The global commercial maritime fleet, which currently amounts to 96,000 vessels, has shown a steady growth in the last decade. In addition, the average vessel size has also increased steadily in the same period, driven by the shipping companies operation of larger vessels, taking advantage of economies of scale. In terms of cargo type, it is worth noting that half of total vessels consist on Ro-Ro, Ro-Pax and cruises group, being the container vessels the smallest portion.
Regardless of the cargo type, every vessel is called to be repaired, maintained or refitted according to its applicable regulation. For this purpose, repair shipyards market should be prepared to meet not only the increase of vessels to attend in the coming years, but also to meet the new challenging vessels size and complexity.
At this point, we wonder… Which factors vessel operators consider when they require repair shipyard services? This article aims to provide the main reasons that drives vessels owners/ operators to select a shipyard or another, with a special focus on the Mediterranean Sea.
Shipyard sector dynamics and key strategic drivers
There are two types of shipyards based on the object for which they are designed: construction shipyards and repair and maintenance shipyards.
- Construction shipyards: they focus their activity on the construction of new ships (civil or military), with an increasing number of offshore platforms. They require the coordination of numerous permanent and temporary workers under the control of the main contractor. This is a global sector where shipyards all over the world compete for a limited market.
- Repair and maintenance shipyards: it covers transformation interventions, general revisions, maintenance programs and repairs of large damages and minor equipment. It requires a reduced staff and space as work is done on a smaller scale; however, it requires greater synchronization, timeliness, flexibility and reliability. It is a sector with a regional scope, which requires a high level of negotiation capacity to obtain contracts on a recurring basis.
The repair and maintenance shipyards are characterized by the infrastructure and equipment available. They are composed by the landside and the seaside: The seaside is used for repairs afloat or the mooring of ships, as well as for floating docks. Otherwise, the landside is used for the grounding of the ships and for support areas such as warehouses, workshops, offices, etc. In fact, it is common to have berths in which to carry out repairs afloat and give customers greater flexibility while waiting to be stranded.
Illustrative of the main elements of a repair yard
The main differential element between repair shipyards is the infrastructure and/or facilities used for the grounding of the vessel. We find various types of docking facilities according to vessel size: dry dock, floating dock, syncrolift, docking ramp or travelift.
Illustrative of types of docking facilities in a repair shipyard by size
Currently, commercial ships are mainly repaired in dry docks or floating docks. A Dry dock offers greater flexibility in the type of services to be carried out (maintenance, reconversion or construction) and it allows to service large vessels, meanwhile the cons are related with the depth needed in the approach channel, and the high CAPEX required.
The main benefit of a Floating dock is the flexibility to locate (docked or anchored to the bottom) and relocate in other place, having the chance to to sell it anytime. Nevertheless, it is less suitable for large vessels and it requires regular maintenance.
On another note, it is important to mention than during the last decades, repair shipyards have tended to specialize according to the needs of vessel typologies:
- Recreational Boats: Repair shipyards are small installations with basic equipment (travelift or crane), generally located next to ports and/or marinas.
- Commercial vessels: Located in ports or high traffic areas, these shipyards are flexible to serve different types of vessels and have external support for specialized work.
- Cruises: Located in cruise ship areas (i.e. Caribbean and Mediterranean Sea), they require a high degree of specialization and coordination of a large number of teams (electricians, welders, carpenters, etc.).
- Military vessels: They usually combine construction tasks with repair tasks and are usually funded by governments.
Overall, the attractiveness of a shipyard in the Mediterranean Sea area is conditioned by a series of factors that will determine the potential demand of customers:
- Proximity to commercial routes: The shipyard’s proximity to main routes, as East-West trading route or Mediterranean cruises routes, as well as to a major ports is a determining factor in reducing the costs arising from the potential diversion. The time charter cost of the vessels can range from 10-25 k$/day depending on the type and size of the vessel and on the demand, and can be doubled if fuel costs/day are taken into account.
