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Tue 8 Apr 2008 04:00 AM

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Building on success

The laws of supply and demand dominate all business sectors, and the sea freight industry is no exception. 

The laws of supply and demand continue to dominate all business sectors, and the sea freight industry is no exception. On the contrary, with the Middle Eastern maritime sector continuing to flourish and a slowdown being unlikely in the immediate future, ship builders are facing unprecedented levels of demand throughout the region.

Indeed, since contracts for new builds are worth millions or even billions of dollars, this pocket of the industry is proving to be very lucrative indeed.

The Transworld Group of Companies (TGC), for example, recently awarded a US$80 million shipbuilding contract to Guangzhou Wenchong Shipyard (GWS) in China - a deal that received plenty of media coverage earlier this year.

However, the news story also highlighted an interesting trend for those operating in the Middle East - it seems the South Korean shipbuilding titans are winning the lion's share of mega buck contracts from companies that are based in this region.

In fact, there have been many similar cases. Earlier this year, the state-owned Oman Shipping Company presented shipbuilding heavyweights Daewoo Shipbuilding & Marine Engineering and Hyundai Heavy Industries with orders amounting to a staggering $1.54 billion to each build five double-hulled tankers.

One of the Middle East's largest independent commercial product tanker operators, Gulf Energy Maritime also handed over a deal worth $160 million
to Samsung Heavy Industries Company, for its first ever two high spec double-hulled Aframax tankers.

Saudi Arabia's National Chemical Carriers is rumoured to have secured $250 million to build six new chemical carriers through another South Korean yard, SLS shipbuilding.

The shipbuilder also won an order from United Arab Shipping Company subsidiary, United Arab Chemical Carriers (UACC), for eight chemical tankers at the end of last year.

However, while Korea appears to be dominating the market, this demand for new builds from the Middle East has been noticed by the region's leading names. Some, such as Dubai's Dry Docks World, the shipbuilding part of Dubai World, are looking to capitalise on the boom by expanding their facilities.

Paying attention to market research will certainly benefit them. For example, it appears that much of the drive for new ships stems from demands for supertankers and chemical product carriers that cater to the region's booming refineries.

Furthermore, figures from international shipbrokers, BRS, show demand for new ships escalated in 2007, with new orders for 4900 ships placed. Whilst 2006 was the year for tankers, the brokers maintain that 2007 demonstrated strong interest in bulk carriers and containerships.

One thing is for sure, with all this serious investment being channeled into shipbuilding, both shipbuilder and ship owner are best advised to ensure that the legalities of their contracts are water tight to avoid their prized ships being left in rocky waters.

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