Ana sayfa Haberler Deniz Ticareti ‘Marine strategy provides significant economic power’

‘Marine strategy provides significant economic power’

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Cem Seven Marine strategy provides significant economic power

What are some of the steps Türkiye’s ship exporters take to create awareness of the strength of the industry, which has stood out as a significant employer and contributor to the country’s economy? Chairman of Türkiye Ship, Yacht and Services Exporters’ Association (GYHİB) Cem Seven shares with MarineDeal News readers what’s on his mind regarding the state of affairs with boat and yacht construction in the post-pandemic world, highlighting the strategic importance of marine industry and sharing his views on various other topics. Marine strategy

How has 2022 been so far for GYHİB – which is part of Istanbul Unions of Exporters – whose members collectively achieved 1 billion 626 million in exports in 2021?

‘In 2022, we aim to exceed the previous year’s figures’
We have been keeping a regular record of our export increases as GYHİB since 2018. In 2020, we reached the highest exports volume recorded since our establishment, reaching 1 billion 375 million dollars in exports and also becoming the industry which posted the highest exports growth for that year, and in 2021, we hit our highest ever export figure at 1 billion 626 million dollars.

As of the first seven months of 2022, our exports figure seems to be going at last year’s rate. Because the aggregate dollar value of exports per piece of product is too high in our business, sometimes the delivery of an extra ship or a megayacht can drastically change quarterly numbers. As of the current date, our exports are at levels similar to those of 2021, but we do expect to exceed last year’s exports with the completion of new deliveries by the end of the year. In 2021 we set an exports target of 1,7 billion dollars. We plan to reach this target by the end of the year.

Despite various global problems faced by business, the shipbuilding industry of Türkiye has managed to increase its exports by 64 percent in the last 4 years. What is the main factor behind this?

Even in 2020, when the effects of the pandemic were being felt intensively and when every exporting industry in Türkiye experienced reductions in their volumes, our industry was able to post increases in exports volume. We as GYHİB feel that positive results that we have had in response some of the appeals we have made to the Türkiye Exporters Council, Ministry of Commerce and the Ministry of Transportation to prevent the sector’s exports from being stalled have also played a role in this achievement. At the same time, our shipyards managed to continue their tradition of standing together in the face of challenges and producing solutions jointly. International promotional activities and expo participation – activities that have been going on for years–  have also contributed to overall familiarity with the local industry and the Türkiye brand. We can, at this point, comfortably state that all of these efforts are now bearing fruit.

What level of awareness, would you say, has Türkiye created in the international arena of its vessel exports? What are our country’s most important attributes that set us apart from other countries?

‘We took top place in fishing vessel exports in 2020’
Our shipyards, which focused on building and exploring small-tonnage and more popular chemical tankers pre-2008 global crisis, started concentrating more on custom built and special-purpose ships after the crisis. As you know, South Korea, which is among the top three countries in world ship exports, has ship exports that average between 20-25 billion dollars every year. South Korea has dedicated its current assembly lines to mass production of large-tonnage shipbuilding. Special-purpose and custom-built ships are not part of their strategic targets. Our shipyards, in contrast, rank very high in the construction of special-purpose vessels such as ferries, fish processing vessels, tugboats, military vessels, platforms and offshore wind support vessels, both in terms of exports and also in terms of creating brand awareness. As a matter of fact, we became the world’s biggest exporter of fishing vessels in 2020 and we will see the same achievement when 2021 results are announced. I would also like to state that we are currently ranked among the top three nations in terms of exports of new generation and non-conventional tugboats and that we will likely hold the top place in the world in 2021 and 2022. Similarly, we are experiencing an upward acceleration in our ranking in new generation ferry construction from the 10th place into the top five.

The shipbuilding industry stands out as a labor-intensive industry with huge potential for job creation in all countries where it is supported and developed. How does the industry create its own financing opportunities in Türkiye and what are its contributions to the country’s economy? What are the problems you have in accessing financing and what are your suggestions for solutions?

‘The industry needs rediscount and FX loans’
Ship and yacht building is a special industry as a significant job creator, also acting as an agent enabling employment in its  subsidiary industries. Currently, more than 50,000 workers are on company payrolls with full-time social security insurance benefits, which translates into hundreds of thousands people benefiting from these jobs given the multiplier effect. The industry is also an important contributor to incoming foreign currency earnings for Türkiye, and doing that with a high level of added value in comparison with many other domestic industries. On average, a product exported by Türkiye is exported at 1,20 dollars per item, while this figure is 20 dollars per kilogram in newbuild exports.

