We talked to Cem Seven, Sanmar Shipyard’s Executive Board Member who was voted Chairman of the Ship and Yacht Exporters Union in April, about the goals and needs of exporters
The existing balances in the world are shifting. There is a serious degree of competition and struggle in the industry. What are the objectives of the Ship and Yacht Exporters Union at such a time?
True. These issues you mention are actually occuring at a macro level. These developments and circumstances are unfortunately not easy issues for our organization to solve. For example, after I was voted to head the Union, we held meetings with executives of various shipyards in Russia, with Russian shipyard owners, as well as delegation made up of chairmen of exporter unions and senior bureaucrats. The Ministry of Economy was represented at the level of Assistant General Manager. As we can see in the Russian market, protectionism is now growing all over the world.
To illustrate protectionism, can we use the phrase “know-how transfer” and “focusing on domestic production”?
Russia’s fleet is very outdated and their riverboats badly need to be renovated. Their fishing vessels are in a similar situation. We wanted to talk to them about what we can do. However, when we posed the question if Russian fishing vessels can be repaired at Turkish shipyards, it became evident that this is not possible. This is because, according to local legislation Russian fishing vessels in Russian territorial waters should be built at Russian shipyards and 50 to 60 percent of the vessel equipment, including main engines and propellers, should be domestically produced. In other words, the Russian government has established an incentive system, but it has also introduced some requirements for the owners who benefit from these incentives. Likewise, in keeping with a directive issued by Putin, in addition to Russian fishing vessels, most other vessels must also be built at Russian yards. The only exception is yachts. You can build yachts for the Russian market anywhere in the world, but after the 2008 Lehmann Brothers crisis, yacht building industry hit the bottom and it has not recovered yet.
Countries are trying to protect their national industries. One of the problems at a macro level is the issue of financing models. Turkish shipyards build very sophisticated and high-quality products for foreign markets. Even creating a customer-centered view and the quality of your product are not enough, because the level is continuously increasing. On top of that, the clients are saying, “Okay, you are constructing high-quality products and your after-sales services are very good. The value of my vessels stays the same while reselling. But where do you get your financing?” Certainly, this is also a big problem. With the financing model issue being solved, we think that our exports will increase further. Likewise, some of the stakeholders in the sector at times create financing models within their own structures for the vessels they export abroad.
Could you possibly provide any examples?
As you know, there are two organizations that can finance this business: one is Eximbank, and the other is the company itself. Of course it is not possible for the company version to be sustainable. To put it shortly, Eximbank has a great deal of responsibility here. To increase ship and yacht exports, customer-oriented loans should be provided and these are not small amounts. All shipowners in the world need financing together with construction. Currently ship exports on terms of 2-3 years are taking place.
There are different financing models available for vessels and yachts. Is there a model which you can suggest?
We need to think of this as something that comes in a package. Of course, shipbuilding is an arduous business that takes years. First, let’s talk about the regular financing model. Let’s say you do not use any bank loans; the client orders a ship, you sign a contract. A 5-10 percent advance payment is made and a bank letter of guarantee is required in return for the payment. When we look at this regular shipbuilding model, you pay between 10 to 30 percent at certain intervals until delivery. During the delivery, you usually pay up the final 15-20 percent and export your ship. This is where shipbuilders may have a problem: They might face some difficulties regarding the guarantees they submitted for the loans they’ve borrowed. It is not easy to issue such a letter of guarantee to a company abroad. It’s a bit about how solid the financial structure of the shipyard is. It is possible to complete a ship by using one’s own resources or bank loans, completely within the framework of Eximbank as long as you fulfil the 20-percent advance payment requirement for overseas customers as per OECD standards. Eximbank also gives loans after the closing. This includes some very attractive conditions. There are annual interest rates below 1 percent, which motivates our clients for productions. Eximbank can also finance the remaining 80 percent of the total for a term of five to 12 years. Everything is great after this point, but of course it is great for those who manage to get to this stage. If a shipyard can reach this stage, then there are new possibilities for it. But it is important to form a package and provide financing from the very beginning. We have not discussed this yet and of course we will.
