EDITORIAL COMMENT
The trouble with capacity
Time to reflect on the consequences of overcapacity.
F
inancial meltdown, economic slowdown, declines in seaborne trade, crashing freight rates, high
operational costs are not seemingly the ingredients of a good news story for shipbuilding, particularly at a time when 5% of the containership fleet is reported laid up and, in the Capesize market, the number of ships on order exceeds the number of ships in operation. However, Reinhard Lüken, secretary general of the Community of European Shipyards Associations suggests that the financial conditions currently defining world markets may come to be seen as the wake-up call shipbuilding has needed to dissuade it from a capacity binge that, should it have come to pass, would have undermined the very structure of the industry. “Te good thing about the current crisis is
that, very clearly, the development of much of the new capacity will not now take place,” Dr Lüken told the first SMM Istanbul Confer- ence, staged in mid-January, without a trace of irony. “Maybe in 10 years time we will say how lucky we were to have a crisis in 2008, so that we did not get all of this capacity that we do not need. If all of the yards discussed had been implemented, capacity would have been such that we would have been living with the consequences for the next three decades.” Dr Lüken points out that, in September
2008, even before the world’s financial crisis had bitten heavily into shipbuilder expecta- tions, the expected annual newbuilding requirement for 2010 was 35 million gt, against a forecast newbuilding capacity of 57 million gt. By 2014, with the newbuild-
The Naval Architect February 2009
ing requirement pegged at 35 million gt, capacity was expected to have reached 70 million gt. Now, Dr Lüken went on record as saying, CESA’s expectations were that some 15
“European
shipbuilders should not expect, or even desire, governments to step in to save their skins on a bridging basis in prevailing market conditions”
million gt of orders would likely be cancelled in the period 2009-2011. He made no estimate of the volume of options that would be withdrawn. “Wherever you can, reduce capacity at
this stage as quickly as possible,” he said.. Te brunt of the order evaporation is being
felt by hard to finance greenfield yards, the very players that threatened to visit massive overcapacity on the market, even should the ‘good times’ have proved sustainable. Dr Lüken said that it was critical that
European shipbuilders “must not cut future orientated activities first”. He added that
European shipbuilders should not expect, or even desire, governments to step in to save their skins on a bridging basis in prevailing market conditions. Speaking to The Naval Architect after
SMM Istanbul, Dr Lüken amplified this part of his remarks, even in the context of January’s liquidation of Italy’s De Poli yard and the wholesale resignation by manage- ment at a leading Polish shipyard, and the continuing travails of shipbuilders in Croatia. “Tere is excess capacity, and where does
it come from?” asks Dr Lüken. “Not from Europe, that is for sure. We have not created this problem and we are the only ones with an anti-subsidy policy. What happened in Spain and Poland showed that the European Commission very strictly enforces its rules, and we would love to see the same approach being taken at a global level.” Rather than propping up ailing yards
with state subsidies, Dr Lüken said that the “masters of economic theory”, and “politicians and analysts who live in a bubble” would be better placed turning their attention to creating the best business conditions for manufacturing, “whether that be through environmental legislation, the tax regime, or social security. Tey should be focusing on the factors that determine competitiveness. While we prefer a world without subsidies, it is fair to say that, rather than working against manufacturing and keeping their attention on the services sector, they should be focusing on develop- ing competitive structures. And that goes for Europe and the US.” NA
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