Ship Repair Industry Entering the Boom Cycle

Wang Jin

The good start momentum of the ship repair market this year has continued. The 69th meeting of SPCC for Chinese ship repair enterprises was held in Fuzhou. According to the preliminary statistics of the meeting, from January to June this year, the output value of the 19 SPCC member units totaled 8.9 billion yuan, an increase of 41.5 percent over the same period last year, and 2086 ships were repaired, down 6.3 percent YOY.

The rise and fall of the output value and the completed number of repairing ships reflects the current hot ship repair market. On the whole, the ship repair industry has entered a relatively long boom cycle as it foretells the market in the next two or three years. When the market opportunity opportunity comes,some challenges have to be addressed by shipbuilding enterprises with greater determination and strength.

A New High Since Financial Crisis

According to the industry organization analysis, in the first half of the year, the IMO provisions of the Ballast Water Management Convention and the sulfur emission limit have made the demand for refitting ship ballast water treatment systems and ship exhaust treatment units explode, the output value of per ship repair has increased significantly compared with the same period last year, and the utilization rate of shipyards in backbone ship repair enterprises has exceeded 95 percent.

Taking full advantage of the opportunity of market recovery, backbone ship repair enterprises have continuously improved their high-end modification and repair capacity, completed the first batch of 130000 cubic meters of large LNG ship repair projects in China,the world's first super-large container ship lengthening, heightening and desulphurization installation integrated modification project, China’s first luxury cruise ship full-ship renovation general contracting project, and the world's first above 10000TEU container ship LNG power system modification project.

Based on the remarkable improvement of international competitiveness and the continuous exuberance of orders such as the modification of ship exhaust treatment equipment, major central ship repair enterprises and local ship repair enterprises, under the goal-oriented high quality development and problemoriented deepening the supply-side reform, grasped the transformation of the relationship between supply and demand in the market segment,obtained the new performance of reducing cost and increasing efficiency,and promoted the improvement of the corporate profitability. According to the National Bureau of Statistics, from January to May, the profit of Chinese ship repair enterprises above the scale reached 280 million yuan, a YOY increase of 550%.

The industry organization predicts that in the second half of this year,China's ship repair industry will continue to be in short supply and steady growth,to seize the opportunity to meet the challenges of efficiency and performance,and the industry will continue to meet the challenges of efficiency and contract fulfillment. Annual ship repair export earnings will reach a new high after the 2008 financial crisis, thus effectively supporting ship repair enterprises in various regions to cope with the complex international environment.

Boom Expected for the Coming Two Or Three Years

This round of sizzling ship repair market will not be “a flash in the pan”.The shipping indices of the three major shipping types have continued to rise so far this year, according to ship repair companies. On July 16, the BDI reached 2011 points, the first time of breaking the 2,000 marks since January 2014.This shows that shipping industry has gradually come out of the trough and the shipping market presents a steady and slow recovery trend.

On June 13, CVRD announced that it would fully resume operation at the Brucutu mining area, increasing production by 20 million tons in the second half of the year and further digesting bulk carrier capacity. At the same time, China's policy measures to stabilize growth continued to pay off, and the depreciation and interest cut of the US dollar led to bullish dollar-denominated commodities, which will also help to boost shipping freight rates.

SPCC member units are mainly engaged in the repair of ships with more than 50,000 deadweight tons. According to industry analysts, under the principle of ship repair upon certificate expiration,combined with the historical peak of new ship delivery in 2010 and 2011 and the existing ship repair capacity, the number of ships under 15 years of age to be repaired in 2020 will increase by 35 percent over this year. Coupled with the repair of aging ships over 15 years old,the repair market will be in short supply.In 2021, the number of ships bound for special inspection and intermediate inspection will basically level off with that in 2020, but due to the longer construction period due to installation of ship exhaust treatment equipment, the ship repair market may hit a new high again.

In terms of environmental modification, a shipping research institute predicts that by 2020, the average price difference between compliant low-sulfur oil and high-sulfur oil will be about $240 a ton. According to industry analysts, the difference between compliance and high sulfur oil prices caused by tight supply of low sulfur oil will stimulate shipowners to install ship exhaust treatment devices, and this should be able to support the continued prosperity of the ship repair market in the next two or three years.

Deal with Difficulties Properly

While the ship repair market continues to rise, some difficulties and pressures are also increasing. Backbone ship repair enterprises claim that the shortage of dock and berth resources,the shortage of labor force, the rising material price and the great pressure of environmental protection are the outstanding characteristics of the ship repair production at present. The advent of later production peak will make these problems more prominent.

Many ship repair enterprises selectively accept orders. Industry sources suggest making an effort in marketing and balancing the relationship between exhaust gas treatment equipment modification and conventional ship repair.No matter how the market changes,old customers are the cornerstone of enterprise development. It is necessary to tilt the limited resources to the old customers, maintain the relationship with the old customers, and meet the needs of the old customers. On this basis, we can actively optimize the product structure and customer structure.

Only by promoting safety and environmental protection at the same time, can the steady development of enterprises be protected. Recent extreme weather has brought great impact on ship repair production in some areas, causing huge pressure on safety production.Increasingly stringent environmental requirements have multiplied the pressure on ship repair enterprises.A number of backbone ship repair enterprises pledged to further increase investment in safety and environmental protection, and improve safety and environmental protection management.The SPCC meeting was also devoted to review of the “Proposal for Green Ship Repair Action Plan”.

Although the repair market is good and the repair price is expected to rise, the growth of output value and business may not necessarily bring about a significant improvement in profitability.According to the analysis of industry players, only by improving the production efficiency, strengthening the cost control ability and constantly perfecting the management system can we solve the problems of the increase in employment cost and purchasing cost.