ANCHORED IN SINGAPORE HISTORY
Voice for the Industry
Made in Singapore
Positioning the Keel Blocks
A Remarkable Story of Growth
No. 1 Centre in Shiprepair
A Future in Industrial Engineering
A Marine Powerhouse
Confronting the Issues
ANCHORED IN SINGAPORE HISTORY
NO. 1 CENTRE IN SHIPREPAIR
Singapore today is the leading centre for shiprepair. On this island are some 40 shipyards offering an aggregate of 2.9 million dwt in docking facilities to accommodate the smallest tugs to some of the largest supertankers afloat. Singapore owes this foremost position to the continual investment in new facilities, the deployment of increasingly bigger ships which discourage owners from making expensive detours to reduce downtime, and to her geographical location.
Being well-positioned along the strategic Middle East-Japan tanker highway, Singapore's forte is in tanker repair and conversion. As tankers have to be certified gas-free before being docked, the five-day journey from Japan to Singapore provides ample time for ships to tank clean and gas-free.
The island is also a key terminal for oil and general cargo. She is the third largest refining centre after Houston and Rotterdam, and the busiest port in the world. Singapore's ideal location is underscored by the presence of a strong, stable government and a disciplined workforce, which gives companies the confidence to sink millions into new and upgraded facilities.
Expensive Holes in The Ground
The deployment of supertankers following the Suez Canal's closure in June 1967, triggered a full scale investment in supertanker drydocks. But its closure, Singapore's biggest graving dock could only accommodate 100,000-dwt vessels. But by 1982, Singapore had eight mammoth docks in place, build at the cost of over $300 million. The development in Singapore was mirrored elsewhere. In Bahrain, Dubai, South Korea, Malaysia and the Philippines, a total of eight supertanker docks were constructed with an aggregate capacity of 3.3 million dwt.
The massive build-up in facilities parallels the growth of the international supertanker fleet. Bigger ships were deployed to lower unit costs to offset extra expenses incurred from having to take the longer voyage via Cape of Good Hope. By the time the canal reopened in June 1975, there were over 600 super tankers afloat, and some were over 400,000 dwt. There was none bigger than 200,000 dwt before.
Requirements for repairs were also higher. The only yards available between Europe and Asia were in South Africa and Singapore. As facilities in Durban were still inadequate, Singapore became the choice for shipowners. Smaller facilities were also built to accommodate increases in ships calls. So that by 1983 Singapore had the highest shiprepair concentration in the world with an aggregate capacity of 2.82 million dwt, a position which she retains even today.
But utilisation was falling - for ships and eventually, shipyards. Storm clouds had begun to gather in the mid-70s. Employment prospects for tankers commissioned before the 1973 oil shock were steadily shrinking as countries adopted stringent measures to conserve energy.
In the sluggish market, Singapore shipyards were forced to tighten up. SASAR mounted a campaign, "Survival through Higher Productivity", to bring home the need to enhance efficiency. Its efforts were complemented by punctuality campaigns and safety-cum-productivity drives in shipyards.
"The days of high growth are over and the indulgent practices we developed in those balmy days when we could pour overtime into a job, call in more subcontractors and over-supply material must be stamped out, "then Managing Director of Sembawang Shipyard, Mr C N Watson warned Sembawang workers. There were widespread expectations the slump would drag on till the 1980s.
To the industry's pleasant surprise, the market turned as tankers had to be retrofitted with crude oil washing and inert gas systems to comply with international anti-pollution measures. Shiprepair turnover rose to a record $1,088 million in 1981. But it was the proverbial lull before the (next) storm.
Worldwide economic recession triggered by the second oil shock in 1979, which saw prices reaching a peak of US$34 a barrel in 1982, sent world trade into a tailspin. Seaborne trade tumbled to reach the 1970 level, but the shipping fleet had swelled by about 75 per cent. Some vessels headed straight for lay-up anchorages without seeing a day's employment, as it was the lesser of two evils for shipowners.
To add to the shiprepairers' woes, docking intervals were lengthened as classification societies relaxed their requirements. Improved coatings also offered better protection against corrosion. Faced with falling dock occupancy, a price warfare ensued. It was more bloody than anyone can remember, even for Singapore, where internal rivalry had been high because of the extensive capacity available. The major yards were pitching even for small ships, cutting into the business of smaller shiprepairers.
At a time like this it would take a brave man to buck the trend and invest in even more docking facilities. Pan-United Shipping did. "At that time everybody was saying you would die," Managing Director Henry Ng recalled. But having made its decision Pan-United decided to stick it out and sank half its fortunes made in tug-barge operation into a shipyard in Tuas.
