Yangzijiang thrives despite downturn, as LNG usage fuels demand for new ships

AS ECONOMIC activity shrinks, shipyards are having to close and small shipbuilders are going bust. But Singapore-listed Yangzijiang Shipbuilding (Holdings) has actually announced several new orders.

The builder of commercial vessels such as container ships and dry bulk carriers last month said it will be building four more vessels, bringing total new orders for the year to just over half a billion dollars.

"It's unprecedented times indeed, but I'm not too worried. Yangzijiang has gone through many market cycles, and every time we emerge stronger," said Yangzijiang executive chairman and chief executive Ren Letian in an interview with The Business Times.

"We have secured new orders for 15 vessels worth a total of US$517 million in the first half of 2020, which was more than twice the contract value we secured for the first half of 2019. I'm optimistic about the new order outlook for the second half of 2020," he added.

"Although negotiations slowed down due to global travel restrictions, we kept the conversation going wherever possible, especially within China... as China was back to normal economic activities earlier than the rest of the world. We stepped up sales and marketing efforts. The increased efforts have borne fruits, as shown in our recent orders from China customers."

Yangzijiang's production base, located in the Jiangyin-Jingjiang industry zone close to Shanghai, was shut down from February to early March as China battled the coronavirus.

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That has shown up in its results for the first quarter to March. Net profit halved to 404 million yuan (S$80 million) as revenue declined 44 per cent to 3.5 billion yuan.

But the shipbuilder reopened its facilities in late March and operations were back to full capacity in April. They have been running at full steam since, according to Mr Ren.

To make up for lost time, the yards and relevant units ran extended work shifts and increased manpower. That could explain why there has been no impact on Yangzijiang's vessel delivery timeline.

In fact, Mr Ren said production progress for the first half of 2020 is about 15 days ahead of schedule.

Yangzijiang saw one termination of a shipbuilding order for a 157,000 deadweight tonnage (DWT) oil tanker in the first quarter, but Mr Ren said this vessel was resold to a new buyer in April. There were also no layoffs among the group's over 6,000 full-time employees.

"Shipyards have come back online with economic activities having resumed since April. While shipowners remain cautious with the ongoing Covid-19 situation, some recent market developments suggest some fundamental improvement," Mr Ren said, citing a rebound in the Baltic Dry Index (BDI), supported by commodity transportation demand, as well as increased charter rates for certain containership types on some routes.

The BDI, which tracks shipping rates and is used as one gauge of global growth, last month hit a fresh high for 2020 - reversing a decline earlier in the year.

Some of Yangzijiang's recent wins have been for dual-fuel or LNG-related vessels, reflecting the growing popularity of liquefied natural gas as a source of fuel.

In March, Yangzijiang had announced orders for two 14,000 TEU (twenty-foot equivalent unit) dual-fuel container ships.

The order, from Tiger Group, also comes with options to build another eight similar units.

This large boxship order for 10 vessels is worth US$1.15 billion in total, and will keep Yangzijiang's yard busy for at least the next two years. It also represents one of the largest orders in the company's history.

Tiger Group, a maritime investment firm, is a longstanding customer of Yangzijiang. Tiger Group's chairman Graham Porter co-founded Seaspan Corporation, which owns and operates container ships.

Last month, Yangzijiang secured another two orders for LNG tank carriers from Tiger Group.

But Yangzijiang is also expanding its client base. It has announced orders for two 56,000 DWT bulk carriers from a Chinese shipowner and first-time customer. The orders are worth US$102 million.

To ensure its production capacity keeps pace with its growing order book, Yangzijiang has been streamlining its production process.

"With the same production capacity, Yangzijiang has delivered 33, 46, and 59 vessels for 2017, 2018 and 2019, respectively, a steady uptrend," said Mr Ren,who has been CEO of Yangzijiang since March 2015.

In April, he also took on the role of executive chairman following the retirement of his father and Yangzijiang's founder Ren Yuanlin.

Mr Ren Yuanlin, 66, had taken a leave of absence in August last year, to assist in a confidential investigation carried out by Chinese governmental authorities. During that time, the 38-year-old had assumed his father's role as director - the first time he was in charge of the group's overall business without his father's guidance.

"I have been heading the operations of the group since 2015 - it has been five years now. This arrangement has ensured a smooth transition between two generations at Yangzijiang, and business has been going per normal," he said, adding that the shipbuilder will continue to grow its capabilities in design and in clean-energy vessels.

When asked about what his father has been doing since, Mr Ren said: "He has been well and working on some of his personal investments".

Mr Ren does not rule out more consolidation in the sector given the pandemic-led global economic downturn.

"Consolidation (not considering government-led mergers) tends to accelerate in market downturns. Companies without strong financial positions or a diversified product portfolio are indeed vulnerable. Many would have to shut down the business as we have seen in 2014-2015. This time, again, could pose some challenges to smaller companies financially or operationally weak," he said.

He is choosing to set his sights on the future opportunities available to the company.

"Despite the near-term shock to the market, I'm more inclined to focus on what will happen when things stabilise, when the vaccine becomes available. Life goes on and trade goes on, and shipborne trade is still irreplaceable."