Early this year, operations at Chinese shipyards were severely impacted by the control measures implemented by the Chinese government to contain the coronavirus outbreak. The outbreak coincided with the Lunar New Year holidays, a time when yard workers traditionally return home to celebrate the festive period. The imposed lockdown delayed the return of many of these workers, which had a knock-on effect on yard productivity.
With most major state-owned shipyards returning to work in late February, delivery of newbuildings, repair, and retrofit work were inevitably delayed. Shipyards were also faced with widespread supply chain disruption.
Despite some easing of travel restrictions, newbuild and repair activities have also been impacted by the restricted movement of foreign-based technicians, site teams and owners’ representatives, who still face difficulties with international travel and arranging entry into China.
However, this situation has improved in recent weeks as the local government looks for a solution to allow controlled access for key personnel.
These problems are not unique to shipyards in China; where travel and the risk of an outbreak remain an issue throughout the region.
Returning to ‘normal’
Despite these initial setbacks, the diligence and combined efforts of the Chinese yards are starting to yield some results. Over the last two months, productivity levels have been returning to more normal levels. Not taking the progress for granted, many shipyards have taken precautionary measures by providing workers with onsite accommodation or at nearby facilities to limit their exposure to the virus.
Indeed, many companies have decided to err on the side of caution as a widespread outbreak in the shipyards can have severe repercussions. Measures include regular Covid testing, two-week quarantine periods, temperature checks and controlling access at the yards in combination with the compulsory use of facemasks. There are also strict quarantine inspections for ships arriving from international voyages. The implementation of these countermeasures, together with a robust response to any reported outbreaks, has been successful to date.
When shipbuilders are forced to push back delivery dates for newbuildings, they run the risk of contractual issues. Some yards have already opted to declare force majeure, as knock-on delays and disruptions are expected even today, despite the yards efforts to recover lost time. While the issuance of force majeure certificates may assist in PRC governed contracts, their acceptance in other jurisdictions remains unclear.
However, there are positive signs as activity levels at the yards are expected to gain more momentum through the rest of the year. This is provided there are no additional waves of outbreak which remains the biggest challenge that shipyards face going forward.
For us at Brookes Bell, our team of Shanghai-based surveyors has been kept busy throughout this period, particularly as shipyards started to become more active. As independent surveyors, we work closely with shipyards and owners to help resolve disputes and have been very active with various types of marine claims and surveying activities throughout China.
While we can travel domestically within China, international travel remains a challenge, as we, like many companies, face difficulties in bringing in additional personnel from our regional offices in Hong Kong and Singapore to assist with the increasing workload. However, our team of surveyors in China are more than qualified to handle disputes accordingly with the highest professional standards.
Future of shipbuilding
As we look ahead into 2021 and beyond, we can still expect the immediate future to remain challenging for the shipbuilding industry. The current orderbooks remain historically low as owners and investors have little appetite for new vessels in the present market.
Just last month, the president of Imabari Shipbuilding, Japan’s largest shipbuilder, issued a statement appealing for “some form of support from the Japanese government” amid stiff competition from the Chinese and Korean shipbuilding industries.
However, we expect newbuilding orders to slowly pick up as the world economy recovers in the post-pandemic world. The nature of shipyards may also start to change radically to adopt more efficient systems and work practices; employing fewer, more skilled employees.
Following the merger of China’s two state-owned shipbuilding companies, CSIC and CSSC, in November last year, to form the world’s largest shipbuilding group, we can expect more efficiency and competitive pricing in the market. Especially as Chinese shipyards continue to evolve outside of their traditional market segments.
The newly merged company presents opportunities for technological advances, allowing further expansion into more complex and technologically challenging vessel segments, similar to the successful diversification into LNG, ferries and offshore construction vessels in recent years.
Strong domestic demand, together with a unified approach, will potentially lead to more market consolidation as the global shipbuilding industry moves towards a new ‘normal’ as a whole.
The competitive and challenging market requires careful navigation.
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