OECD INDUSTRY HEARING 4-5 APRIL

Erik Ranheim, representing INTERTANKO, gave a presentation at the industry hearing on establishing normal competitive conditions in world shipbuilding. Mr Ranheim said that he expected a reduced demand for tanker replacement both because of a moderate increase in demand for transportation and because the replacement demand due to regulatory phase-out is already covered for the next three to four years. Even if an economic recovery appears to be imminent, economic growth is expected to be moderate and the supply of short haul crude oil is projected to increase, particularly from the Former Soviet Union

Erik Ranheim, representing INTERTANKO, gave a presentation at the industry hearing on establishing normal competitive conditions in world shipbuilding

He opened by saying that both the shipbuilding industry and the tanker industry are examples of industries that suffer long periods of negative profitability due to surplus capacity. Capacity is added to the market for secondary reasons, rather than to cover basic long-term demand for transportation capacity. When shipyards are built or kept artificially alive because of employment, security or other political reasons competition may easily be distorted in the market, prices may decline below break-even levels and ships may be partly constructed from government funds. When ships are being built because they appear to be good bargains rather than to make money transporting goods, this can easily lead to overcapacity in the shipping market and freight rates below break-even rates. What taxpayers pay to subsidise ships, they may get back as cheap transportation, but those taxpayers that subsidise shipyards may, of course, not necessarily be the ones that benefit from cheap transportation. At any rate, when the focus is shifted away from the core business, the market situation becomes complicated, the core business will suffer, and unhealthy market conditions are created.

Mr Ranheim expected a reduced demand for tanker replacement both because of a moderate increase in demand for transportation and because the replacement demand due to regulatory phase-out is already covered for the next three to four years. Even if an economic recovery appears to be imminent, economic growth is expected to be moderate and the supply of short haul crude oil is projected to increase, particularly from the Former Soviet Union

Mr Ranheim also added that reduced demand for the construction of other types of ships, in particular container ships, would probably mean surplus shipbuilding capacity and flat or even further reduced prices. Prices would also to a great extent depend on the currency situation, but there has been a deflationary trend in shipbuilding prices in USD terms for a long period.

Mr Ranheim concluded by saying that good bargains and declining new-building prices neither benefit the shipping industry nor the shipbuilding-industry in the long term, even if single companies may benefit.

To view the entire INTERTANKO submission, see: Click here for more information