- Weather conditions: Although it is an intangible, the weather conditions in the region are relevant: the number of days in extreme conditions, punctually or with certain frequency or permanence (typhoons, frequent frosts, etc.) reduces the shipyard’s operability. Adverse sea conditions (tides, swell, wind, etc.) can also have an influence by restricting entry/exit to the port. In this regard, most shipyards in the Mediterranean Sea enjoy the same favourable weather conditions, although there may be significant differences between two particular shipyards.
In the Mediterranean Sea, there are few existing shipyards with the capacity to handle vessels over 300m in length. Also, there are ports where the beam is the limiting factor in serving large vessels.
Therefore, in a context of low relative competition and a higher growth market, having an adequate infrastructure in terms of length and width to cater for large vessels, is a differential factor.
3. Service Level
The Service Level, measured in terms of flexibility, reliability and timeliness, is also relevant in the shipyard’s decision. A good level of service means minimising the opportunity costs of having a vessel idle. We consider that the service level main factors are:
- Flexibility in serving vessels is critical as it allows for maximizing uptime of the shipyard without rejecting any demanded service. It is therefore important to have docks (dry or floating) for stranding, and moorings for repairs afloat and waiting to be stranded (at no extra cost)
- Reliability: Owners must plan stops and/or commercial services. Therefore, it is important that the start date and deadlines are as reliable as possible, within the intrinsic difficulty of the business itself.
- Timeliness: Taking into account the opportunity cost of having a vessel stop, the timeliness of services is crucial. For this purpose, a good service level requires full access to spare parts and full availability of specialists at short notice.
4. Qualification and Service costs
Finally, costs and staff qualifications are key parameters, especially in the most technologically advanced vessels. If we take a look to the global staff costs-qualification figure below, we can see that Western European countries in the Mediterranean Sea, as Spain or Italy, count with high staff qualified that imply higher costs, meanwhile in the East, countries as Croatia or Turkey are in the middle range of salaries/qualifications. Finally, Northern African countries, such as Morocco, Tunisia and Egypt are lowest qualified, but significantly cheaper than north Mediterranean countries.
Distribution of ship-repair yards in Iberian Peninsula & Mediterranean Sea. Source: Drewry maritime research
Overall market overview and weight of the Mediterranean & Iberian Peninsula market
The repair shipyards are mainly concentrated along the East-West main routes. In fact, 70% of repair yards are concentrated in Asia, Middle East, the Mediterranean and Northern Europe.
Global distribution of repair shipyards (Percentage of shipyards out of total; 2019). Source: Sectoral analysis
Within this context, the Mediterranean countries are, after Northern Europe, the largest region in terms of repair yards (ca. 70 in total). This is due to its strategic geographical positioning and climate conditions, that allow to work throughout the full year. If we focus on this the Mediterranean, we find that almost 90% of the existing shipyards are concentrated on the north side, due among other things to their historical tradition and higher qualification workforce.
- Turkey is the country with the highest number of repair yards, due to lower costs and qualified personnel. Turkish shipyards specialize in structural repairs and are located mainly in the Golden Horn, far from the East-West shipping routes. Usually the shipyards in East-Med have a cheaper
- After Turkey, Italy (11) and Spain (10) are the countries with the most repair shipyards, despite the higher costs, due to their specialization.
- As for North Africa, there are currently few repair yards, and existing ones are generally geared to small vessels. Lack of qualification of the workforce, low quality standards and the existence of language barriers.
Distribution of repair shipyards in Iberian Peninsula & Mediterranean Sea (Percentage of shipyards out of total; 2019). Source: Sectoral analysis
Location, infrastructure, service level, qualification and costs are the main decision factors in selecting a repair shipyard. The relative weight of these factors depends on the type of vessel: on ferries, location is more decisive; on highly developed vessels (tankers and gas carriers) the service level and qualifications are the most relevant, while on bulk carriers and container vessels, the cost is the main decision-making factor.
In terms of infrastructure, shipyards must adapt to the increasing demand of larger vessels, especially for container vessels and cruises, which have increased their size in the past years the most.
Finally, the emergence of new shipyards with the adequate infrastructure to current and foreseeable vessels size, in markets with lower labour costs (i.e. North Africa) may pose the main threat to the traditional players in the Mediterranean repair shipyard market, due to the short lead times required for their establishment.