Challenges and opportunities waiting for Dubai’s ship repairers

As soaring inflation eats into its competitiveness, Dubai, the city of firsts, biggests, and bests, faces a challenge from Singapore for its position as the world’s number one ship repairer

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By  Nicholas Wilson Published  December 4, 2005

|~||~||~|Dubai’s competitiveness is eroding and others are challenging it for the shipyard top spot. O&GME talked to Eivind Grossad, regional manager of Det Norske Veritas, a major player in the business, about the industry’s issues.

How have the firm and the market
developed?
DNV started its regional office in Dubai 27 years ago and now operates across the whole Middle East and Indian subcontinent from the Dubai office.

We have about 100 people employed in the marine business in the region, with a station in each country, including three in Iran and five in India.

Our specialty is newbuilding and repairing ships in operation. Dubai is the biggest station in the world for both the company and the industry. Due mainly to the increase in big tankers coming in, we also have a fantastic portfolio.

Most of the ship owners in the Middle East and a majority of the larger Indian-owned tonnage do their repairs and dockings in the Gulf, either at Dubai dry dock or ASRY in Bahrain. DNV handles about 36 - 37% of all tonnage operated in the region. We are very pleased with the situation, and it is due to a long-term relationship with some shipping companies. It’s a partnership.

What are the major reasons for the dramatic improvement in
safety and environment issues in the past decade?

The introduction of double-hulled ship legislation in the 1990s had a big impact on the industry. It came into force after several large oil spills in both the US and in Europe. In 1992, the International Maritime Organisation (IMO) regulated this through Marpol for vessels over a certain size. Today, there are many more double hulled VLCCs [very large crude carriers] than single hulled ones, so in a way this has worked well, according to the legislation. By 2010, practically all single-hulled tankers, which are regulated, will be gone. Particularly on small groundings you don’t get the problem of spillages. You can ground the vessel and there will be no oil spills. On collision, however, if you really hit each other, two or three metres (between the hulls) probably doesn’t help. But for light collisions it helps.

We should also be aware that double hull has a problem, because there is a much bigger area inside the tanker for ballast, which may erode. Erosion happens in the ballast tanks, not in the hold, because of the water and oxygen. These double-hulled vessels may need a lot of additional work to keep them in good shape. So they have their negative side as well as their positive one.

If they are not continually maintained, when they finally break down, it is really expensive to repair them.
Probably 15 years ago, the Middle East and Indian owners were not known for having the best fleets, but now with their upgrades to modern ships, due to the double-hulled rules, they do have the best fleets. Iran has the youngest fleet in the world, which belongs to the state-owned National Iranian Tanker Company — they call themselves private but their shares are owned by state-owned pension funds. They have about 30 international tankers — 28 are very new — and they have 13 VLCCs and five Suezmax tankers on order. Their ships’ average age is about four years. They renewed their whole fleet — they lost a lot of ships in the Iran-Iraq war. It’s probably the best fleet in the world. Not everybody in the western world recognises that.

Computers are probably another reason for improving safety and environment track records. A more important reason is transparency. Implementation of new international management codes and regulations in the shipping industry has made the industry much more transparent than it’s ever been. In the old days, 15 years ago, you could hide yourself in shipping. A BBC Panorama journalist told me once that it was less transparent than the illegal weapons industry.
Today you know exactly who manages and who owns the ship — there is no longer just a post box somewhere.

When and why did transparency start happening?

Regulations mainly. Places like the US and EU—if you don’t get transparent there, then they won’t allow you into ports. They wanted to know who was behind the vessel when accidents happened. We can mention the Erika and the Prestige incidents and the consequences their accidents had on politicians.

Previously when there were spillages it was impossible to pin the blame on who did it. Nobody, in a way, owned the ship;, there was just somebody operating it.

Is India de facto an integral part of the Middle Eastern market?

India by itself is such a tremendous market for the oil and gas industry, but also for the shipping industry. Just by its huge size and simply the number of people living there makes it very interesting. You can compare India today to China 15 years ago. They have got its economy going and it needs energy, which means you need to transport more fuel, either crude or gas, into India. They have plenty of coal, but that is not enough for them.

They have also started to build ships, five shipyards in India is currently having newbuilding orders from foreign owners. The Indian-owned shipping fleet is also growing with a speed we have not seen in the past.