Turkey is a strong country. It is very important that it becomes a leader with long-term marine industry policies.
Yes, you are right. It is difficult to close new contracts because of the protectionism in place in other countries. When it comes to the financing model, you should have a surplus so that you can export later. However, as in the case of Russia, similar protectionist practices are now being observed in many countries. But we are successful as a country. We will be even better.
As in the case of Spain?
There is a well-known tax leasing system in Spain. It is forbidden to offer incentives to shipyards as per EU legislation. Turkey also has to comply with this rule, which it does. With the tax lease system, the shipyards can provide advantages to themselves.
Along with financing, the foreign policy of our country is also important. What’s your take on that?
We shouldn’t forget that our government has given serious support to us, especially during the worst moments of the crisis. The extension of the lease contracts in Tuzla to 49 years was an incentive that was very helpful and allowed us to see into the future. In the past, there were many rumors that the yards zone would be turned into a marine or would be given to the Mass Housing Administration (TOKI). We are grateful to the government for putting an end to this. Not only were the lease periods extended, but also amendments made by cabinet decrees to the Turkish International Ship Registry has created many opportunities for exporters. True, we can’t carry out activities contrary to the EU Acquis but the government is doing its best to benefit yards without violating the rules. Critics tell us, “The construction will last 12 months, where will your banks be after 12 months?”In other words, exporters are entrepreneurs who fight in the frontlines. Because you have to overcome this perception and destroy the biased opinions your rivals have created about you. Our exporters are our unsung heroes. They have put so much effort, we can’t understate their importance. Exporting companies deserve applause and praise because this is really about the future of thousands of people working at shipyards.
What is the employment policy of your union?
Speaking not only for our Union but for the whole of the industry, certainly we need a good workforce. In fact, we see that the most ideal way of achieving that is through vocational high schools. There already is a master-apprentice relationship, but it needs to be improved.
Is the rise of foreign currencies against the lira to the advantage or disadvantage of the marine industry?
If you are manufacturing a specific marine vessel today, about 35-50 percent of the cost of your production is spent on imports. So regardless of the changes in the exchange rate, you need to pay for the imported items that you have already bought in foreign currency. This does not affect anything. If we come to what it affects; let’s say you use 60 percent domestic goods, including labor, and you signed your contracts on Lira basis. In this case, the increase in exchange rates positively affects you. Because the increase in foreign exchange rates has a positive effect on the increase of your profit margin according to the lira-based contracts you have made with subcontractors. The increase in the dollar is of course not a good thing for Turkey and it is damaging. However, it is a reality that it is a plus for exporters, especially for exports where higher rates of domestic equipment and labor are employed.
Which new markets should we turn to for boats and yachts?
Basically, rather than following a private-sector reliant individual development model; we should penetrate countries through policies that will increase our market share under the leadership of our government. The state and the private sector working together in this way will ensure a good return. Elevating your status doesn’t occur only through sales and post-sales services. Financing is also important.
However, our nation has a spirit of entrepreneurship and assertiveness that I highly appreciate. Our people are very skilled in many different ways. Since we come from such a culture, most companies have moved to niche markets after 2008. Some of our firms concentrated and found a place in the tugboat, mooring boat or pilot boat sectors while others concentrated on the construction of offshore and fishing vessels and others still became leaders in the production of ferries and LNG ferries. For example, in the case of ferries, Norway is among our best customers. Norway and Denmark are among our most important markets in Europe and our producers are still exporting to these countries
What are your suggestions to increase our exports?
First of all, as an exporter, you have to act according to the traditions and customs of each country. This is only possible if you go to those countries and trade after getting to know the people of a certain country. If your product isn’t good, you will eventually lose your market share and also cause the country to lose its market share. Secondly, human relationships are very important, regardless of what corner of the world you are at. Being solution oriented when people face problems, being nice to them and offering guidance is important while doing business. Thirdly, never bandone the client after closing the sale. If the warranty is 10 years from now and the product you sold is already finished nine years ago; you should not leave that customer alone, you absolutely have to solve the problem. This is the secret to success.
