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Volkswerft is in economical trouble despite record orders.

Germans consolidate amid caution over future
Much that was insecure in 2005 is now more consolidated as German shipbuilding emerges from another bolstering year – a time in which, for the first time in years, the number of newbuildings delivered came respectably close to the number built by foreign yards for German owners.

Yards are now heading into what could be another bright year and the reason for the continuing good fortune remains the same: full slipways in Asia and the FarEast as shipyard prices rise.

Shipowners continue to turn to more expensive European yards, even though capacity there is now also sometimes scarce and delivery is no longer as fast as it used to be. German cruise and ro-ro as well as mid-size container, tanker and special shipbuilders are doing particularly well.

	Bernard Meyer

Nonetheless, many continue to wonder how long this situation can last. Others, like Bernard Meyer, urge yards to utilise the time wisely to co-operate, nationally and within Europe, and consolidate their superior technological lead.

Meyer, now Chairman of the German shipbuilding association VSM, warns of overcapacity ahead. He urged German shipbuilders to “exploit the current positive market situation in order to be ready for the period after it.

“Europe’s yards are, it is true, currently well booked, but others, above all the Chinese shipyards, are expanding their capacities massively”, he warned.
Patrick Boissier, Chairman of the Community of European Shipyards’ Associations (CESA) said in Brussels “of course there will be more difficult times again, but if we join forces and prepare in time we will be successful”.

Boissier stressed that “innovation is clearly the absolute key in our strategy. We are investing great efforts to further enhance our leading edge in technology”, he said. “Forget the picture of a subsidised old industry. This is a strong growth market for high tech goods. We have confidence about our competence.”
According to the CESA chief, European shipbuilding order intake rose faster in 2005 than in any other country, growing faster even than in China.

He said Europe’s order intake was four times as high as in 2002 and reported figures showing a 5.6 per cent increase in European order intake against 4.1 per cent for China and drops of 13 per cent for South Korea and as much as 59.7 per cent for Japanese shipyards.

133 new orders
German shipyards delivered 76 newbuildings of 1.34 million GT last year – ten more than in 2004 when 1.02 million GT were built. By contrast, at least 84 mainly container ships were handed over to German shipowners in 2005 by foreign yards, most of them in South Korea, China and Japan.

The Germans took 133 new orders of 2.1 GT worth EUR 5.6 billion up to the end of September 2005. That raised orders in hand at that time to 224 ships of 4.4 million GT worth EUR 10.5 billion. In November, however, a leader official said orders taken in 2005 would exceed the 158 in the previous record year, 2000.

Elsewhere, the VSM’s Werner Lundt said the “positive development” had statistically created enough work to keep German yards busy for more than three years. However, he also cautioned that because of the long production times in shipbuilding, the orders were a necessary run-up to new work and should not be seen as a comfortable buffer. More orders needed to be taken if the yards were to position themselves well for the future, Lundt said.

Around the country, revamped east German facilities still spearhead German shipbuilding growth with Asian hunger for raw materials helping to fuel yard prosperity. Many of the former GDR yards were obsolete scrap dumps in 1990, but now boast full order books are set to grow even further, thanks to German taxpayer generosity in the 1990s.

According to official statistics, east Germany’s four main shipyards earned EUR 789 million in the first eight months of 2005, an increase of nearly a third over the same period of 2004.

Long-sought-after productivity and production increases are planned now after the end of EU quota restrictions. They were imposed in the early 1990s in return for Brussels approval of massive German yard restructuring aid.

	Aker Warnow is building complete ships again.

Scandinavian ownership
The main east German yards have also now recovered, under Norwegian and Danish ownership, from a scandal that rocked the foundations of European shipbuilding a decade ago this May. For some it was even touch and go for a while in 1996, when parent Bremer Vulkan collapsed.

Freer now, unburdened by quotas, the ultra modern facilities will, however, also have to live without EU shipbuilding subsidies of up to six percent for container ships. And that, Peene-Werft spokesman Jan Molter was quoted as saying in Wolgast, would “cut profit and endanger future investment”.

Molter said Asian demand for imports had been the reason for Peene-Werft’s success in 2005 and would continue to fill order books in the coming years for the facility’s 800 employees.

The yard had 45 ships on its books for delivery up to the start of 2009. Seven ships were built in 2005 at Peene-Werft and its sister yard Rolandwerft in West Germany, among them the biggest in the yard’s history. Investment totalling 30 million euros was planned, Molter said. “Only by doing this can we remain competitive”, he declared.

Rolandwerft planned a new quayside and modernised equipment under a project costing EUR 13 million. East Germany’s Volkswerft in Stralsund wanted to build Panmax ships under a EUR 18.7 million project.

Berlin, is being asked to support the projects because, as SSG went to press, the EU Commission was reported considering a Berlin request for approval of state subsidies totalling EUR 5.8 million – EUR 1.56 million to Rolandwerft and EUR 4.2 million to Volkswerft.

At full capacity
The EU Commission was making clear, however, that subsidies could not be used to increase capacity and would only be approved if they were for modernisation of existing facilities and equipment.

Volkswerft MD Bertram Liebler surprisingly revealed meanwhile that despite full order books until 2009, his Danish-owned yard would be “deep in the red” this year and in 2007.

