|The Bahamas Investor Magazine|
July 3, 2008
July 3, 2008
This time last year Dockwise International Ltd’s Mighty Servant 3 cargo ship, which now dwarfs the dock at Grand Bahama Shipyard, rested on the ocean bed some miles off the coast of Angola. The battered hull, bridge, deck and masts are encrusted with sea fauna and debris and its enormous underbelly lies exposed to the workman’s tools. It took many months, a couple of million dollars and an unshakeable confidence in the abilities of Grand Bahama Shipyard Ltd for its owners to raise the vessel, tow it across the Atlantic and dock it at the Freeport facility.
When Dockwise decided to salvage the sunken giant, logistically, Grand Bahama Shipyard would not have seemed an obvious choice for the overhaul. After all there are repair shipyards in Europe, Scandinavia—a short paddle in shipping terms from Angola—that are big enough to cope with a job that size. “We won the tender to repair the Mighty Servant 3 against some of the world’s biggest and best equipped shipyards,” says Mick Holding, chief financial officer at Grand Bahama Shipyard. “It was partly due to our competitive rates but more about trust. They knew we could get it done and get it done on schedule.”
The contract is worth a hefty $54 million—roughly 80 per cent of Grand Bahama Shipyard’s revenue for 2007. “Over the last five years we have built up turnover to $70 million in 2007, with a $3.5 million operating profit,” says Holding. “As you can imagine, initial capital investment to open a shipyard is quite substantial, so we have done tremendously well to build such sound revenue over the seven years the shipyard has been operating. But it wasn’t easy. There were a few false starts.”
The idea for the Freeport shipyard first came from the cruise liner industry. Realizing the growth in their sector in terms of size of vessels and numbers, Florida-based Carnival Cruise Lines and Royal Caribbean International joined forces to search for a suitable location to site a repair yard in or around the area in which they operated and moored their ships.
Until this point, repairs and regular maintenance were costly as there were no shipyards big enough or reliable enough in the region, despite the Caribbean being the world’s premier market for cruise ship vacations. Deviations from shipping routes to the US East Coast and Gulf of Mexico shipyards weighed heavily on the cruise operators’ bottom lines. With its natural deep water harbour, proximity to major cruise routes and a supportive local government, Freeport was the answer to their prayers and the companies approached Grand Bahama Port Authority (GBPA) to get the site developed.
Finding a commercial partner however proved not to be so easy. German operator Lloyd Werft, which initially constructed the first dock at the site in the late 1990s, pulled out to concentrate on the European market. UK-based Cammell Laird was next up to the plate and although it began trading at the Freeport location in September 2000, by April 2001 the company had gone into receivership. The GBPA and cruise companies had had enough and decided to run it themselves.
Establishing and operating a shipyard is a costly business and turnover was hovering around $11 million, barely enough to cover repayments on the initial capital outlay, which was entirely commercially funded. The operators still had confidence in the Freeport site however and decided to go for broke. In 2001 they purchased a second dry dock taking the capacity for the size and number of ships that it could handle to new levels. The operators saw revenue increase to $42 million the following year and then steadily climb to current levels. In 2007 the shipyard serviced 18 cruise ships (more than any other shipyard in the world) and 56 non-cruise vessels in the dry docks alone, and conducted another 31 smaller projects in the wet berths.
Although it now owns the largest floating dock in the western hemisphere, Grand Bahama Shipyard is looking to get even bigger. Undeterred by the ever growing spectre of a recession in the US, the shipyard operator is in the process of completing expansion plans. “The ship repair industry is incredibly buoyant at the moment because world trade is continuing to increase year by year, with more and more ships being built,” says Holding. “Demand is outstripping capacity in the shipbuilding sector—you would have to wait three or four years if you wanted to have a ship built now. They are still building larger cruise ships and more of them. It follows logically that growth is good in our sector too. In October and November last year alone we turned away $19.6 million of work. We estimate that we rejected $30- million worth of business last year.”
The planned widening of the Suez and the Panama canals will also allow bigger ships to circumnavigate the globe, adds Holding, passing Grand Bahama Shipyard’s doorstep on their travels. The apparent good health of the cruise industry also contributes indirectly to the shipyard’s optimism despite a projected downturn in tourism overall. According to recent Nassau Tourism and Development figures, sea arrivals to Grand Bahama for the latter months of 2007 were up 27 per cent because both Carnival Cruises and Discovery Cruises brought in more passengers than the corresponding period year on year.
