Turkish Ship, Yacht, Marine Services Exporters Association President Cem Seven responds to MarineDeal News’ questions on ship and yacht exports in the global market, the chcange in demand for ships and Turkish vessel exports to Norway
The global exports volume forecast for 2023 for ships and was around $335-350 billion. If we take into account the recent changes that have occured in the industry, do you think there will be a change in these figures?
It’s really hard to make a projection for 2023. This is also difficult to analyze because there are so many different paradigms that we have recently experienced globally. As it is well known, US President Donald Trump has announced trade tariffs against China, which will be an obstruction to global trade. In a situation where there are so many different parameters, it is hard to say “yes this figure will go up, and this one will go down.” This is because it is very hard to predict how individual leaders of countries will act. You can’t see what kind of a strategy different countries are pursuing. It is quite obvious that if countries don’t take action that would work to end or prevent trade activities, that both shipbuilding and shipbuilding exports will grow, looking at the course of the industry. Taking out this information, we see that there is a growth trend in ship exports because there are various factors such as the shipbuilding industry increasingly using more environment friendly products, the higher number of countries that use LNG, the increase in LNG volumes,or, for example, Greek shipowners eyeing LNG vessels extensively in the market. This indicates that there will be strong demand for LNG carriers. As it is, large yards in Korea have concentrated on LNG carriers.
Currently, there is a tender that was launched or that is just about to be launched by the Qatar Petroleum Company. Qatar is building an LNG-carrier fleet for about $10 billion. These are significant trends. Greek shipowners have acted early in pursuing these vessels. For example, Greek owners in general make overtures to feel the market for newbuilds. Currently, they are buying existing LNG carriers, and they are doing that at higher premiums. Normally, they should be doing the opposite. They should be placing orders for future delivery and wait for a year or two as the market will rise at any arete. They could later have their LNG-career delivered at the end of the second year and become players in the market.
Demand for LNG-carriers is so high that it is expected to grow from 20 billion m3 to 30 billion m3. Greek owners are looking into selling already-built ships by spending a bit on premiums because freight rates are high and India is oe of the countries where there will be a huge increase in LNG usage. So a very charming market is in the making. Considering that a single LNG carriers is sold at about $170 million, which is quite high, that tells us that Qatar will have about 50 vessels built for its fleet.
In the ship and yacht sector, speaking in terms of global exports, the market volume is about $13* -140 billion. About 10 billion dollars of this amount come from yacths exports, and the rest are other vessels. About 40 billions of this amount are Korean exports, 29 billion Japanese exports and the rest are Chinese, followed by Dutch, German and Italian exports. Our share is $USD 1 billion, which places our market share at about one 8 or 9 per mille.
Why do you think the share of
Turkish exports is small?
First we should look at other countries. For example, look at Korea, which was under Japanese occupation until 1948. They had no shipyards. Only the Japanese build very few and smaller yards. Korea gained its independence at the end of the second world war, and the South-North Korean war broke off in the 1950s, effectively dividing in two. The South had more of the heavy-duty industrial facilities and they received large donations from the US and other countries. In the 1960’s the state when strategizing how to use these funds decided to concentrate on chemistry, the industry and shipbuilding. As such, korea has treated shipbuilding as a strategic sector, and supported it in this matter. The Koreans are a dedicated and hardworking people. In the 1970’s they started producing machinery and electronic communications equipment in Korea under their own license. They developed a vision and stood by it. Korea built a 270,000-dwt VLCC for the first time in 1971. And after that, it was like an avalanche, from Daewoo and Samsung to other shipyards opening one after another. At this point, are they still being subsidized by the state?Yes they are because Korean Yards were particularly affected by the Lehman Brothers crisis in 2008. It was a big shake off for them because they specially produced bulk orders. But the state injected about $2-3 billion to the yards.
They treated building high-tonnage ships as a strategy. I liken Korea to the US, where the Merchant Marine Act was enacted in the 1920s. We call it the Jones act, and it clearly states that all vessels that will carry passengers or commodities in US waters ought to be manufactured in the US. Another example is Russia, where Turkish yards, which are very good in special-purpose vehicles and fishing vessels, can’t enter the market. For example, Tersan Shipyard exported a fishing vessel to Russia recently, but it was under a quota. So it is, although very rate, possible to export a fishing boat from outside Russia in matters of urgency but normally according to the legislation all vessels that will be fishing in Russian waters should be constructed in Russia.
To get state incentives, yards have to use about 45 to 50 percent of local production. There are such protectionist policies in place. For example, Canada, which has a very strong shipbuilding tradition and which in the past trained many a great engineer, at some point started importing vessels when all of those engineers retired. At some point they said ‘we need to start from scratch’ and ordered all warships for the navy at Canadian yards. So all of these countries have taken measures to protect shipbuilding based on their experiences.
In the first four-months of 2019, Turkey’s ship exports volume was $381 million. Comparing this with the past 24 months, there has been a $219 million increase inship exports. Judging by these figures, what is the likelihood that targeted figures will be met by the year’s end?
