Mid-Sized Shipyards Consolidating and Restructuring due to Downturn

mid-sized shipyards Japan and Norway
Sanoyas' Mizushima Shipyard - photo courtesy of Sanoyas Shipbuilding

Published Nov 9, 2020 6:47 PM by The Maritime Executive

The downturn in shipbuilding orders is beginning to take an increasing toll on the mid-sized yard. Expectations for a prolonged slump in new orders is leading both to a consolidation in the industry as well as prompting yards around the world to rethink their businesses.

Last month, Danish Shipping released an analysis that said shipbuilding orders were at a 30-year low. In 2020, their analysis shows that new orders have been placed for merchant ships with a combined dwt of 26.5 million, which is approaching the level in 2016 when the total was 30 million dwt for the entire year. Globally, the analysis reports the total orderbook for merchant ships totals just 150.3 million dwt.

Japan’s Sanoyas Holdings Co. was the latest to fall victim to the prolonged downturn. The company announced that it has sold its shipbuilding operations to Shin Kurushima Dock Co. The transaction is expected to close in March 2021. They cited ongoing financial losses at the yard as well as increased competition as the factors contributing to the decision to consolidate the shipbuilding operations.

Similarly, while the large Korean shipbuilders have been reporting new orders helping the sector to outperform its Chinese rivals in recent months, the mid-sized Korean shipbuilders have been struggling. Business Korea cited data from the Import-Export Bank of Korea that said newbuilding orders have fallen by nearly half for the country’s mid-sized shipbuilders so far in 2020. The decline in the second half of the year was expected to further accelerate.

As a result, three of Korea’s mid-sized shipbuilders are currently in negotiations led by their creditors. Hanjin Heavy Industries & Construction, STX Offshore & Shipbuilding, and Dae Sun Shipbuilding and Engineering are each reported to be up for sale currently, while Sungdong Shipbuilding has already been sold. The consolidation is not limited only to those yards as Daewoo Shipbuilding is also in the process of merging into Hyundai Heavy Industries. This comes as South Korea has taken steps to bolster its faltering industry.

The consolidation in shipbuilding has not been limited only to Asia. Last week, Norway’s New Havyard Ship Technology announced that it will restructure its operations into a repair and service yard and reduce the number of employees. The company plans to end shipbuilding operations at the yard in Leirvik, Norway. Havyard New Ship Technology currently has six newbuilds that are scheduled for completion in 2020 and 2021. The company said the downsizing will take place as these newbuilds are completed and new service assignments are gained for the repair operations. All told they expect the downsizing will reduce the number of employees by around 100 people over the next year.

While the company said it was not ruling out future newbuilding activity, near-term they believe the best opportunities will be in the repair and service business. CEO Gunnar Larsen cited not only the market for newbuilds but also the challenges in obtaining financing for new construction projects. Emphasizing the major financial and practical consequences of the coronavirus pandemic, Larsen said more government measures are required to help the industry transition to environmentally-friendly shipping.

Havyard's restructuring follows after Norway’s Kleven Verft lapsed into bankruptcy earlier this year. The yard’s operations were sold in three separate transactions. The shipbuilding operation was sold to Green Yard, a Norwegian company focused on ship recycling. Green Yard said that it plans to maintain and grow the shipbuilding.

Germany’s smaller shipbuilder Flensburger Schiffbau-Gesellschaft (FSG), which in recent years has specialized in ro-ros and ferries, is also in the midst of a restructuring after its business collapsed in 2020.

While the large shipbuilders have been able to restart their operations and appear to have the financial resources to weather the downturn, the pressure is expected to continue to build on the mid-sized yards.