Movers & shippers

China's first liquefied natural gas carrier made by Hudong-Zhonghua. [Provided to China Daily]

China is investing heavily in bigger and better tankers to reach new buyers in new destinations

After decades of manufacturing bulk carriers and tugboats, China is jumping ship from the inefficient and dated vessels that are clogging up Chinese shipyards and investing heavily in the rapidly growing market of liquefied natural gas carriers, luxury cruise ships and drillships.

The new course by many shipyards in China, such as Shanghai-based Hudong-Zhonghua Shipbuilding (Group) Co Ltd, of abandoning low-end vessels that are quickly fading into disuse in maritime commerce, comes at a critical time for the nation and the world. Shipyards around the world reported losses in 2010 and 2011 because of overcapacity and surging prices in energy, raw materials, and ship parts.

The reason for the new strategy is an oft-used one: the global economic recession. Orders for bulk carriers - once dynamic in China's boom years before the economic crisis - have dwindled, creating an oversupply. The European debt crisis added to Chinese shipyards' woes.

Before the crisis, many European ship-owners chose Chinese shipyards to build simple vessels in a cheap and efficient manner. But last year alone, global orders declined 13 percent from a year earlier to 146.28 million compensated gross tonnage (CGT), an indicator of the amount of work needed to build a ship.

Orders for Chinese shipyards dropped 3 percent from 2010 to 57.58 million CGT, according to Clarkson Research Studies, a British intelligence provider on the shipping industry.

China is now betting on vessels deemed higher in value, such as LNG and liquefied petroleum gas carriers, as well as marine fishing vessels, offshore pipe-laying vessels, large icebreakers and chemical tankers. Shipyards hope the new foray will help them tap into more buyers and reach new and farther destinations.

Hudong-Zhonghua Shipbuilding, a State-controlled enterprise that is China's only builder of LNG carriers, is one large shipyard that has responded to this national shift. The company is expanding its manufacturing capabilities to not only LNG carriers but mega containers, drilling vessels and luxury cruise ships.

"Industrial nations are all eager to purchase natural gas from abroad. LNG carriers are exactly what they need to own," says Jin Yanzi, Hudong-Zhonghua vice-president. "Our LNG carrier-building capacity has grown along with their consumption demand and import of natural gas."

The company has invested $320 million (240 million euros) in technologies to build LNG carriers more efficiently. It has also increased spending to set up more research and development centers and has formed partnerships with shipowners in the energy transportation industry and ship-designing companies around the world.

Last year, Hudong-Zhonghua signed a $1 billion contract to build four LNG carriers in a joint venture with Mitsui OSK Lines, Japan's major merchant fleet operator. It also finished developing the technology to build container vessels that have a capacity of 13,000 twenty-foot equivalent units (TEU), the unit of cargo capacity for container ships.

Last year, Hudong-Zhonghua delivered 28 ships to different shipowners throughout the world. More than 80 percent of the buyers were from Germany, the Netherlands and Greece. The company's sales grew by 4 percent from 2010 to $2.06 billion last year. It hopes to make $2.14 billion by producing 26 vessels this year.

The company's next move is to sell small- and middle-sized cruise ships to the United States in the next few years by investing 2 percent of its annual revenue. New ships will be built at its new shipyard on Changxing Island near Shanghai.

"We discovered that individual tourism has become more popular in America as many US and Canadian tourists are keen to take special cruises to visit the South Pole or Arctic areas. This will be an appealing market for us to make a profit," Jin says.