Orders to other budgets
Formation of the United Shipbuilding Corporation (OSK) scheduled for the middle of September 2007 has not been completed yet. Experts think the Corporation will finally be registered this autumn. While the state is striving to attract orders to national shipbuilders Russia’s largest shipping companies prefer to place orders with foreign shipyards.
Foreign orders
There are five shipping companies at Russia’s market of marine transportation: Sovcomflot OJSC and Novorossiysk Shipping Company OJSC (Novoship), which have merged this year, Primorsk Shipping Corporation OJSC (PRISCO), Far East Shipping Company OJSC and Murmansk Shipping Company OJSC. In 2006, the above companies increased their total fleet by 30 vessels. Besides, 21 vessels will be added to the fleet of Russian shipping companies by the end of the current year. However placement of orders with RF shipyards is at the bottom of national carriers’ plans. Last year only one tenth of all orders were placed with Russian shipyards: St. Petersburg shipbuilding plant Admiralty Shipyards built three tankers for Russia’s largest shipping company Sovcomflot. This year Sovcomflot took delivery of the tanker Tverskoi Most under agreement with Admiralty Shipyards for a series of similar vessels. In 2007 it was the only vessel completely built at Russian shipyard for a Russian customer.
According to estimations made by Central Scientific Research Institute of Marine Fleet (TSNIIMF), only 10% of orders (in terms of deadweight) made by Russia’s largest shipping companies are placed with national shipbuilding plants, the rest of the fleet is built at foreign shipyards. However in Asian countries with well developed shipbuilding industry at least half of the fleet is ordered to local shipyards. Moreover, backlogs of orders of Asian shipbuilders account for some 80% of the world market. This market is controlled by South Korea, Japan and China. Experts say China, which currently controls 15% of the market, is very likely to outrun Japan and to become the second largest shipbuilder of large-capacity vessels within 2-3 years. As for Russian marine and river carriers, they have already put a priority on Chinese shipbuilders, whose backlog of Russian orders is the second after that of South Korea. All these orders are placed by Russia’s largest container fleet operator – FESCO Group. In 2006, 4 of 7 container carriers (1,080 TEU each) were ordered to Jinling Shipyard (China) and three 2,741-TEU container carriers were built at Aker Ostsee (Germany). This year, FESCO has already taken delivery of FESCO-Altai from a Chinese shipyard and by the end of the year it will accept two more vessels of the Chinese series: FESCO-Anadyr and FESCO-Argun. As PortNews IAA learnt from FESCO Group, current backlog of orders consists of 9 container carriers with total capacity of 20,000 TEU. These vessels are to be put into operation by 2009. A series of six container carriers are currently under construction at Chinese Jinling Shipyard. The series’ total value is $125 million. Seven container carriers (from 1,700 to 3,091 TEU) are being built for FESCO at Polish shipyard Stocznia Szczecinska Nowa. The newbuildings are to be put into operation in 2008 - 2010.
Besides, Far East Shipping Company has concluded a contract for construction of four bulk carriers in China. This series is to be built at Quingshan Shipyard (China). The construction is to start in early 2009 ant to be finalized by the end of 2010. The delivery of the first bulk cargo carrier is scheduled for June 2010. According to Sergei Kostyan, FESCO’s deputy Director General on logistics and intermodal transportation, the company does not rule out placement of extra orders as cargo flow will continue to grow. The company does not plan purchase of vessels at a secondary market or placement of orders with Russian shipyards. “Unfortunately, we are forced to accept the fact that Russian shipbuilding industry is in poor condition being incapable of competing with foreign shipyards in terms of prices, duration of construction and, even quality,” Mr. Kostyan said at on-line conference held in August 2007.
Rivals win
According to estimations made by TSNIIMF, annual value of orders placed by Russian companies with national shipyards totals some $100 million, while the fleet built by foreign shipyards for Russian companies costs some $1 billion. In particular, FESCO Group as well as Novoship, PRISCO and Murmansk Shipping Company have no orders in Russia. FESCO build its fleet in China and Poland, PRISCO – in Korea. Last year, the company took delivery of 4 specialized vessels designed for servicing of offshore drilling platforms and oil terminals. In 2007, the company plans to take delivery of two SUEZMAX tankers being built at Hyunday Hearvy Industries (S. Korea).
