Norwegian yards
– from misery to boom

A year ago we portrayed in this column a Norwegian shipbuilding industry at a crossroads: Either permanent decline, or revival during 2004. The decline option was based on the fact that half of the country's approximately 70 yards were idle, and that the 30 newbuilding yards had orders for less than NOK 3 bn relative to a capacity of NOK 12 bn. The outlook for 2004 at the turn of the year was grim: Only 9 of the yards would be employed in the second half of the year, unless the ordering pace should pick up.

The first of two Stena hulls will arrive at the Fosen yard in December 2005. Capacities: Approx. 3100 lane metres, pax capacity in cabins; 200 and max speed approx. 23 knots.

On the other hand, the revival option was based on the facts that the exchange rate of the NOK had improved considerably to the benefit of Norwegian exporters, the borrowing interest rate was about to come down to the same level as in the EU countries and the yard workers' wage level did not increase as it used to in the previous years,

So, what happened?

A year later the industry is booming. At the treshold of 2005 the number of new orders are close to capacity. The majority of the new orders came in the second half of the year. In less than half a year the situation turned from a miserable situation to booming prospects. And it all seems to continue well into 2005.

Again, what happened?

First of all we have to realize that most of the orders are for offshore vessels. As per mid-December as many as 36 of a total of 84 ships on order were offshore vessels like platform supply vessels or anchorhandling/tugs. The balance were basically seagoing fishing vessels, and a mixture of specialised vessels like passenger/car ferries, research vessels, naval ships, SAR, tugs, ro-ro and a couple of smaller tankers.

Øytind, a live fish carrier delivered from Aas Mek. Verksted AS in October 2004.

(fiskeri.no)

The ordering boom can consequently be attributed to the upswing in supply ships' rates, which in turn is an effect of the high crude oil price in 2004. The high oil price stimulates the oil companies to invest in exploration, development of new fields and enhanced production from existing fields, triggering a need for more logistics services. Even a possible moderate downturn in the oil price will not change this picture, since the investment move already has gained momentum and cannot be easily reversed. A relatively comfortable supply ship market is therefore expected in the foreseeable future, encouraging shipowners to invest in new ships.

But also other ship types have contributed to the improvement, particularly a couple of Stena ro/ro-ferries to be built at Fosen and a series of naval/SAR/coastguard vessels distributed on several yards.

A year ago we indicated that a change in paradigm for Norwegian shipbuilding was about to take place, and a year later the picture is becoming clearer. The industry appears to be in the middle of a consolidating process, whereas weaker yards are perishing and stronger yards are becoming stronger by acqusitions, mergers or alliances. Consequently Norway seems to get a leaner but stronger shipbuilding industry. Most successfull in this respect has undoubtedly Aker Yards been. The group was among the first to acquire yards in low-cost Europe and South America to secure capacity for outsourcing of hull fabrication. Their strategy of combining Norwegian shipbuilding know-how with foreign low cost labour was proven successfull in December when Aker Brevik won the contract of building six 15.000 dwt product tankers completely at Aker Braila in Romania, in strong competition with Far East yards. At the time of writing the Norwegian yards in the Aker family have an impressive orderbook of 21 PSVs, three AHTS', three additional offshore vessels, three car ferries, one coast guard vessel and one product tanker, all to be delivered in the course of the next couple of years.

BOURBON EMERALD, a UT 745 E design delivered from Aker Langsten ASto Bourbon Ships AS.

(Photo: Harald M. Valderhaug)

Whereas the total order stock only a few years ago was distributed on a great number of relatively small yards along the Norwegian coast, the more or less equal order value is today concentrated on fewer but stronger yards, or group of yards. Among these are the three Kleven sites (Kleven Verft, Kleven Florø and Myklebust Verft), Ulstein Verft, the two yards in Flekkefjord (Simek and Flekkefjord Slipp & Maskinfabrikk), and last but not least Bergen Yards. The latter is indeed an illustration of the current development in the industry. Financial strong interests acquire suffering yards and collect them under one umbrella, benefitting from economy of scale and eventually making them profitable. Under the Bergen Yards umbrella we find entities as prestigeous Bergen Mekaniske Verksted, Mjellem & Karlsen, Fitjar Mek. Verksted and Kimek of Kirkenes. Probably more is to come, e.g. Kleven Florø and Bergen Yards have been in negotiations about a future co-operation regarding the assembly and outfitting of some of the Spanish-built fregates for the Norwegian Navy, however without any firm result so far.

One of the serious effects of the recent downturn, and consequently now a challenge for the industry, is the loss of skilled labour, white collar as well as blue collar, during the bad years. The Federation of Norwegian Manufacturing Industries (TBL) estimates that the number of employees at Norwegian newbuilding yards is down to a record low of 3000, imposing a serious challenge for the yards to recruit new staff. But fortunately – the core competence has been maintained during the downturn, enabling the yards to quickly recover and take advantage of the booming market. As outlined above, the future for the Norwegian shipbuilding industry is to maintain the know-how domestically, i.e. design, engineering, project management, purchasing and financing, and outsource the fabrication work either to own subsidiaries or foreign yards in low cost countries.

This development entails in turn a challenge to the Norwegian sub-contractors and equipment fabricators, who are forced to follow the outsourcing of the projects to the foreign construction yards, if they are to maintain their market share. A shift from the custom of building a hull at a low cost yard and tow it to Norway for outfitting, to do the complete building including outfitting at the low cost yard, is a new challenge to the equipment industry. This industry forms a vital part of the important Norwegian maritime cluster, and has in many respects managed to maintain its position on the world market during the declining years for the Norwegian yards. The relationship with Norwegian shipowners has opened many a door at yards in the Far East and elsewhere in the world.