Amid a record ordering boom, and with an eye on fleet renewal ahead of IMO 2050, shipbuilders are looking at expansion for the first time in a decade. Surging newbuild orders and an escalating backlog have prompted the question of the possible reopening of some mothballed shipyards, or even setting up new ones to snare new construction deals.

South Korea’s HD Hyundai, formerly known as Hyundai Heavy Industries (HHI), has recently moved to reopen its Gunsan shipyard on the west coast of South Korea. HD Hyundai will relaunch the massive yard that closed in 2017, most likely in January next year for block building. Another South Korean shipyard, Hanjin Heavy Industries & Construction, which has been building government ships over the last five years, recently rebranded as HJ Shipbuilding & Construction and reentered the merchant shipbuilding landscape, bringing its effective capacity back online for the industry. In China, there’s even been reports that Jiangsu Rongsheng could be pressed back into action, while further north another giant shuttered yard, STX Dalian, has recently been bought and will focus on offshore equipment.

Stuart Nicoll from UK-based consultancy Maritime Strategies International (MSI) suggested that the longer the ordering boom continues, and the higher newbuilding contract prices go the more likely it is that we will see shipyard capacity come back online. However, he pointed out that the current spike in orders is primarily being driven by large containerships and gas carriers, with many of the yards that closed in the last decade not having either the facilities or previous expertise in building these assets. Nicoll suggested it is more likely that mothballed yards are reactivated if their parent group remains in shipbuilding, or alternatively and more broadly, active yards use capacity at mothballed facilities, rather than yards being resurrected as standalone private entities. “So far, we are not seeing any shipyards reopening or any brand-new yards opening. Nearly all orders placed across the cargo shipping sector have been at well-known South Korean, Japanese, or Chinese yards,” a spokesperson for London-based valuation platform VesselsValue told Splash Extra.

Burak Cetinok, head of research at broker Arrow, argued that although a few berths will likely open, yard capacity is unlikely to expand like the industry experienced in 2007 and 2008. For Tim Huxley, the chairman of Hong Kong-based Mandarin Shipping, there is a big difference between today’s market and 2008. “That boom was very much led by bulk carriers, and they were more straightforward to build, and a huge number of the orders were purely speculative,” Huxley said. “The biggest chunk of the orderbook is now containerships which have generally been ordered by major liner companies or against long-term charters and the contracting parties are generally being very particular where they build them.” Ralph Leszczynski, the head of research at broker Banchero Costa, agreed, pointing out how containerships and gas carriers are relatively sophisticated, with the shipyards that attract these orders being the big, quality ones like Samsung, Hyundai, Imabari, Waigaoqiao, Yangzijiang and similar. Leszczynski said the barriers of entry for start-up yards to build 10,000 teu containerships or LNG carriers, especially fuel-efficient ones, are arguably much higher than building supramax bulk carriers 10 years ago. While orderbooks for dry bulk and tankers are at record lows and with all the uncertainty and confusion about future fuels and environmental regulations, Leszczynski said he does not expect owners to rush to place more orders for bulkers or tankers anytime soon given the “eye-wateringly” high newbuilding prices being quoted now, the highest since the 2008 spike. He also warned that the boom in containership orders is itself arguably a bit of a bubble, which is unlikely to last for long. For Leszczynski, the boom in LNG ordering will last for much longer as there is a more long-term structural justification.

Thomas Bracewell, a newbuild expert working for brokers Arrow, pointed out that few shipbuilders have the financial muscle or willpower to expand. “Having worked through a decade of heavy losses, and with 2022 also forecast to be a loss-making year for most yards, shipbuilders with a legacy have limited resource to fund large scale expansion of the workforce and the re-instatement of old facilities after prolonged shutdowns,” Bracewell said. Investors eyeing shipbuilding profitability in 2023 and beyond as an opportunity for growth is basically expansion in the margins, Bracewell reckoned.

MSI’s Nicoll noted that although the physical capacity tends not to disappear as yards are either mothballed or put to work on other forms of heavy industry, effective capacity is a lot easier and quicker to bring back online when markets improve, though one limiting factor can be the availability of a trained workforce. “This in itself, will depend on the yard’s historical reliance on local contractors, other local heavy industry in the vicinity as a potential source of labour and the elapsed time between capacity closure and the reopening of the yard,” he observed. Although possible, Nicoll argued that resurrecting mothballed capacity is more difficult. Not only do yards have the labour force issue, as they do with effective capacity, they also must reinstate supplier networks, certify equipment, obtain materials and stores, secure initial orders, and work cash flows. Nicoll said the more interesting story is the upscaling of capability at existing facilities in China. “Many yards that were once reliant on dry bulk carriers have moved up the value curve to build containerships, largely, of course, because that is where the demand has been,” Nicoll stated, adding that the entry of Jiangnan and Dalian into building large LNG carriers will also be a major step up in China’s capability.

Mark Williams, who heads up UK consultancy Shipping Strategy, reckoned that after a decade of contraction shipyards will have to massively increase capacity to ensure shipping meets its green goals as stipulated by the IMO. “If the global fleet is to meet the IMO emission ambitions for 2050, then the entire global fleet needs replacing or refitting,” Williams told Splash Extra, stressing that the industry has just 28 years to reach the target. That means over 3,500 ships a year being built or going into refit, every year, until 2050. “Global shipbuilding capacity is down by 60% from its 2010 peak at around 2,700 ships capacity per annum. Retired and mothballed shipbuilding capacity will have to be brought back on stream by the end of this decade,” Williams said, going on to predict a newbuilding boom that could last for decades. According to analysis by Shipping Strategy, shipbuilding capacity needs to grow by 50% in the next five years.