As the COVID-19 pandemic continues, the German Shipbuilding and Ocean Industries Association (VSM) issued a stark assessment explaining the challenges arising for the European shipyards.
As the Association stated, the pandemic raises considerable uncertainties for medium-term development, while predicted a halt of ordering activity in the cruise industry and a significant reduction in ordering for government vessels, the two mainstays of EU complex shipbuilding.
The long-term risks the Association predicts include the impact of public and private sector debt, which have rapidly risen as governments and businesses attempt to plug the revenue hole left by reduced economic activity. The risks also include the growing odds of economic conflict between China and the United States, which last year agreed to reduce trade barriers but are now engaged in a diplomatic dispute over COVID-19.
VSM noted that
For the shipbuilding industry, very low demand can therefore be expected worldwide for a longer period of time. Against the background of the global shipbuilding industry, which has been weak since 2016 – in the past four years, newbuild orders fell short of total production by more than 40 percent – this drop in demand will significantly expand the already underutilized global shipbuilding capacity.
They added that orders have already been cancelled and more cancellations will worsen the situation.
Prior to the pandemic, the European shipbuilding order book covered four years of future activity, significantly longer than in other shipbuilding countries like China, Korea or Japan. Yet, the future of the European sector is “at risk” as the Association commented, especially as the complex shipbuilding projects that EU yards conduct require much longer contract discussion, lead time and development phases. There is an average of up to 3.5 years between the construction and delivery, which means that the order book for 2025 deliveries will soon begin to run thin if more contracts aren’t signed today.
Commenting about the cruise sector, the Associaton explained that the impact of the pandemic resulted to less ship building orders.
Similarly, warships and government vessels, which represent the second big sector of EU shipbuilders, may also be affected. Given that national governments are taking arge quantities of debt to respond to the COVID-19 pandemic, it may limit procurement budgets in future years.
The association said that in order to combat potential bankruptcies and company closures, it was working with European colleagues on a temporary fleet renewal program that would rely on public contracts as well as incentives for environmentally-friendly renewal of the merchant fleet.
