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Yangzijiang’s profitable run attributed to ‘not accepting loss-making contracts’

Yangzijiang’s profitable run attributed to ‘not accepting loss-making contracts’
With the continuing recession in shipbuilding and losses recorded at some of the world’s leading shipyards, the strategy to avert business failure is to not accept unprofitable newbuilding contracts, according to Ren Yuanlin, executive chairman at China’s Yangzijiang Shipbuilding.

Ren's words would seem to be a simple fact for any commercial firms to agree with, but the adverse market conditions in shipbuilding have actually forced many Chinese yards to “swallow the bitter pill”, as what they typically described, and accept a loss-making newbuilding contract just so that their yard operations can carry on.

“We can be very competitive in our bids, but we will definitely not accept an unprofitable deal,” Ren told Seatrade Maritime News.

“At Yangzijiang, we have no issues so far with securing financing and bank guarantees, carrying out daily operations, utilising yard facilities and so on. And the key factor to ensure that all these are not impacted is to always enter into a newbuilding contract with a profitable value,” he explained.

With thousands of bottom-rung and speculative Chinese yards disappearing since 2010 due to the market downturn, and losses recorded at state-owned Chinese shipbuilders, privately-run Yangzijiang has managed to stay in the black throughout, and it recently announced a first half 2015 net profit of RMB1.74bn ($280.19m).

Ren noted that newbuilding prices have been pressed down due partly to fiercer competition coming both from home and overseas. South Korean shipbuilders, for example, are seen as the more aggressive rivals compared to Japanese shipbuilders.

“Japanese shipyards do not have the habit of lowering their prices just to compete. Korean yards, however, are different. They will not hesitate to slash prices to compete for new contracts,” he observed.

The intense competition is expected to continue amid the shipbuilding recession possibly hitting its lowest point during this period, according to Ren, and a rebound is not yet in sight.

The next big order that will put Yangzijiang to the test of price competition is the construction of the 400,000 dwt VLOCs, or valemaxes. So far, orders placed by Brazil’s mining giant Vale for these giant bulkers have gone to China’s state-owned shipbuilding corporations, which in turn have lease and purchase agreements with Vale.

Ren believed that when Vale is looking to order its second or even third batch of valemaxes, Yangzijiang stands a good chance of winning the contract if both state-owned and privately-run firms are given a fair chance of competing.

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