Operating a shipping company in India is getting much easier now. As far as I know, ship owners in India can reinvest their profits from shipping into expanding their fleets, with good
financial terms, and that they no longer have to go through the state to get approval whenever they want to invest in shipping. India has also introduced a tonnage tax, which makes the owners able to compete better against foreign-
owned companies.

India has many educated marine engineers. They are very well trained, and they have English as their language. India is therefore one of the best, if not the best place, to recruit people for the shipping industry world wide. Today almost all shipping companies and ship managing companies have a large number of Indians working with them.

You should definitely look into India. It is definitely the most up and coming country in this part of the world.

How does Dubai fit into the global market place?

Dubai is the biggest single shipyard in the world. You can see, almost at any time, somewhere between six to ten VLCCs in Dubai’s dockyard. It’s so easy to operate here. We have the perfect infrastructure here. Telecommunications is second to none, and we have one of the world’s best airlines with an airport that really works efficiently.

There’s no corporation tax or income tax, which makes it easier to operate here than in many countries.

It has one disadvantage: prices have started to rise.
It’s probably due to too many people moving here in a short time, creating a housing shortage and pushing up prices — Media City, Internet City — all attracting these people with high education to establish themselves in the Middle East. The city is not coping with housing and schooling fast enough. Companies will move their head offices to other places. It’s something for companies to look into — is it cheaper to be here or to get repairs and building done in Singapore?

In the past, Dubai was cheaper than Singapore, but today there is not that much difference. Singapore is the only comparable place in Asia. In the past, it was even cheaper for top management to live in Dubai rather than in Singapore, but today I don’t think it is. Office staff need support with housing. If you compare the package of supporting say 50 staff in other places, if it’s an advantage you may move in; if it’s a disadvantage, some companies may move out.

Next year the UAE introduces bunker fuels futures on an exchange, which will let ships budget fuel costs. Will this encourage tankers to visit the UAE — for repairs in Dubai and bunker fuel at Fujairah, rather than go to Singapore?

We need facilities both in Singapore and Fujairah.But prices have to be competitive, and people will go to where you can get fuel cheapest — it’s the second-biggest operating expense. Fuel costs are a worry Crew costs is the highest cost, but that’s the same no matter where you dock, as manning is international. Dubai has companies that provide international crews from countries such as the Philippines.
Refueling has to be quick and comparable in price.

People will come to Dubai because it’s near Kuwait, Saudi Arabia, and Iran. There are no other competitive shipyards in the area. All Middle East owners want to repair their vessels in the Gulf. Picking up bunker fuel in Fujairah at a fixed price known ahead may also encourage them to come to Dubai, which has the biggest single shipyard in the world in terms
of capacity.

They basically repair the largest tankers in the world. The big money is in the big ships. The yard has also lately started a newbuilding division, which I believe they intend to develop further.

Together with ASRY they take most of the ULCCS and their fair share of the VLCCs, and their only real competitor in this market is Singapore. It seems that Singapore builds, repairs, and converts more jack up rigs and FPSO than Dubai. I strongly believe that both Dubai and ASRY would like to get more also of the offshore market.

You obviously want some of the action building Qatar’s LNG fleet.

Sure. We have already started. We have an office in Qatar. We have about 50% of the gas tanker contracts in Qatar. It’s easy to operate in Qatar because there are only one or two
owners. Everybody knows each other.

The plan in Qatar is to build its own shipyard dedicated to gas ships. It has to be done at certain intervals, and they don’t want to be waiting for their ships to be built and repaired. Having their own shipyard lets them plan ahead.
It will be a state-owned dockyard.

When will it be ready?

I cannot tell you that exactly. It is still at the planning stage, but with the speed at which they are moving in
Qatar, it won’t take that many years. But they haven’t really got the vessels ready yet.

What are the problems in the bottlenecks in the world, such as the Strait of Hormuz and the Red Sea?

The problem isn’t how narrow they are. The problem is the pilots — ask any operator, they are not efficient. They are not good enough to take these expensive vessels through these narrow areas. There have been several incidents that could have been avoided easily. It is an area the world must
focus on if we want to have safe sailing. And this is not an international issue, it is down to national governments to
decide and educate these people. ||**||

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