Singapore Shipyards In A Battle For Survival

Singapore's attempt to stay competitive in the ship repair business is an uphill battle, marine analysts and officials say.

While the industry seems to be moving out of a cyclical doldrum, recovery remains elusive due to a surplus dock capacity and competition from lower-cost yards in Dubai, Saudi Arabia and China.

'The implications for Singapore (yards) are quite negative at this stage,' Richard Stokes, director of regional marine at WI Carr, said.

'The Middle East yards are looking bright, moving forward, enjoying record profits and increasing workloads. Operating conditions remain very aggressive in Singapore," Stokes said.

Stokes said Singapore yards were trapped in the middle band, losing high value-added jobs to the Middle East and robbed of the basic jobs in the lower end by the Chinese yards.

 

'The core theme is that the Middle East yards continue to make headway against the Singapore yards on account of their different costs structures,' Stokes said.

Analysts said that while labour rates in Singapore were in line with the Middle East, repair rates were jacked up by stringent requirements for sludge disposal. 'The sludge removal costs translate into 20-30 per cent price disadvantage to Singapore yards based on the average repair bill of S$1 million ($680,000),' HG Asia said in its marine sector report.

'The problem with Singapore yards is a structural one,' said Ong Hui Guan, associate director at Deutsche Morgan Grenfell Equity Research.

In its report on the sector, the government's Economic Development Board (EDB) said last year's drop in repairs was caused by a weak global repair market, strong competition from Middle East yards, keen price competition among local yards and a strong Singapore dollar against the US dollar, in which deals are made.

Despite these hurdles, analysts said it would be premature to dismiss Singapore's three million deadweight tonne yards as a sunset industry.

'As long as there are ships in the sea, the shipyard industry will exist as there will always be demand for repair,' said investment analyst Ang Lay Pheng at Goldman Sachs.

The proposed merger of two of Singapore's Big Three yards -- Sembawang Corp and Jurong Shipyard -- reflects this need to restructure the sector.

'The merger means less competition among the yards..." Ang said. "Hopefully, with the rationalisation, the industry will grow towards becoming more of a cartel rather than a free competition where rates are driven down.'

Ang said Sembawang's plans to redevelop its Admiralty Road yard into a residential condominium would help shrink Singapore's surplus yard capacity.

Analysts said the government could help by lowering the foreign worker's levy -- which employers have to pay -- allowing more foreign workers in and also making sure industrial land costs stayed low. Meanwhile, yards should look at cutting related costs.

"The yards have to position themselves to broaden their business scope to pursue jobs with more engineering content, leveraging on Singapore's strong

technical workforce," the EDB said.

Among the jobs recommended were offshore oil rig-building, repairs and upgrading, shipbuilding and turnkey conversions.

Opinions were mixed on the desirability of regional expansion.

"Regionalisation is a key initiative for our companies to position themselves for the future," the EDB said. One school of thought felt local yards needed to go regional to take advantage of cheaper land and labour resources. But others disagreed.

"Wherever there's demand, there is no reason why they should not go into that country but regionalisation is not necessary," Ong said.

Analysts said setting up yards in China and Indonesia would cater to a different market. If Singapore wanted to remain competitive in the very large crude carrier market, it had to beat the Middle East yards.

A better solution than regionalisation would be for yards to diversify into higher value-added jobs and increase labour productivity, they said.

For 1997, the EDB said it expected the marine industry to see some reprieve from the 10.9 per cent decline last year and maintain its 1996 output at Singapore $3.14 billion.