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DEMAND FOR SHIP BY OLADOKUN SULAIMAN
Entry for June 13, 2008 - NEW BUILDING Magnify
Yards, such as Hyundai (HHI), Hanjin (HHIC) and Samsung (SHI), did not benefited from large scale debt restructuring and which operate comparatively “old” facilities show (slightly) higher production costs under the debt-based methodology, while yards, such as Daewoo (DSME) and Daedong, did benefited from debt reductions and moratoria but operate comparatively “new” facilities show (slightly) higher production costs when basing the investigations on the depreciation approach. The two approaches give very similar results for the other two major Korean yards, Hyundai Mipo and Samho. Of course, results are also influenced by the financing terms of the individual projects investigated.
New ship builders
Source- European union
Prediction for future shipbuilding
If we go through the trend of the shipping and shipbuilding above, we can create and project a new development in next few years’ construction. Here, what I am thinking that influence to the shipping and shipbuilding industries.
1. Justification for Combined Carriers
In order to discuss the need flexible ships on certain of the world’s trade routes, the following section looks at the justification put forward by the shipping industry for the design and operation of combined ore, bulk, oil carrier or ore, oil carrier. These ships are designed to carry either oil or dry bulk on separate voyages at different times and are potentially more productive than pure tanker or bulk carrier.
In making the decision to invest in combined carrier tonnage as opposed to a pure oil carrier or dry bulk carrier, the ship-owner is presented with two possible operating scenarios. He can either combine voyages over a period by carrying dry bulk and oil in a sequence that keeps ballast to minimum or he can switch his ship between the dry bulk and the oil market sector. The independent ship-owner seeks to minimize his earnings by operating ships; therefore he must adapt management performance to combine flexibility with greater earning power.
2. Combined Voyages
The operation of combined voyages seeks to mix short ballast passages with longer loaded ones. It takes a different management style and effort to negotiate a series of contracts that will keep the ship employed to that normally found in bulk shipping company. The use a contract where the ship is not named in the document, but a promise is given to deliver the fixed amounts of cargo in given time periods makes it possible to plan the schedules of a fleet of this type of ships. The problem may be encountered where the cargo owner may offer a lower freight rate than that currently found in the spot market in exchanged for this type of commitment.
3. Spot Market Operation
The basic assumption underlying this philosophy is that the shipping market follows a pattern, which enables the time, when it is advantageous to transfer the combined carrier from oil trading to dry bulk trading to be calculated. This means that when tanker rates are high, the ship is traded in the oil market as a tanker, but when this rate falls there comes a time when the dry bulk rate will be higher it is the profitable to transfer to dry bulk trading.
4. Event Affecting Combined Carrier Utilization
Almost all commercial merchant ships are powered by oil fed plant. However, the oil crisis of the last few years has highlighted the need to research the likely power plant of the future. Amongst the many options, three alternatives to oil seem to have gained the most attention.
· Steam power
· Wind power
· Nuclear power
New project investigations
Since the last shipbuilding report six more orders (all placed in South Korea) were
investigated in detail, in order to establish the actual building costs. The investigated
– VLCC, 48 120 cgt, to be built at Samho Heavy Industries;
– LNG carrier (series of 5), 71 850 cgt, to be built at Daewoo Shipbuilding and
Marine Engineering Co. Ltd. (DSME);
– LNG carrier, 69 675 cgt, to be built at Samsung Heavy Industries (SHI);
– LNG carrier (series of 2), 88 500 cgt, to be built at Hyundai Heavy Industries
– Suezmax crude oil tanker (series of 4), 30 800 cgt, to be built at Samho Heavy
– 5 762 TEU containership (series of 2), 42 835 cgt, to be built at Samsung
Heavy Industries (SHI);
DSME has become the leading builder of LNG carriers in the world, with sixteen ships on order, giving the yard an economy of scale unseen before. However, the detailed analysis undertaken revealed that for the construction of LNG carriers there are limits to the improvement in efficiency as some yard equipment needs to be duplicated, leading to high up-front investment costs. Furthermore, DSME managed to start as a new company in late 2000, shedding most of the debts of its predecessor.
Therefore DSME can operate a very large state-of-the-art shipyard without the massive initial investment costs being reflected in their product prices. Nevertheless DSME still stands at a debt to equity ratio of 279 % (estimated for 2001), and although it is currently cash rich due to high order intake in 2001, this is likely to be dissipated when those orders need to go into production and the actual building costs begin to be incurred. SHI remains burdened with a comparatively high level of debt (the debt to equity ratio for 2001 is estimated to be still more than 200 %) and this fact is reflected in their cost base. SHI also suffers from a lower productivity than its Korean competitors, leading to higher wage costs. In addition SHI did not manage to attract multiple orders as Daewoo and Hyundai did and this has to show in the unit costs.
