2018 May 14
Shipyards of Russia are not equally loaded so far. Considerable number of potential orders will let ensure a well balanced loading. State leasing companies representing an important instrument to finance newbuildings provide for construction of almost all commercial ships.
Demand for cargo and passenger ships
The demand for vessels of mixed river/sea navigation and inland navigation ships was estimated by Gennady Yegorov, Director General of Marine Engineering Bureau, at Saint-Petersburg Maritime Forum hosted by the Admiral Makarov State University of Maritime and Inland Shipping.
According to him, some 130-140 dry cargo ships of Volgo-Don Max class, 60-80 dry cargo barges and 20-30 pusher tugs should be built by 2020-2022 to retain the current volumes of inland and short-sea shipping.
Minimum demand for Volgo-Don Max river/sea tankers is estimated at 100 units. Besides, the fleet will require 15-20 shallow-water oil barges of Novaya Belskaya type.
It should be noted that average age of self-propelled dry cargo ships and tankers is 42 y.o. Marine Engineering Bureau examined 2,195 vessels of mixed, inland and limited sea navigation of the most popular series built between 1956 and 1999. 812 of them (37%) were decommissioned, 98 units with average age of 30 y.o. (12%) were lost in accidents. 714 vessels with average age of 35.2 y.o. were scrapped. 1,179 units with average age of 37.5 y.o. are in operation. 204 vessels with average age of 40.6 y.o. are out of operation.
The demand for construction of cruise liners – 10-12 units. “To meet the current flow of cruise passengers, which is about 400,000 passengers per year with foreign passengers accounting for a half of this number, we will need about 10-12 vessels of project PV300. Such vessels are under construction today. Most likely, the lead ship will be delivered in 2020. The second ship of this project can also be ready in 2020. So, 8 to 10 are needed additionally”, said Gennady Yegorov.
The lead ship of Project PV300, the first cruise liner of sea/river class to be built in Russia over the 60-year period, was laid down at Astrakhan-based shipyard Lotos in August 2016. The customer of the ship intended for the Caspian Sea is Moscow River Shipping Company. Nizhny Novgorod based shipyard Krasnoye Sormovo will build the second PV300 ship under the contract with Vodohod and Goznak-Leazing signed in January 2017.
According to the head of MEB, passenger fleet will also need six cabin-class ships for 150-200 passengers each to ensure interregional and long-distance transportation, 109 passenger ships for 150-12 passengers and 35 freight/passenger ferries.
Experts say that actual number of passengers carried by river transport can be as high as 20 million per year.
With the help of leasing
Large scale construction of ships is supposed to obtain state support through providing subsidies to cover loan and leasing interest rates, utilization grants and privileged leasing.
Today, leasing is among the most efficient mechanisms applied to finance fleet renovation.
Water transport leasing is getting more and more popular among shipbuilding companies and those who order new ships. About a hundred of different vessels are being built by Russian shipyards under leasing programmes with dozens to be laid down in the nearest future.
For example, State Transport Leasing Company (STLC) has developed proposals under water transport leasing programme aimed at construction of at least 150 ships, STLC Director General Sergey Khramagin told Russian President Vladimir Putin on 5 March 2018, at the Congress of Transport Workers of Russia. The proposals take into account technical capabilities of domestic shipbuilders.
“50% of ships will be decommissioned within 10 years. Consequently, transportation of cargo by inland water ways will decrease, infrastructure upgrading and development will slow down. That will have an impact on the standard of living in coastal areas. That is a systemic problem that can be solved with the state support through application of the leasing mechanism like in the aviation. Taking into consideration technical capabilities of domestic shipbuilders we have developed proposals – key parameters of the programme. Total number of vessels built as part of the programme will be at least 150”, Director General of STLC told the President.
According to Sergey Khramagin, the order backlog of STLC numbers 92 vessels of different types, investments into water transport exceeded RUB 80 billion, the company’s share in the market is 83%. The sole shareholder of the company is the Russian Federation represented by the Ministry of Transport.
Another player in the market of ship leasing is ZAO Goznak-Leasing, a captive leasing company of United Shipbuilding Corporation. Its share in water transport leasing market is 14%. The company is set to build up the backlog of orders in civil shipbuilding.
In early 2018, United Shipbuilding Corporation and shipping company Volgotrans signed an agreement of intent to implement a project on construction of 32 cargo ships of river/sea navigation within a seven-year period. According to the agreement, utilization grant and other financial mechanisms can be applied. The ships will be built to Russian designs and will fly the flag of the Russian Federation. Both USC and non-USC shipyards will be involved.
The market participants emphasize that it is more reasonable for the state to support industry-focused leasing companies, not associated with specific shipyards. That will let load all USC companies and companies that are not included in the corporation so that maximum fleet renovation coincided with the peak decommissioning of vessels expected in the beginning of 2020-ies. Shipbuilding is not a self-contained industry. It is closely connected with manufacturers of components and equipment, with designing organizations. Therefore, any structure associated with specific shipyards will force the customers deal with specific suppliers and designers. That, in its turn will lead to lower competition and, consequently, to higher prices, lower quality and monopolization of the market. The customers will finally leave for foreign shipyards.
When speaking at Saint-Petersburg Maritime Forum, Aleksey Karchyomov, lawyer at Egorov Puginsky Afanasiev & Partners, emphasized that leasing in shipbuilding features long payback period and high costs. However, it has a number of advantages when compared with other financial mechanisms: razing loans and investing internal funds. Leasing agreements are signed for four-to seven years and, consequently, let a lessee return the raised resources from money earned on ship operation. Upon expiry of the leasing period, a lessee can register its ownership. Besides, there are other advantages including a possibility to take subsidies or participating in other programmes.
Aleksey Karchyomov says that shipbuilding is far from being a leader among other market segments taking part in leasing programmes. Yet, a positive trend has been seen from 2015 - the share of resources allocated by leasing companies for construction of sea and river ships has been growing.
“Major ship owners generally have no problems with acquiring vessels under leasing agreements. Small size companies are placed at a disadvantage amid high requirements of leasing companies when it comes to lessee’s financial performance…”, says the expert adding that many domestic leasing companies have recently updated heir policy towards increasing the share of sea and river ships. According to him, that lets small and medium businesses use this instrument.
“Just like any form of financing, leasing has both advantages and disadvantages. When using this instrument, the liability distribution should be competently covered by a leasing agreement. Leasing agreements are quite flexible, which is an apparent advantage”, summarized Aleksey Karchyomov.
Promotion of leasing programmes in the segment of vessels and marine equipment is among the priorities in the state policy focused on the development of shipbuilding. According to the state programme of the Russian Federation “Development of shipbuilding for offshore fields in 2013 – 2030”, the number of vessels to be built under leasing and loan contracts will reach 264 by 2030.
A lot should be done to upgrade the fleet with a special role to be played by state support measures and state leasing companies which provide for construction of almost all commercial ships.