Summary
The risk of cancellation for delayed delivery is the worst nightmare for a shipyard in falling market. But the risk is increasing for Indian Shipyard. The owner walks away with advance, and shipyard has to work really hard to minimize loss.
ABG Shipyard, Alcock Shipyard, Bharati Shipyard and Tebma Shipyard has setup facility to cater to higher segment and Pipavav Shipyard is in new business. It is difficult to streamline project management issues at a newer yard, leading to delayed delivery.
Analysis
Fewer newbuilding order cancellation have been reported from Indian shipyards. Reason being, Indian Shipyard focussed on Offshore Oil & Gas segment, which despite falling oil prices and economic downturn had reasons to be optimist.
Alcock Ashdown shipyard lost four ships in midway being built at new facility in Chanch, as they had missed all revised delivery schedules. Tebma Shipyard had eight orders, from Trico Marine and DOF Management. One ship got delivered, more than a year after scheduled delivery.
Shipbuilding requires more of project management skills than fabrication. It is understood and believed by all the shipyards, shipowner. Still unanimously they agree to time-lines, which can be planned and simulated on computers but difficult to achieve on group from a Greenfield Shipyard.
Tebma Shipyard has a glorious past. They have built tugs; dredgers ahead of schedules from their previous shipyard spread over 2 acres in Chennai. Indian Navy’s appreciation for delivering Tugs ahead of schedule is recorded in government documents. Tebma Shipyard is building and delivering sophisticated supply vessels, jointly with Cochin Shipyard (largest shipyard by infrastructure currently functioning in India). But their delivery from a new yard conceptualized, planned and built by Tebma at Malpe is delayed. They have not been able to scale up their project management skills to build complex ships from new facility at Malpe.
Bharati Shipyard faces similar delay situation for building Jackup rig for Great Offshore, but the order is not cancelled. Pipavav Shipyard appears to be behind schedule for building bulk carriers. ABG Shipyard new facility in Dahej is not fully complete, though ship construction has began. They are all Greenfield shipyard.
There are several uncertainty associated with a Greenfield shipyard, starting with regulatory clearance, land issues and more so project management issues. Pipavav Shipyard has new team, new place, new infrastructure in a new business. Whereas other such as Bharati Shipyard, ABG Shipyard, Alcock Shipyard and Tebma Shipyard have new facility, new segment, new infrastructure and scaling their team to deliver from a new yard.
In the current scenario the Indian Shipyards have to put in place their project execution skills and troubleshooting mechanism to save other orders from cancellation. In a market, where asset prices has fallen and a dim view of charter rates. Cancellation for delayed delivery could be the worst nightmare a shipyard can face. Shipowner recover his investment through bank guarantee, and shipyard has to endup paying penalty for ordered raw material such as equipments, machinery and steel. Sometime, they have to look for alternative arrangement for half built ships. In a market where charter rates are falling, it is difficult to get a second buyer.
Anand Sharma consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