To satisfy demand, Grand Bahama Shipyard is investing a further $60 million in a third dock. “We are confident we can fill three docks, 24 hours a day, seven days a week, all year round,” continues Holding. “The third dock marks the next stage of our expansion plans not only physically but also with the type of project we can handle. With the extra facilities, we can take on larger, longer projects without tying up the other docks for the cargo and cruise ships that need a quick turn around. Every minute those ships are out of the water costs the owners money. We have a reputation of delivering good quality work on time.”
Scheduled to be up and running by January 1, 2009, the third dock is expected to boost revenue to well over the $100-million mark, with a bolstered operating profit of around $15 million. By 2011, the operator expects to see returns of $140-150 million in revenue, with $20 million in operating profit.
So what does all this mean for the Grand Bahama economy? “The development of the harbour area has mushroomed over recent years, especially along with the expansion at the container port,” says Gregory Moss, president of Grand Bahama Chamber of Commerce. “It’s now a truly international port, with all the benefits that brings.”
The shipyard directly employs 650 people, 40 per cent of whom are Bahamian. The majority of highly skilled workers are brought in from The Philippines, Romania and India, among other places. “There are a couple [of] factors dictating why we bring in skilled foreign workers,” explains Holding. “Firstly, there isn’t the availability of skilled labour locally. We need a very high level of skill in this industry. Take welding for example—the worker needs to be able to weld in situ, in confined, awkward spaces, even upside down, with a high level of accuracy. It’s a big leap from welding two pieces of sheet steel together in a workshop.”
To raise local skill levels Grand Bahama Shipyard has been running a four-year apprentice training scheme for the last six years producing around eight highly skilled graduates each year. “There are currently 29 people in the programme. It is quite lucrative in terms of local recruitment because they come straight from school and are in the correct work environment from the off.”
The second reason for recruiting from overseas is simple economics, says Holding. “Labour is expensive here. It costs less than half the amount to bring people from overseas, and that includes immigration fees.”
Money stays here
This, however, is not necessarily a bad thing for the local economy, argues Holding. “Our foreign employees live in rented accommodation owned by Bahamians; they shop in Bahamian shops and drink in Bahamian bars. The money stays here.”
Based on an impact survey conducted by GBPA some years ago, Holding estimates that Grand Bahama Shipyard contributes around $40 million to the local economy each year. This is a figure that may well double over the coming years as revenue increases.
As well as employment, Grand Bahama Shipyard contributes through various direct and indirect sources. “We directly subcontract materials and services from many Bahamian companies. When a cruise ship docks for repairs, the staff, which can be as many as 1,500, disembark and stay in Grand Bahama, spending on average $25 dollars a day on food, transport, and entertainment. For the one or two weeks they are here they become quasi-tourists.” For an island so dependent on tourism, the Shipyard offers a steady, year-round and very welcome influx of hard cash.
The addition of the third dock will not only bring more jobs and workers, but will also help instil an air of optimism about investment in Grand Bahama. “Business people in Grand Bahama are a hardy, resilient bunch,” concludes Moss. “The expansion of the shipyard is indicative of how people are feeling about the growth of the island. Of course there is the actual direct and indirect investment in terms of employment and consumer spending that a project of this nature brings to the island, but it is more about the confidence it shows. Coupled with the expansion of the container port it helps reinforce Grand Bahama as the industrial capital of The Bahamas.”
- Between 2000-2006, major cruise lines have launched 74 new cruise ships
- Over the next three years, 23 new cruise ships are scheduled to be launched
- The cruise industry is a $30-billion industry
- In 2006 the cruise industry employed 348,000 people and paid over $5.7 billion in wages
- In 2006 the cruise industry experienced a record increase in passenger traffic with an estimated 11.8-million Americans taking cruises
- In the past few years, the cruise ship industry has added seventeen new ports of call in the United States, including Baltimore, Mobile, Charleston and New York City
GB Shipyard stats
- 108 miles from Miami, 1,203 miles from the Panama Canal, and 4,334 miles from London
- First vessel docked September 2000
- Dock 2 capable of lifting 82,500 tons and housing vessels of 1,000 ft in length
- Two fully serviced wet berths with 50-ton cranage