Outside these figures I’ve cited, our industry indirectly secures incoming foreign currency along many budget lines starting with maintenance and repair services, as well as contributions to national defense and exports through the construction of military vessels.

Financing is currently the most important challenge faced by companies operating in the sector. The leading issue is with the acquisition of letters of guarantee from local banks for loans and funding. In most ship contracts, the buyer makes payments to shipyards in return of bank-issued guarantee letters at different stages as part of an existing payment schedule. Shipyards cover these advance payments through hybrid financing models, including, if need be, project-based bank loans.

The production of a ship or a yacht takes between one-and-a-half to three years on average. The problem we face is Turkish banks’ refusal to issue letters of guarantee for funding with maturity above a year, putting forth Türkiye’s grades issued by resident banks in Europe and rating agencies low and the country’s high CDS value.

There is a need to ensure that international credit rating agencies establish special credit lines for the ship and yacht building sector at banks with high credit ratings and provide counter guarantees. In addition, there is an urgent need for Central Bank FX rediscount credits and medium-term Eximbank FX loans that can balance out the letter of guarantee problem. Regarding this final point, we are actively making applications and initiatives with Turk Eximbank.

Is competition between different states fair in the shipbuilding, maintenance and repair industry? What action should Türkiye undertake to address any issues in this regard?

‘Maritime is a strategic sector’
Some countries with significantly large economies have made shipbuilding a target industry and part of government policy. As a matter of fact, these countries’ situation makes a difference in international competition. Maritime is a strategic sector as a whole and the countries that have consciously adopted this as a strategy have created significant economic power. Türkiye can increase its share in the marine industry through designating it– and not just shipbuilding but the entire shipping industry – as a strategic sector and creating its own support mechanisms and fields of specialization. Since it is a different industry which contains strategic elements, it is important that a banking system which is knowledgeable about the dynamics of the maritime sector and marine tax offices be supported through an incentive mechanism that doesn’t go against the European Union acquis.

Overall, services offered by Türkiye’s shipbuilding industry and port facilities are to international standards. With thousands of materials used in ship and yacht construction, added value is also provided to the subsidiary industry related to shipbuilding. Are there any problems in the supply of equipment and materials and if so, what is being done to address those problems?

There is a global problem with the supply of equipment and materials. Although we aren’t really encouraging too many problems in procurement from domestic producers, supply problems can arise in projects that should be built to international standards, where the material list is pre-specified and where there are predominantly products that need to be imported. Global demand exceeding the availability of supply causes unit prices of supply to rise. Logistics problems, rising commodity prices and issues with accessing raw materials increase both product unit price and prolong equipment delivery times.

The use of domestically produced material in ship and yacht construction is important in the manufacturing of products that offer higher levels of added value, but sometimes issues with certification can keep some of our domestic products off maker lists. With the resolution of certificate problems, we will be able to see increases in added value.

 How is the industry responding to post-pandemic boost in demand?

‘Orders are in good shape for Türkiye’
At the moment, there is a positive situation with order books for new construction in Turkish shipyards. 2023 and 2024 orders are in good shape. Exporter yards are keeping up their production and exports. Changes to holiday habits brought by the pandemic have created a special type of demand, especially for the yacht industry. This will both increase the business of existing yacht manufacturers and enable new investors to enter the yacht sector.

Has the war in Ukraine affected export rates?

Ship and yacht building, as an industry, is closely tied to global developments. In a situation where even a war between any two countries would affect the sector, a war between two specific countries that are both crucial to the industry, will certainly manifest in results in the longer term, although this has not yet happened. Russia is one of Türkiye’s top export partners. Currently, there are a number of fishing and other types of vessels of various tonnages that are in construction to be exported to Russia. Obviously the war situation has had a negative effect on the delivery of these ships. Although Ukraine is not an export country for the industry, it is one of the most preferred nations for Türkiye’s steel imports in ship and yacht production. Failure to acquire steel because of the war is causing delays in the deliveries of the boats currently being produced in Türkiye and  placement of re-orders of sheet metal at new prices are driving up costs by about 40 percent.

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