In 2006, Novoship (Russia’s second largest shipping company) expanded its fleet with 11 vessels. Two vessels GROUP No1 were built in Croatia. Seven 105,000-dwt AFRAMAX vessels and two 40,000-dwt product carriers of P Class were built in Korea. The company’s backlog of orders covering the period till 2009 consists of 18 vessels. In 2008, the fleet will accept 8 vessels with total deadweight of 770,000 tonnes.
As for Murmansk Shipping Company, Russia’s largest icebreaker fleet operator, modernization of the Natali tanker was completed in 2006 at Chengxi Shipyard (China). According to the company’s Director General, this tanker is the only vessel of this kind to fly Russian flag at the market of oil transportation. “We strictly follow the policy approved by the company’s shareholders: the vessels we acquire should fly Russian flag,” the Director said. Besides, the company acquired the Nadezhda tanker, which is currently under technical modernization at Chengxi Shipyard. In 2006, the same shipyard started construction of an ice-class bulk cargo carrier Grumant, dedicated for deployment at international lines of bulk and general cargo transportation.
National project
The only Russian company to build its fleet not exclusively at foreign shipyards is Sovcomflot. The company’s backlog of orders covering the period till 2010, provisions construction of 20 vessels with total deadweight of 2 million tonnes. In June 2007, Sovcomflot and Admiralty Shipyards signed a long-term contract for construction of hydrocarbon carriers. Construction of LNG carriers with the capacity 70,000 cubic meters has already commenced at Russian shipyards. As of today, 25% of vessels ordered by Sovcomflot are to be built by Admiralty Shipyards. The value of the contract covering the period till 2010 exceeds $300 million. Vladimir Sergievski, analyst of information company Finnam, forecasts that by 2030 Sovcomflot’s backlog of orders (in deadweight) will make at least 5-7 million tonnes. “Within certain period, we will have to replace our vessels an we want to have them built in Russia by that time,” Sergei Frank, Sovcomflot President told when signing the contract with Admiralty Shipyards. According to Mr. Frank, there is a fine niche where Russia may win a competition with Chinese, Norwegian and Korean shipyards. It is construction of vessels for continental shelf development. “We think competition with such new shipbuilding powers as China in construction of conventional vessels is hopeless. We should focus on high-tech and we have a possibility for that,” Mr. Frank says. “In early July we laid down a unique double-action ice-class shuttle tanker for servicing Gazprom projects at Russia’s continental shelf. Such vessels may be built at only two or three shipyards of the world and they may be and should be built in Russia.”
Though Russia is capable of competing in highly specialized shipbuilding, it lags behind world leaders in terms of large orders. Experts say Russia has no technical possibilities for construction of tankers the deadweight of which exceeds 70,000 tonnes. Besides the breadth of the vessels may not exceed 35 meters owing to limited width of slipways. The only Russian shipyard to build sea-going tankers of up to 70,000 tonnes in deadweight for Russian customer is Admiralty Shipyards (St. Petersburg).
At the same time, Russian bank system is far from world standards, which aggravates the situation. As PortNews IAA learnt from Mr. Sergievski, it is much more profitable in Russia today to place orders with foreign companies as it is easier to finance such projects. “It is not about credit period which is specified individually for each case. I mean interest rates,” Mr. Sergievski says. There is a widespread opinion that it is easier to control construction if it is carried out abroad. Besides, a credit is granted in parts for certain phases of construction, which simplifies the scheme for repayment of credit. “A credit for construction in China may be obtained at low interest,” Ilja Vaisman says. “There are discounts for delivery of metal and electricity to Chinese plants and ship owners are ready to wait to build their fleet in China. Chinese shipyards are fully booked till 2012.” As for Russia, there is no such a policy here, there is only an idea to develop a system of measures aimed at support of shipbuilding.
Besides financial problems, national shipyards have outdated facilities. According to Mr. Vaisman, the capacity of cranes used at Russian shipbuilding plants does not exceed 100 tonnes while the capacity of cranes used at foreign shipyards is up to 1,000 tonnes. Finally construction of a 70,000-dwt tanker in China will take 8-10 while any Russian shipyard will spend about 2 years.
