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The activity at Aker-Yards’ Søviknes yard reflects the main market groups: An offshore vessel fitting out, a trawler for conversion and one of the five Fjord1’s LNG-fuelled ferries for the E-39 coastal road. Photo: Aker Yards

2006 – a blissful bonanza
for Norwegian shipbuilding

The year of 2006 will surely be remembered for a very long time as the blissful bonanza for shipbuilding in Norway. Production was up to capacity, new orders and order backlog exceeded any historical precedent at prices that should again leave a decent margin for profit. Most yards are now fully booked into 2009, and contracts are being negotiated for delivery positions well into 2011.

The order boom, which picked up in the autumn of 2004, is mainly driven by the prospects for increased oil exploration and deepwater production. This has given a tremendous incitement for the Norwegian offshore-related marine industry in a global market. As a related part of this industry cluster the shipyards have been in a position to benefit with competitive offers, largely thanks to the cost cuts and efficiency gains achieved during preceding meagre years.

The volume of new orders during 2006 of NOK 44 billion should, however, be put into perspective by the corresponding figure of NOK 3.4 billion in 2003. That was the year when shipyards were closed and shipbuilders and sub-contractors had to cut down on staff. Now everything is reversed; the shortage of skilled labour is being made up by Polish guest workers.

The singular aspect about the Norwegian shipbuilding industry is its fragmentation and flexibility; a relatively large number of small yards relying on a high degree of subcontracting, from steelwork to specialist outfitting. As demand varies, the fluctuations are being absorbed by a great number of suppliers which to a certain extent contribute to a robust industry structure.

Oil-fuelled boost
The global building boom has had its own oil-fuelled boost as Norwegian shipyards have been able to conclude building contracts of NOK 44.1 billion (roughly USD 6.8 billion) in 2006. The order stock at the end of the year amounted to NOK 58.4 billion, compared to a production value of 11.9 million.
The oil price is the main driver, as seen by the 88 per cent share of offshore vessels in the new orders. The trend through the year was from supply ships to even more expensive vessels for subsea construction work and multipurpose service ships. The prices for such ships are often in the USD 80–125 million range, so even though the hulls are subcontracted to Romania or elsewhere, the largest slice goes to Norwegian suppliers.

The rising shipbuilding prices globally have also restored some competitive power in other segments. This is seen by the order for four 43,000 DWT chemical carriers by Stolt-Nielsen Transportation Group from Aker Florø. In this project, the Florø yard will build the stainless steel cargo sections and do the outfitting, while the Damen Ocean shipyard in Ukraine will build the bow and stern sections. The price of USD 87.5 million per ship is, arguably, not modest, but will ensure quality and reasonably early delivery positions from the autumn of 2008.

Aluminium shipbuilder Fjellstrand will deliver the FlyingCat 35m catamaran Miljø-dronningen 2 to Norges Miljøvernforbund in September 2007.

Industry structure
Aker Yards has taken another step towards consolidating its five yards in Western Norway, Aukra, Brattvaag, Søviknes, Langsten and Florø. In October 2004 the commercial leadership was brought together in a common staff, and subsequent new orders were concluded with this unit and allocated to the yards. The Florø shipyard, the only one in Norway capable of building larger vessels up to about 40,000 DWT , was acquired by Aker Yards in June from Kleven, valued at NOK 60 million plus assets and liabilities.

Other yard transactions include the Solstrand shipyard, purchased by Per Sævik’s Havila group in August from the bankers. This means that Solstrand in the future will be integrated with Havyard Leirvik.

The year saw a few resurrections. Fosen Mek Verksteder again spurred into life with Stena Trader, a ro-pax delivered to Stena Line in June after three years’ inactivity. Bergen Yards – which carries the legacy of both BMV and Mjellem & Karlsen – received its first hull from Poland for fitting out and has thus returned to shipbuilding. Karmsund Maritime delivered its first vessel in three years, and smaller yards like Eidsvik and Hellesøy secured orders that will see new activity at quiet yards. At the latest count, there are 32 shipyards actively building vessels larger than 20 meters.

Production bottlenecks
Looking back ten years, the annual production value has varied considerably within NOK 8-12 billion range, with 2002 and 2004 as the all-time high and low of 14.4 and 4.4 billion, respectively. The next years will see higher figures, much due to the complexity and cost of the vessels.

There are obvious bottlenecks, though. One has been the availability of skilled labour, a shortage filled by Polish workers. Another, and more serious, has been the capacity for steel subcontracting from Baltic and Black Sea countries. No doubt Aker Yards has tackled this in a professional manner, buying and integrating the Tulcea and Bourgas yards in Romania, latterly also Ocean Damen. Ulstein Verft, which invested so much in a local steel production facility, has developed a system for section building in Poland. Other yards have been less capable of finding long-term steel suppliers of the required quality, and these are already seeing severe delays in deliveries.

	Offshore vessels make out 85 per cent of the order value. Aker Yards Langsten will build four UT731 for Farstad Shipping, each at a price of USD 85 million. Photo: Aker Yards

An increased workforce
Also, the specialist subcontractors involved at home have had to take on people to meet demand. Although figures are hard to get by, the total employment in the shipbuilding industry has rebounded from an estimated 6,000 by 2004 to more than 8,000 today.

Equipment manufacturers are reporting much the same challenges and are carefully trying to attract new workers. Manufacturers like Rolls-Royce Bergen Diesel are now fully booked until 2010, and the crucial factor for delivery of anchorhandlers, for example, is not steel production, but delivery of propulsion systems and winches.

Technology edge
Traditionally, Norwegian shipbuilders have had four main markets: Offshore, fishing, passenger and specialized vessels. From 1998 to 2004, offshore vessels have made out roughly half the annual production value, rising to 75 per cent last year and 85 per cent of the order stock. Fishing vessels, for example, used to fluctuate between 17 and 29 per cent, but was down to 3 per cent in 2006. The same goes for passenger vessels, where large vessels like the Hurtigrute ships in 2002 brought the share to 27 per cent, down to 7 last year.

The first of the Ulstein X-bow concept was the anchorhandler Bourbon Orca of the AX-104 design, delivered in June 2006 from Ulstein Verft to Bourbon Offshore Norway. Photo: Oddgeir Refvik

In a longer perspective, all these markets are cyclical, driven by diverse and sometimes complementing demands. This will certainly continue. Typically, the Norwegian shipbuilding industry has its strongest stand in offshore and fishing, and secondly in passenger and specialized vessels, segments where shipbuilding is just a part of a larger technology cluster.

As we close the book for 2006, the challenge for the Norwegian shipbuilders will be to retain their competitive edge through the offshore feast. When it is all over, they will have to be lean and hungry to compete with Polish and Indian shipbuilders.

//Dag Bakka Jr

Latest update 22-03-2007 12:41

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