Japanese yards target foreign ship contracts

Domestic operators are losing interest in newbuildings — forcing the country's shipbuilders to look abroad

Japanese shipbuilders are increasingly focusing on foreign shipowners and operators to fill berth slots as demand from domestic companies has tapered off.

Industry players say a change in chartering practices among the top three Japanese shipping companies — Nippon Yusen Kaisha (NYK Line), Mitsui OSK Lines (MOL) and Kawasaki Kisen Kaisha (K Line) — is behind the fall in demand.

The dry cargo business that has been loss-making over recent years is said to have changed its outlook on the bulker sector. Shipping companies no longer want to take expensive newbuildings under long-term charter deals.

“They have been frightened off by the poor market,” said one shipping player.

“They no longer want to take vessels under long-term periods of more than three years unless they have cargo business to back-up [the charter contracts]."

The source says the Japanese giants are preferring one-year charters or spot deals.

"This makes it difficult for Japanese shipowners to order newbuildings as local banks prefer time-charter contracts of more than five years.”

Major Japanese ship operators are also reticent to take risks as they are listed on the Tokyo Stock Exchange and accountable to shareholders, one industry player says.

“The last thing company managers want to do is to make a mistake and be denied promotions," he said. "They will follow the strategies the board has mapped out."

The collapse of shipping giants Daiichi Chuo and Sanko Line has also dampened the demand from domestic operators in recent years. At the market's peak, the former was in control of 100 ships while Sanko had close to 200 vessels, including offshore units.

With fewer orders from Japanese shipping operators, shipyards have been forced to seek newbuilding contracts from outside of Japan.

One trading house executive confirms an increase in the number of foreign companies ordering and chartering newbuildings from Japanese shipyards.

“The trend is going that way,” he said, adding that foreign companies are attracted by the quality of ships built by Japanese shipyards, especially bulkers.

“There is a premium in pricing these ships, but historically shipbuilding prices are at a low and they [owners] are taking advantage of this to build up their fleets.”

Japanese shipyards such as Oshima Shipbuilding, Onomichi Dockyard and Tsuneishi Shipbuilding are said to have full orderbooks until the end of 2020 and are now selling slots for 2021.

One Oshima official says 80% of newbuildings on order at the yard have been placed by foreign clients.

“This is a total reversal,”he said. “In the past, Japanese’ orders made up 80%, now it is only 20%."