Pandemic leaves local shipbuilders high and dry

Pandemic leaves local shipbuilders high and dry
Arjay L. Balinbin, September 17, 2020 https://www.bworldonline.com/pandemic-leaves-local-shipbuilders-high-and...

THE PHILIPPINE shipbuilding industry is feeling the pain as new orders have dried up amid the recession.

“New orders are very seriously hit,” Meneleo G. Carlos III, chairman of the Shipyard Association of the Philippines (ShAP), said in a phone interview.

“Our road to recovery is simply meeting the requirements of our customers and hopefully our customers becoming more financially stable or have predictable requirements, and more regular settlement of obligations,” he added.

With the economic slowdown, many marine service providers like Chelsea Logistics & Infrastructure Holdings Corp. have put expansion plans on hold.

“Shipowners may really reconsider if investing in new vessels now is an option. Maybe we will revisit (our plans) after a couple of years or so,” Chelsea Logistics President and Chief Executive Officer Chryss Alfonsus V. Damuy said in a phone message.

Archipelago Philippines Ferries Corp. Chief Executive Officer Christopher S. Pastrana said in a phone interview: “We are deferring the newer orders that are supposed to start this year. We will start next year.”

Philippine Liner Shipping Association (PLSA) President Mark Matthew F. Parco said the local domestic shipping industry, like other industries, was “taken by surprise by the speed and breadth” of the impact of the coronavirus pandemic.

“The reduction in cargo and continuing restrictions in passenger travel have significantly affected the profitability and liquidity of the lines. The tight liquidity position is affecting the PLSA members’ decision to modernize and expand,” he said in an e-mailed reply to questions.

Mr. Pastrana, who is also the president of the Philippine Inter-island Shipping Association, noted the Bayanihan to Recover as One Act (Bayanihan II) signed by President Rodrigo R. Duterte on Sept. 11 “should have a positive impact on the economy, and goods should continue to be moved to support the islands,” as these are necessary for the industry’s recovery.

For now, shipbuilders are focusing on repair works for survival.

“With this pandemic, we shifted our focus from private (sector) to government. Survival is our priority, so we are having so many repair works for government-owned vessels,” Josefa Slipways, Inc. Vice-President for Marketing and Operations Arturo S. Balajadia said in a phone interview.

Before the coronavirus pandemic started, Josefa Slipways was preparing to construct more ferries, as the Maritime Industry Authority (MARINA) ordered the phase out of wooden-hulled passenger vessels.

Mr. Balajadia said the MARINA’s directive would have been a big opportunity for the local shipyards and contractors to secure more orders for passenger vessels.

STIMULUS
As the industry reels from the economic fallout of the pandemic, MARINA had proposed that P1.6 billion be allocated to the shipbuilding industry under the Bayanihan II.

A copy of MARINA’s position paper obtained by BusinessWorld said: “For the shipyard industry, to help sustain the business operation of shipyards until the economy recovers (payment for payroll cost, interest on mortgage obligations, rent, utilities, raw materials etc.), the National Government is proposed to provide a loan through the Development Bank of the Philippines with the following mechanics: payable in five years with low interest rate; no collateral; and lending decision approval of loan should be made within 30 days from date of application.”

It said the approved amount of loan will be “based on the paying capacity and size of business operation” of both shipyards and boatyards.

But under the newly signed Bayanihan II, of the P9.5 billion allotted for the Transportation department, only P2.6 billion will be used to assist the critically impacted businesses in the air, land, and sea sectors. Most of these funds will be used to provide temporary livelihood to displaced workers in the transportation industry and the construction of sidewalks and bicycle lanes.

MARINA Administrator Robert A. Empedrad did not immediately respond to a request for comment.

The law directs the Transportation department to “provide direct cash or loan interest rate subsidy” and “grants for applicable regulatory fees.” The department is likewise directed to “allow substitution of refund option to travel vouchers, provide grants for fuel subsidy and/or digital fare vouchers, as may be necessary.”

SURVIVAL
MARINA said the Philippines is the 5th largest shipbuilder globally after China, South Korea, Japan, and Germany in terms of the total gross tonnage order book for ship construction in 2018.

Philippine shipbuilders had manufactured 2,161 ships in 2017, 61% higher from 1,354 ships built in 2011, it added.

There are 117 registered shipbuilding and ship repair entities in the Philippines as of Dec. 2019, according to MARINA’s website. Only 6% are capable of building and repairing big ships with a minimum length of 130 meters. Majority or 79% build and repair ships with a maximum length of 80 meters.

According to a study by the Duke University Center on Globalization, Governance and Competitiveness (Duke CGGC), revenue of domestic shipyards as of 2016 ranged from about $50,000 to $8.8 million, 90% came from repair rather than shipbuilding.

ShAP’s Mr. Carlos said local shipyards have had difficulty in penetrating the export market.

“Export is a challenging market nowadays unless you have a niche… or a specific client base where you are able to exercise some kind of a competitive advantage. There’s a particular pattern worldwide that seems to push for domestically grown or domestically produced products,” he explained.

Josefa Slipways’ Mr. Balajadia said local shipbuilders should partner with foreign shipyards if they want to secure overseas orders.

But with the ongoing pandemic, it doesn’t matter anymore whether the vessels are for local or export, as domestic shipbuilders are only interested in surviving, Mr. Carlos said.

“I think it’s important for us to look at the domestic requirements of both the Navy, the Coast Guard, the fishing industry, the transport industry, and even the private pleasure vessel or private work vessel industry,” he added.