After being able to dispose of some non-performing assets stemming from HHI’s previous engagement with other Hyundai subsidiaries, HHI seems now to be heading towards profitability. HHI’s debt to equity ratio is assumed to reach 183 % in 2001, but, as with all Korean yards, an assessment of the yard’s financial situation is difficult to make. Very few meaningful financial figures are given and published accounts are not very recent and have little or no annotations.
SOURCE CLARCKSON RESEARCH
The world shipbuilding market is characterized by a strong imbalance of supply and demand, that over-expansion of shipbuilding capacity in Korea has led to very low offer prices in most market segments and that the resulting losses for Korean yards, in some cases, have been compensated through financial restructuring which.
The world merchant fleet expanded to 895.8 million deadweight tons (dwt) at the beginning of 2005, a 4.5 per cent increase. Newbuilding deliveries increased marginally to 49.4 million dwt, and tonnage broken up and lost was more than halved to 10.6 million
dwt, leaving a net gain of 38.8 million dwt.
The fleets of oil tankers and dry bulk carriers, which together make up 73.3 per cent of the total world .fleet, increased by 6.1 per cent and 4.2 per cent respectively. There was a 8.4 per cent increase from 90.5 to 98.1 million dwt in the container ship .fleet and a
7.6 per cent increase from 20.9 to 22.5 million dwt in the liqufied gas carrier’s .fleet.
The average age of the world fleet dropped marginally to 12.3 years, with almost 27.3 per cent of the .fleet 20 or more years old. General cargo vessels had the highest average age (17.5 years) and container vessels the lowest (9.4 years).
Registration of ships by developed market economy countries and major open-registry countries accounted for 27 and 45.1 per cent of the world .fleet respectively. Open registries increased their tonnage marginally; two thirds of this beneficially owned. Fleet
is owned by market-economy and developing countries. Developing countries’ share reached 22.6 per cent or 202.3 million dwt, of which 155.9 million dwt is registered in Asia.
I. S.R.Tolofari (1989), “Open Registry Shipping, AComparative Study of Costs and Freight Rates”, Gordon and Breach Science Publishers, Amsterdam
II. Roy L. Nersesian (1981), “Ships and Shipping, A comprehensive Guide”, Penwell Books, Oklahoma
VII. UNCTAD Review of Maritime Transportation, 2004, Pg 19-53
Demands for shipbuilding
Research and development Forecast under analysis of cargo volume and correlation with fleet ownership generated has allows have also been a useful tool for various decision making process to meet market and demands call in maritime industry a swell as increased productivity and cost reduction in the construction of ships. So far, because of the complexity of the maritime industry- maritime structures and maritime transport services are largely interrelated, therefore, demands to meet productivities, efficiency of the construction of ships, Technology and Improvement of competitiveness depends on the following components
* Human factor
In particular, in order to achieve substantial cost reduction, productivity gains, production process simulation under technological and organizational, this along side with other factors of labor and incorporation of new ICT tools for interconnectivity between different systems will be taking into account and incorporated as necessarily.
In addition to this the following factors has also influence the market of sea transport:
* World Economy: the world economy with its output and trade is the most important single factor to generate demand for shipping and any crisis in the world economy reflects in the demand for shipping. Ups and downs of shipping demand are also proportionate to world trade. The world economy that may bring about change in the demand for sea transport through:
· The Business Cycle: The business cycle lays the foundation for freight cycles. Fluctuation in the rate of economic growth work through in to the sea borne trade, creating a cycle pattern of demand for ships. For example, two major recessions in shipping business in 1975 and 1981-1983, which co-incited with the recession of the world economy. These economic cycles arise from a combination of external and internal factors. The external factors include events such as wars or sudden changes in commodity prices such as crude oil, which cause a sudden change in demand. Internal factors refer to the dynamic structure of the world economy itself, which it is argued, leads naturally to a cyclical rather than linear growth path. Five of the most common business cycles are-
Concurrently, this make the designing and building of highly complex maritime systems, be it ships, floating factories or fixed structures, requires the best possible multidisciplinary approach that focus on
* Simplicity (in lay-out and operation)
* Robustness and reliability
* Ease of maintenance
* Low manning requirements
Inline with contemporary issue of sustainable safe and environmentally friendly ship operation, using
* Design Tools.
* Design Methods
* Production Processes
* Production Technologies
Commodities that have share of commodity for sea trade are raw material of agricultural industry, Metal Industry, Forest Product, Other Industrial Material, Other Manufactures.
The most important technical development was the unitization of the liner shipping business. The shipping industry has been so successful at exploiting this technical development that the cost of sea transport has hardly increased- Coal and Oil cost little more to transport.
It is generally considered that maritime capabilities, specifically of the ownership of substantial tonnage are essential for a county trade support and promotion. This report will highlight data’s of major trading countries, the relationships and impact between cargo and tonnage and the flag of registry in the mid 1990s than in 1940s.