Volkswerft, ranked fourth in the German delivery tables last year with six ships of 154,180 GT, has spoken of increasing production in the wake of EU quota removal. Due for handover in April to Maersk was the first of seven 4,000 TEU, 48,000 DWT container ships – the biggest ever built at Volkswerft.

However, Liebler was quoted as saying that despite making a small profit on a turnover of EUR 250 million in 2005, the yard would now incur losses likely to be in the double-digit million EUR range.

He said the reason was the dramatically increased price of steel. Many yard orders had been taken at a time “when we had to fight hard for every order”, he was quoted as saying. Keenly calculated prices had been totally undermined by steel price increases, which made up a fifth of the production costs of every ship, he added.

According to Liebler, a container ship built at Volkswerft cost EUR 35 million a few years ago, but now cost between EUR 50 and 55 million. Steel prices had nearly doubled in just a year, he said.

Volkswerft is prepared to carry the losses itself and redundancies were not planned, it said. However bosses were talking to unions about more savings. There has been no holiday pay or Christmas bonus for the 1,200 employees for years and that is expected to continue. The yard was also reported considering a six day week of 40 instead of 38 hours.

Along the coast Matthias Trott, spokesman for the biggest east German shipyard group Aker-Ostsee was quoted as saying his firm had avoided the problem of steel price changes by inserting sliding clauses into all 29 of the contracts it signed in 2005.

Only eleven contracts signed before then had not been covered and the losses on those had been absorbed by the yard itself, Trott reportedly said.

	Neptun attracts passenger ship work.

Best productivity
Last year, Aker Ostsee topped the list of Germany’s most productive shipyards. It delivered nine newbuildings and two hulls of almost 300,000 GT.

After delivery of the 2,700 TEU Cape Mondego in February, the group reported an impressive 39 ships still on the books, the last for completion in the third quarter of 2008, The total value of orders was about 1.5 billion euros as the yard went into 2006.

From mid 2006, complete ships will be built for the first time in three years at its Warnemünde facility, the former Kvaerner Warnow Werft, after being split between the Warnemünde and Wismar yards. The first ship will be completed early in 2007 and eight more will follow. They will be smaller ships. Construction of the bigger 2,500 and 2,700 TEU ships will continue to be split between the two yards.

Consolidation has also been the name of the game elsewhere.
Second on the delivery table this time is the now consolidated Thyssen Krupp Marine Systems. Formerly five separate German yards, it now groups Blohm+Voss, Blohm+Voss Repair, HDW, Nordseewerke, Nobiskrug and foreign subsidiaries. It delivered seven ships in 2005 of total 164,895 GT.

The Meyer Werft Group, including subsidiary Neptun Stahlbau in Rostock, was third on the list of top deliverers last year with six vessels of 155,900 GT and is the builder of Germany’s biggest ships. Its continuing dramatic consolidation is remarkable.

Meyer went into 2006 with orders for seven cruise ships and four gas tankers, together worth EUR 2.7 billion, enough to keep its 2,200 strong workforce busy until 2009.

Already this year it has added a second order for a 118,000 GT Post Panamax cruise ship from Celebrity. It’s a far cry indeed from the situation just a year or so ago when Meyer was scratching for work.

The latest cruise ship, the biggest ever built by Meyer, is a converted option, secured when Celebrity ordered the first Challenger Class ship last summer. The 315 metre-long, 36.8 metre-wide ships, carrying 2,850 passengers, will be diesel powered with 63,000 kW and pod drives. The first is expected to be delivered in autumn 2008, the second in summer 2009.

Aida Cruises deliveries
Already this year Meyer has floated out the 93,500 gt Pride of Hawaii for NCL. That EUR 350 million, 294.1 metre-long and 32.2 metre-wide ship was due to sail down the Ems to the sea in mid March.

Also in March Meyer was laying the keel for the second of its three 68,500 GT club ships for Aida Cruises. The first ship, begun last October, is for delivery in spring next year, the second and third at one year intervals after that.
Subsidiary Neptun Stahlbau also seemed to have settled down into a steady rhythm with its conversion activity and inland cruise ship newbuildings, putting a brand new ship model, the 135 metre inland Twin Cruiser, onto the market for Premicon in 2005.

It was delivering the third of five such ships in April and MD Manfred Mueller-Fahrenholz said the yard was largely booked this year.
Consolidation is not only happening in the big yards. Good orders have fattened up order books at medium-sized and small yards as well.

First of six tankers
Tanker specialist Lindenau Werft was handing over Sea Trout, its biggest tanker to date and the first of six 40,500 DWT doubled hulled safety tankers in June as it eyed tankers up to 50,000 DWT and also branched sideways into tub building.
Another big order late last year meanwhile lowered the pressure on leading ro-ro builder Flensburger Schiffbau Gesellschaft (FSG).

It signed contracts for four of its new ConRo 200 design and options on six further vessels. FSG would not name the owner, but there was a report that the ships were for Cobelfret, which already has two of the type on order for delivery by FSG in November this year and March 2007.

FSG Executive Vice-President and Head of Sales & Marketing Uwe Otto told SSG the ships were for delivery between end 2008 and autumn 2009. He also reported they had been booked because of “their creative design, their overall technical competence and the best value for money ratio”.

//Tom Todd

Latest update 18-10-2006 8:49

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