The first-four month results are hope inspiring for us. We concluded the first four months of 2018 with 220 million dollars in exports, which is now 381 million dollars for the same period of this year, which amounts to a 168 percent increase. A similar trend can be observed in April, where the exports volume was 114 million dollars, up from 42 million dollars in April 2018, which is a 70 percent increase. If we receive data from exporters’ unions that are part of the Turkish Exporters’ Assembly (TİM), the Turkish Ship, Yacht, Marine Services Exporters Association has been the İndustry with the highest increase in exports. People tell us, ‘You always cry about your situation, saying that performance bonds issued by Turkish banks not being accepted by some foreign banks will create problems, how do you explain these figures?” These are the final moves. The problem about performance bonds is still in place. Shipyards have come up with their own solutions for this. Those who have strong balance sheets go for borrowing; they go to the Eximbank or draw lonas instead of getting money from the client and complete construction. There are even contracts which have been built with on zero down payment, which were all paid at time of delivery. In Turkey, yards usually start with down payments of 10 or 20 percent, then recoup the rest at the time of delivery. YOu can only do this by borrowing or using your own capital resources, which is out of question.
Each yard might has its own unique exceptions, but a common issue for all of us is the situation with performance bonds and we think as an association we have managed to make our voice heard in this regard. Both the Istanbul Marmara Aegean & Black Sea Regions’ (IMEAK) Chamber of Shipping and the Turkish Shipbuilders’ Association (GİSBİR) has supported us in this. Additionally, we have managed to involve the Finance Ministry in this, whose officials have had contacts in Norway, which has already reflected positively. Our Embassy in Norway is also involved. Everything is moving along positively; a great deal of awareness has been raised.
Perhaps you can tell the Norwegian shipowners a bit about us?
Actually, they know us better than we know ourselves. There are yards in Turkey with which Norwegian yards have worked for years. We have first-hand experience attesting to the fact that they are very happy with these partnerships. Our real forte is specialized and customized shipbuilding. As part of this, we build tug boats, fishing vessels, erries and active passenger ships that can travel to the polar regions. For example, such a ship is being constructed at Tersan right now, they can build green ship that can sail to the polar regions. Most of these are of course designed in line with demands of Norwegian owners. Turkish yards are building fishing vessels, offshore vessels, anchor handling tug supply vessels, PSPs and other vessels..Norway is the center of innovation itself. Thanks to this, the world’s first LNG-fueled tugboat was built and exported. LNG-fueled hybrid ferries and fishing vessels have been exported to Norway, which is the center of innovation. Norway already started leading new fuel cell technologies. Their Marine Merchant department is giving grants to Norwegian yards and as part of this conventional ferries are being converted to ferries run on hydrogen fuel cell technology. Most likely, we will see the first samples of these within a few months.
Taking a closer look at exports data, ferries account for more than $100 million of the $381 million exports to Norway, which is more than one third of the total exports volume to Norway. This are all new builds, none of them are second-hand sales. About $25 million dollars of this amount is accounted by tugs. We have about $10 million in machinery exports. There are also chemical tankers, cargo vessels. Again of all our ferry exports, about half are to Norway.
Turkey is closing the gap in catching up with new technologies. As I understand this, Turkish yards are also easier for European clients to communicate with. Would you agree?
European Union countries do not place orders at Turkish yards just for the price. Price is a factor, but we also provide quality, ensuring that the client is happy, we offer post-sales customer satisfaction and on-field service as needed by client. We have such flexibility. We also adhere to IMO rules, class and flag rules in our work. These are the factors for Norway and Nordic yards choosing us.
How would you evaluate our
relationship with Italy
Many Turkish companies primarily export tugboats to theses countries and also engage in the sale of second-hand vessels. At the same time, many Dutch companies are exporting tugboats to Italy. We don’t see Italian yards as competitors in this area, but this doesn’t apply to Spanish yards. Some of our yards have exported significant numbers of tugs to Spain. Together with Dutch yards, Spanish yards are our biggest rivals. We have been able to export tugboats to spain, in spite of the tax leasing system in place in that country.
Lastly, could you talk a little bit
about the role Turkish yards
play in yacht building?
Yacht Building is quite a lengthy process, taking up to three years on average. Specializing in megayacths there is Proteksan Turquoise and Dünya Shipyard. In addition to these, we also export medium and small scale yacths, but there is really a big market for megacystis and meidum*scale yachts. We are lucky in that there is a certain customer profile to which our yards are appealing. But the fact that the process is very long leads some customers to move to other markets. We are heavily engaged in yacht building currently. The advantages we offer are that we meet customer demands regarding quality, and costs. Another advantage we offer is our ability to move out of standards and meet demands about custom wishes. The US, Germany, Italy, France and the Netherlands are the biggest players in terms of exports globally. The Netherlands’ annual yacths exports amount to $1 billion. We have a tiny share of this market. Our yards, in yacht building, are more customer-oriented in comparison with other markets. Customers who want a really customized yacht according to their own unique wishes prefer Turkish yards.