According to UNCTAD maritime review Japan, Korea’s china has made more than dramatic change that revolutionary’s shipbuilding. It has observed that shipping building and its associated industry is quite conservative, and they are more subjects to government influence and policies. This influence has provided fluctuation trends in the industry and of course the demand and supply for cargo are determinant for demand for new ships.
A summary of the balance of tonnage supply and demand for selected years appears in table - The total surplus tonnage in 2004 was about half that of the previous
year – 6.2 million dwt. This was largely attributable to the high level of vessel scrapping over the last few years and to increased employment of ships.
Tonnage supply in the oil tanker sector increased in 2004 by 12.3 million dwt to 298.3 million dwt as newbuildings delivered outweighed tonnage scrapped, laid up or lost (see table and. figure). This, combined within increased shipments and extended haulage,
brought down overcapacity to 3.4 million dwt or 1.1 per cent of the total world tanker .eet. In 2004, the total dry bulk. Fleet supply increased by 27.6 million dwt to 325.1 million dwt. Over tonnage for this type of vessel reached 2.1 million dwt, equivalent to 0.6 per cent of the dry bulk .fleet. For the conventional general cargo. Fleet, overcapacity stood at the same level as in the previous year, with supply exceeding demand by only 0.7 million dwt or 1.6 per cent of the world .fleet of this sector. The surplus tonnage of general cargo vessels has been under 1 million dwt for the last four years.
Recent years have seen many countries coming up with revitalizing and their shipping building industry, in Nigeria cabotages law and ship financing scheme is recently established to encourage shipbuilding and ship acquisition. The US also introduced the National Shipbuilding and Conversion Act of 1993 and the expanded Title XI Federal Ship Financing Guarantee Program. .the same is introduced in other part
The correlation between cargo volume generated by different country groups and their fleet ownership is summarized in table 29. Developed market-economy countries generated 48.9 per cent of world seaborne trade in 2004, compared with 53.7 per cent in 1980. Over the same period, the tonnage share of the fleet of developed market-economy countries fell, from about 51 per cent in 1980 to about 27 per cent in 2004.
However, in addition to tonnage under national flags, there is also the tonnage of vessels owned by nationals of particular countries but registered under foreign flags, and the two together bring the share of developed market-economy countries to 65 per cent. The share of developing countries in world cargo turnover has remained at about 40 per cent.
Their tonnage owned and registered under national flags increased from 10 per cent of the world fleet in 1980 to 22.6 per cent at the beginning of 2005, Tonnage beneficially owned by developing countries has expanded to nearly one third of the total beneficially registered tonnage, bringing the total tonnage owned by developing countries to about 36 per cent of the world .fleet. The share of world cargo turnover generated by the countries of Central and Eastern Europe remained at about 3 per cent in 2004, unchanged from the levels of previous years but significantly less than the 4.7 per cent level of 1980.
These countries’ fleet position also declined from 5.5 per cent to less than 2 per cent in 2004. The socialist countries in Asia increased their share in world trade to 8.1 per cent in 2004, while they improved their share in world tonnage from 1.6 per cent in 1980 to 3.7 percent in 2004. In addition, these countries have a small share of their fleet registered in the open registries.
Information on the fleet ownership of the major trading nations appears in table 30. The major trading nations are also major owners of tonnage, which reflects the fact that in trade-supporting policies maritime transport can be exploited as a complement to trade. Maritime capabilities, specifically ownership of substantial tonnage, are generally considered essential for a country’s trade support and promotion. The table also
highlights the similarities and differences among the shipping services of the leading trading nations. Major trading countries such as Japan, China (including Hong Kong), the Republic of Korea, Denmark and Sweden are outstanding among the nations with
maritime services for cross trades. Other major trading
The information provided by Clarkson Research confirms the general downward
trend in ship prices. This applies to all standard ship types and reflects the generally
negative sentiment in the market, despite rising costs stemming from inflation, wage
increases and higher prices for raw materials priced in USD in all major shipbuilding
Source - clackson research
In accordance with market developments, Chinese shipbuilders have expressed their intention to aim for a large scale expansion of facilities, quoting South Korea as an example to follow. This is likely to lead to further price decline, unless China herself creates significant additional demand for ships. China being in WTO will equally creat effect in the market.
The index clearly shows the massive drop in prices following the Asian crisis of
1997/98 and the subsequent efforts to increase prices along the ordering boom in
2000. The (not very pronounced) trend towards better prices stopped in late 2000 and
for the year 2001 the trend was reversed as had to be expected with the number of
incoming orders falling. It is noteworthy that 2001 price levels did not keep pace e.g. with inflation.
With very limited ordering expected for 2002, price recovery will be difficult to
Achieve, although yards may be inclined to look for orders in those segments that
have been less affected by price erosion. Past experience has, however, shown that
this behaviour does not improve the financial results of yards, but rather leads to
additional price erosion in the targeted sectors, as long as the market is characterized
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