German yards make plans for protracted downturn

Germany’s shipbuilding association, VSM, is contacting European counterparts to lobby governments across the continent to order ships patriotically on home soil to tide the industry over what is expected to be a prolonged downturn in orders.

VSM data shows that globally shipyards have been working at more than 40% below their total production capabilities for the last four years amid muted demand for new tonnage, a situation that will worsen in the coming years thanks to the recession brought about by Covid-19.

“This drop in demand will significantly expand the already underutilised global shipbuilding capacity,” VSM warned in a release today. Cancellations of orders already placed could make the situation even more difficult, VSM said, going on to hit out at subsidies being thrown at rivals in Asia, a longstanding bugbear of the association.

In purely mathematical terms, the European pre-coronavirus orderbook would have seen yards kept busy for the coming four years, significantly longer than in other shipbuilding countries such as China, South Korea or Japan at around two years.

However, European yards’ focus on vessels such as the hard-hit cruise sector will likely see a more severe drop-off in new contracts than in Asia, VSM admitted.

“The most successful market segment, cruise ships, has so far been predominantly (95%) ordered in Europe. However, this type of ship is by far the most affected by the consequences of the pandemic. While cargo ships complain about lower cargo volumes, the operating business in cruise shipping has come to a complete standstill. It can therefore be expected that new orders in this segment will not be available for a few years,” VSM stated.

The release continued by warning: “If, as is currently to be expected, orders will not be received across the board in the next two to three years, many companies will run out of work.”

VSM said today it is working with counterparts all over Europe for a temporary fleet program that relies on public contracts such as coast guard, police, fire brigade, research ships, public transport, as well as incentives for the environmentally friendly renewal of the merchant fleet.

VSM stressed that German yards must now succeed in significantly reducing their cost base while maintaining technology leadership and keeping a high proportion of skilled workers onboard. For this reason, VSM said R&D efforts must not be neglected.