a new "sky-high" price in the container ship market.

After ordering the first batch of 5 15,000 TEU dual-fuel ships, Yang Ming Marine Transport is expected to launch a construction plan for a second batch of 5 similar ships. Since methanol fuel technology is not yet mature, and methanol resources are controlled by Maersk, while LNG power is quite mature, the industry estimates that Yang Ming Marine Transport is highly likely to continue ordering LNG-powered ships in the future.

Currently, approximately 23% of the shipping industry's emissions come from container ships, and this proportion will further increase with the growth of global trade. Compared with traditional marine fuels, LNG can reduce greenhouse gas emissions by about 20%, making it the lowest-carbon fuel currently available for large-scale use. LNG fuel also emits almost no sulfur oxides and particulate matter, and can significantly reduce nitrogen oxide emissions. It is the mainstream ship type under low-carbon requirements and complies with the new carbon emission regulations that will come into effect next year.
       In addition to the 10,000 TEU ships, Yang Ming Marine Transport also has 15 1,500-1,800 TEU container ships that are 15 years old and must invest in building new ships to replace them. CSBC Corporation, Taiwan is also actively vying for Yang Ming Marine Transport's feeder container ship orders, and it is estimated that these smaller ships can be delivered as early as the end of 2024.

According to Alphaliner data, Yang Ming Marine Transport currently operates a fleet of 94 container ships, including 51 owned vessels and 43 chartered vessels, with a total capacity of approximately 686,500 TEU, ranking 9th globally and having the smallest capacity among members of THE Alliance.

In addition, Yang Ming Marine Transport only has an order for 1 11,860 TEU ship, accounting for only 1.7% of its existing fleet, the lowest among the top ten container shipping companies. Among the top ten global container shipping companies, only Yang Ming Marine Transport has not placed any ship orders in the past year and has no new ships to be delivered after 2023.

Although its current capacity ranking is temporarily 9th, Yang Ming Marine Transport's backlog of orders is far lower than that of ZIM (10th, 46 ships, approximately 413,800 TEU) and Wan Hai Lines (11th, 45 ships, approximately 318,100 TEU). Including backlogged orders, the fleet capacity of ZIM and Wan Hai Lines has already surpassed that of Yang Ming Marine Transport.

        Shipbuilding plan questioned? Two independent directors of Yang Ming Marine Transport resign.

        Yang Ming Marine Transport's board of directors is fractured, with two of its three independent directors resigning on the same day. The trigger was the dual-fuel 10,000 TEU ship construction plan.

On September 2, Yang Ming Marine Transport issued an announcement stating that independent directors Wang Zijun and Chen Jiefu resigned from their positions as independent directors effective September 3 due to personal reasons. The vacancies will be filled at the next shareholders' meeting.

According to a Yang Ming Marine Transport director, the resignation stemmed from the LNG-powered dual-fuel 15,000 TEU container ship construction project approved earlier this year. Due to the project's rough proposal, three independent directors deemed it uneconomical and voted against it, leading to a stark disagreement.

Earlier this year, the Yang Ming Marine Transport board of directors approved a plan to build five 15,000 TEU dual-fuel container ships. This makes them the first shipping company in Taiwan to order LNG-powered container ships. Not only are the operating costs high, but no Asian shipping company has experience operating LNG-powered container ships. Yang Ming Marine Transport will have to bear the cost of learning by doing, which is clearly uneconomical. In addition, the proposal for the shipbuilding project was poorly prepared, with unclear benefit analysis. Three independent directors voted against it, and two other directors abstained.

This director stated that Yang Ming Marine Transport Chairman Zheng Zhenmao initially intended to abstain, citing that "the chairman should not express a stance on important proposals." However, other directors warned that with five of the eleven directors already opposed, if the chairman also abstained, the proposal would fail. Zheng Zhenmao reluctantly withdrew his abstention, allowing the shipbuilding project to pass.

The director recounted that Zheng Zhenmao, lacking understanding of the shipping business, declared an internal "collective leadership system" to avoid making wrong decisions, meaning he would not take responsibility for decision-making. This resulted in extremely poor decision-making efficiency in the board, causing the company to stagnate and major proposals to stall. Two independent directors, unable to tolerate this, announced their resignations on the same day.

Following the resignation of the two independent directors, an unnamed retired senior executive of Yang Ming Marine Transport spoke to the media, criticizing the two independent directors for being "overly cautious," hindering the company's progress. The executive also stated that their resignations would allow the board to be revitalized, hoping that the future replacements would be "more professional" individuals.

In response to the accusations of "disagreement," Yang Ming Marine Transport issued a statement on the evening of September 4, expressing regret that certain media outlets had misinterpreted the composition of the board, intentionally downplaying its expertise, and commenting on inefficiency without understanding the specifics of the board meetings, which is inconsistent with the facts.

Yang Ming Marine Transport's statement pointed out that the board of directors is the highest decision-making body, with a diverse membership representing expertise in law, finance, accounting, and economics, ensuring comprehensive leadership in major decisions.

Yang Ming Marine Transport stated that the international container market, environmental regulations, and vessel supply are rapidly changing. To effectively manage risks, directors provide advice according to their responsibilities, and relevant proposals align with the company's long-term business development plan.

Using its shipbuilding strategy as an example, Yang Ming Marine Transport stated that it continuously monitors the shipbuilding market, energy trends, the operations of THE Alliance, its route expansion needs, optimal vessel age and type configurations, and international environmental regulations, closely communicating with the board to discuss the optimal vessel renewal plan.

Yang Ming Marine Transport pointed out that the size of each company's fleet and market share vary. Comparing itself to other companies that have built ships or purchased second-hand vessels prematurely is unproductive. Yang Ming Marine Transport effectively utilizes its current fleet size, and its operating profit margin in the past two years remains among the top in the industry.