Yangzijiang – A private Chinese yard navigating adverse market conditions

Privately-owned Yangzijiang has managed to stay profitable, which it attributes to cost cutting measures of lay-offs, business diversification, and rationalisation. Ren observed that the road ahead will be a challenging one as the protracted recession of China’s shipbuilding market is expected to continue until at least 2017, and there are yet no positive signs of a sustainable upturn.

In order to tackle the tough market, Yangzijiang has taken the tough decision to axe around 4,000 employees over the course of this year. The retrenched employees represented 20% of its approximate 20,000 workforce. Among the laid off staff, 90% are yard workers and the rest included office workers and some senior staff, according to Ren.

“We have also asked about 500 workers to stay at home and accept a reduction in salaries while the company tries to tide through the crisis,” he said.

The Chinese shipbuilder, which mainly builds dry bulk vessels and containerships, is seeing virtually zero orders for bulk carriers, and only a handful of orders for feeder boxships.

“The bulk vessel segment is witnessing a lot of cancellations and deferments, especially for the 64,000-82,000 dwt capacity range,” Ren said. He admited that the yard is not immune from the increase in order cancellations on the market, but it has managed to arrange for resale of most of the cancelled orders and minimise the impact.

The dearth of newbuilding orders due to vessel tonnage glut and cash-strapped owners has sent a wave of bankruptcy sweeping across privately-owned Chinese yards over the past few years. Last year alone, more than 20 shipbuilding enterprises of large to medium sizes have declared bankrupt.

The survival of Yangzijiang is by no means left to chance, thanks to shrewd businessman Ren who has steered the company in the right direction amid adverse market conditions over the past several years.

Today, Ren believed that privately-owned yards still winning new orders in the past year are left with only Yangzijiang and New Century Shipbuilding.

“The privately-owned shipyards are finding it difficult to get a refund guarantee from the bank and without it, it is not possible to land a new shipbuilding order. In addition, newbuilding prices are way too low for yards to have a healthy margin, not to mention the higher risks of payment defaults by owners,” he told Seatrade Maritime News.

In essence, the days whereby yards accept orders, even if loss-making for the sake of maintaining daily operations, are over, and shutting down is the only option. While there could be around 300 Chinese yards in operation today, less than 40 of them have active day-to-day operations, according to Ren, and most of them are subsidiary yards of state-owned China State Shipbuilding Corp (CSSC) and China Shipbuilding Industry Corp (CSIC).

The survival of yards under CSSC and CSIC largely depends on state funds, as Beijing has been subsidising state-owned enterprises (SOE), not just in shipbuilding but in other industry sectors as well. The problem of continuing to ease the liquidity crunch at state-owned yards and not letting them fail, Ren explained, also means the market will not be able to overcome the excess yard capacity problem, where the bulk of capacity comes from state-owned yards.

"There is a split decision in Beijing on whether to continue subsidising the state yards. The government recognised that by doing so the overcapacity problem will not be resolved but it needs to take some forms of responsibility in ensuring the survival of SOEs. This creates a dilemma," he said.