Norwegian shipbuilding
– success with a subflavour

At the treshold of 2006 the outlook for Norwegian shipbuilding industry is appearently bright. Never since 2000 – the year before the abolition of the subsidies – have so many ships been on order at Norwegian yards. In the course of 2005 a total number of 75 vessels at a combined contract value of NOK 17bn were entered into the orderbooks. Together with orders from previous years, the complete orderbook amounts to impressive NOK 24 bn, which means work for the yards well into 2007 and 2008.

Innovation grows from cooperation: Leading Norwegian maritime companies Bourbon Offshore Norway, ODIM and Ulstein Design have in a unique cooperation developed a revolutionary new system for safe anchorhandling (ODIM SAHS), the anchorhandling vessel Ulstein AX104 with an inverted bow – the Ulstein X-BowTM, and a diesel electric propulsion system for AHTS’s.

However – and there is a big "however" – the majority of these contracts are for a niche product, namely supply ships and other categories of offshore vessels. This means that the bulk of Norwegian yards have become very dependent on the oil and gas industry, and ultimately the ups and downs of the oil price. It also means that the remaining yards, like conventional builders of fishingboats, do not participate in the feast. They would definately appreciate a higher workload.

Oil, oil, oil
But for the builders of offshore vessels the outlook continues to be bright. The ordering boom can be attributed to the continous strong supply ships rates, which in turn is an effect of the high crude oil price in 2005. The strong oil price stimulates the oil majors to invest in exploration and exploitation, development of new fields and enhanced production from existing fields, triggering a need for more logistics services. Even a theoretical modest downturn in the oil price will not disturb this picture, since the oil companies’ investment move already has gained momentum and cannot be easily reversed. A relatively comfortable supply ships market is therefore expected in the foreseeable future, encouraging shipowners to invest in new ships.

Consolidating
We have previously indicated in this coloumn that a change in paradigm for Norwegian shipbuilding was about to take place, and the picture has now – a year later – become clearer. The industry appears to be in the middle of a consolidating process, whereas weaker yards are perishing and stronger yards are becoming stronger by either acquisitions, mergers or alliances of different types. Consequently Norway seems to get a leaner but stronger shipbuilding industry.

Norwegian company Ulstein Design launched the new Ulstein X-BowTM in April 2005. Shipowner Bourbon Offshore Norway, a subsidiary of the French company Groupe Bourbon, signed contract with the yard Ulstein Verft for the construction of two Platform Supply Vessels of Ulstein PX105 design.

Most successfull in this respect has undoubtedly Aker Yards been. The group was among the first to acquire yards in low-cost East Europe and Brazil to secure capacity for outsourcing of hull fabrication. Their strategy of combining Norwegian shipbuilding know-how with foreign low cost labour has proven very successfull. The Group's successfull efforts has generated a flow of new contracts, only in 2005 numbering 28 at Norwegian yards, at a combined value of NOK 7,5 bn. The total value of all contracts entered into in 2005 by Aker Yards' 13 facilities in five countries was impressive NOK 30 bn. The total order backlog comprises 108 vessels of different types, including large ferries and boxships.

A perfect fit
The latest move by Aker Yards, the acquisition of French Alstoms' Chantiers de l'Atlantique, made Aker overnight the world's second-largest cruiseship builder after market leader Fincantieri of Italy. Whether the new grouping can challenge for top spot depends heavily on the cruise line Carnival Corporation, with its 12 cruiseship brands, once again ordering newbuilding outside of Italy. Fincantieri has slightly over half of the world cruiseship orderbook with 13 vessels. Aker Yards has three cruiseships on order, including what will be the world's largest at 158,000 gt for Royal Caribbean, while the French yard in St. Nazaire has a four-ship package for MSC Cruises.

The acquisition has been called "a perfect fit" for Aker Yards, because it satisfies the Group's appetite for more capacity to build post-panamax cruiseships. Aker's Helsinki yard cannot build the post-panamax tonnage cruise lines increasingly need to generate economies of scale. It relies heavily on Turku. Furthermore, by having just two leading yard groups able to construct post-panamax cruiseships in the world, one should not underestimate their ability to raise prices and turn a profit.

Qualified labour is an asset to Norwegian shipyards. (Photo: Ulstein Verft)

By operating a range of yards Aker can combine capacity to meet earlier delivery times, as demonstrated by Color Line's order for another 74,000 gt cruise ferry, a sister to «Color Fantasy», for which a latest 2007 delivery was needed to secure the contract.

Challenges
One of the greatest challenges facing the Norwegian domestic shipbuilding industry for the time being, is the shortage of qualified labour. During the difficult years of 2001, 2002 and 2003 – in the aftermath of the subsidies abolition – the industry lost a disturbing amount of skilled labour, both white collar and blue collar. When the market picked up again in 2004 many yards had to relay on subcontractors to fill the gap, both local and international, particularly Polish workers. This is likely to become a permanent future picture in Norway, like it or not.

More important is the fact that the core competence has been well maintained within the yards during the low years, which was the reason why the industry so quickly recovered and took advantage of the boom in 2004 onwards. The core competence is design, engineering, project management, IT, purchasing and financing. In other words, the competitive edge of Norwegian shipbuilding industry.