Less Holes Needed
Prompted by then Prime Minister Lee Kuan Yew, four major shiprepairers came together in 1985 to staunch the bleeding. Hitachi Zosen Robin Dockyard, Jurong Shipyard, Keppel Shipyard and Sembawang Shipyard, which together accounted for 98 per cent of Singapore's shiprepair capacity, agreed to rationalise their capacities.
Under the part which was effective Nov 1, the five yards, including neighbouring Malaysia Shipyard & Engineering, promised to use their docks 24 days in a month. By then Mitsubishi Singapore Heavy Industries mothballed its 400,000 dwt graving dock after incurring hefty losses, bringing the aggregate capacity reduction to 30 per cent. It came close to the one-third suggested by Mr Lee.
Then Group Managing Director of Keppel Shipyard, Chua Chor Teck, who spearheaded the scheme, said that as the reduction was voluntary, he counted on the strict adherence of the five yards for it to work. "The future viability of our shiprepair industry depends on all of us giving our best shot at it." The progress was monitored by SASAR.
The accord was however deemed to be three years behind schedule. "They have taken about three years to reach an agreement in principle between all major shipyards to reduce capacity by one-third. More time should not wasted-agreement shoiuld be implemented quickly, "said Mr Lee in his National Day Rally in August 1985.
Most drastic measures were contemplated as the downturn was seen as being structural rather tha cyclical. As Dr Tay Eng Soon, then union chief and minister, explained to Keppel union members: "First, the tanker business has been cut back because energy demand has dropped and new oil fields are being developed nearer to the main consumers - Japan, Europe and the US. "Second, new generation ships are more efficient and require less frequent repairs and overhaul. Finally, cargo ships are bigger and more efficient. Fewer of them are needed."
At the government's prodding, Keppel and Sembawang shipyards commissioned US consultants McKinsey & Co to do a study to consider ways to arrest the falling profitability of their shiprepair operation. After a six-month study, the report recommended: "Keppel and Sembawang should merge and rationalise their ship repair businesses to provide the necessary lead towards a viable regional industry." Few were surprised when the recommendation was rejected. "Mergers are complicated because shareholders and other factors are involved… Mergers are also difficult because of the different cultures", then Managing Director of Sembawang Shipyard Lim Cheng Pah told the Straits Times on May 15.
That sentiment was shared by Keppel. Instead, Keppel made plans to shift away from Keppel Harbour by end 1986 and consolidate operations at Tuas, where it had a sizeable shiprepair operation. At one stroke, it would remove 45 per cent of its capacity. Sembawang ruled a permanent reduction as it recognised there were periods of strong demand even in a flat year. Rather, it sought it out by trimming overhead, keeping its workforce low, and raising productivity.
Quite unexpectedly the tides turned. Any further plan at rationalisation was superfluous. Weighed down by oversupply, the oil price collapsed in 1986 to US$13 a barrel and kickstarted the world economic recovery.
The repair docks began to be filled up with ships, some of which has been laid-up for years. With better employment prospects, owners were more willing to spend their vessels to the requisite levels. Between April and October 1986, 72 supertankers docked in Singapore toting up a repair bill of $111 million. The 1985 Plaza Accord which started the yen on its historic rise and the Gulf was gave added impetus to the recovery. Foreign shipowners who once docked in Japan re-routed their ships to Singapore to flee the escalating cost of the yen.
The Iran-Iraq war took its toll on supertankers as the warring factions took their battle to the sea to stave off oil exports. With higher newbuilding costs, even tankers with a burnt-out accommodation, a flooded or a hole in the hull were repaired. The first war-damaged tanker docked in Singapore in 1983, and by the end of the decade, over 30 tankers were repaired. The experience gained from restoring these vessels, some requiring thousands of tonnes of steel, helped consolidate Singapore's position as the centre for tanker repairs and conversion. Efforts made to control costs, the yards' biggest bugbear, enabled shiprepairers to benefit from the improved market.
On the national level, the government adopted a three-prong approach to tackle the three basic problems facing manufacturing - high wages, high operating costs and low liquidity. Auxiliary costs such as utilities, rents and other mandatory payments were slashed and the wages of workers capped to reduce operating costs. At the same time, the government ensured sufficient liquidity in the market to keep interest rates low.
In-house, the workforce was pared to the minimum with greater emphasis placed on the used of sub-contractors to ease fluctuations in work demand. Core workers were also trained to be multi-skilled. A machine fitter was trained to undertake the job of a pipe-fitter, welder, hull-fitter and boiler maker, overcoming the anomaly of having to engage sub-contract workers when there were employees hanging around because their skills were not needed.
Recalled Mr Loh Wing Siew, current Managing Director of Keppel Shipyard: "The plunge was good for shiprepairers. It made us much more productive than before. We took a hard look at the company." The same amount of work is now accomplished with half the labour force of a decade ago. With the decline of the Singapore dollar in relation to major currencies, the republic became the cheapest shiprepair centre in the world.
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