At last the Law on Second International Register, which came into effect from January 1, 2006, provisions exemption from VAT and customs duties for components import if the ships are to be built at Russian shipyards and to fly Russian flag. It cuts the value of one ship by some 15-18%. However according to the Law it is to be applied only for vessels carrying foreign trade cargo, while those deployed for transportation of coastal trade cargo and operation within internal waterways will get no privilege. “In practice, even those shipowners, who fall under this privilege, do not hurry to place new orders as the Law has not been completed and a lot is to be amended in subordinate legislation,” Mr. Vaisman says.
May be this partly explains the tendency of the recent years to build vessels’ hulls rather than complete vessels. Even larger shipbuilding plans like those of the MNP Group (Marine and Oil Projects), Vyborg Shipyard (Leningrad region), shipbuilding plant Yantar (Kaliningrad region) and Baltiysky Zavod (St. Petersburg), which have the facilities sufficient for complete construction of vessels, not always do it.
River carriers
Russian market of river transportation is divided between some ten shipping companies. The largest volumes of cargo are transported by North Western Shipping Company OJSC and by the companies of nonprofit partnership Tanker Union, the leading carriers of which are Vision Fleet LLC as well as Volga-Flot-Tanker LLC (subsidiary of Volga Shipping OJSC). Besides, Turkey-based Palmali Group operating via its Russian subsidiaries and Russian company Prime Shipping (subsidiary of Italian company Pietro Barbara Group) come up under current situation. Tanker company Navigator operates in the basins of the Baltic, Caspian and Black Seas and the Sea of Azov. Yenisei River Shipping Company OJSC and Lena United River Shipping Company are main carriers operating within the framework of the “northern procurement” program in Siberia. No large orders for construction of vessels were placed by the above companies with national shipyards. According to data provided by the Association of Shipping Companies, Russia currently has about 50 shipbuilding plants the majority of which survive owing to repair and construction of barges and industrial ships. Today, Russian shipyards almost do not build sea-and-river-going vessels or low-deadweight vessels like bunkering tankers or tug-boats. Actually there is no demand for such vessels from ship owners. Sometimes, shipping companies carry out marketing research of national shipyards’ supply though they place no orders for newbuildings. The owners of low-capacity fleet also prefer Chinese shipbuilders.
One of the largest orders among those to foreign shipyards was placed in late June 2007. The Volga-Baltic Company (managing company of Volga Shipping and North Western Shipping Company) signed a contract for construction of ten 5,000-dwt sea-going dry cargo carriers in China. The delivery of the first vessel of the series is scheduled for 2008. Viktor Olerski, member of Volga Shipping BOD, told PortNews IAA that the contract is valued at $85 million. Some 20% of the total value has been financed from the company’s own funds, the rest are credit granted by HSH Nordbank (Hamburg). The project is designed by Marine Engineering Bureau (St. Petersburg). The vessels are to be deployed for the routs linking European ports. According to Mr. Olerski, it is cheaper and faster to have the vessels built in China. “The orders for fleet construction concentrate in places where customers get the necessary quality for the most competitive prices,” Mr. Olerski tells.
Though the prices for construction of marine tankers are almost the same at Russian and Chinese shipyards, the construction of low-capacity vessels is longer and more expensive in Russia as compared with China. As for European shipbuilders, construction of a bunkering vessel at a West-European shipyard will cost 10% more (considering transportation and customs duties) as compared with Russia. According to data provided by Transbunker’s fleet maintenance department, 2,000-dwt bunkering tanker will cost EUR 6-7 million, 3,000-dwt vessel will cost EUR 8-8.5 million (in prices of 2006). At the same time, any record-short term of construction at Russian shipyard is not able to meet competition of any West-European shipyard. It will take 5 months to build a small vessel in Europe or in China while Russian shipyard will spend 9-10 months. Cheap labor and materials as well as multi-shift principle of work enable Chinese shipyards to build a vessel, which is 20% cheaper as compared with Russia (2,000-dwt bunkering tanker will cost $3.5-$4 million; 3,000-dwt vessel – $5.5 million).