Special-purpose shipbuilding shipyards, which have difficulty in obtaining orders with Turkish banks’ letters of guarantee, have pinned their hopes on Gulf countries like Qatar and the United Arab Emirates.
Special-purpose boat builders, who have started to lose their leadership in this field with the shift of orders to rival countries, are waiting for urgent solutions to four main problems to regain their competitiveness.
Cem Seven, President of Ship, Yacht and Services Exporters’ Association (GYHİB), pointed out that the biggest problem that the sector has been facing since 2018 is that letters of guarantee are not given a counter-guarantee by European banks, and pointed out that due to this problem, a significant portion of the orders to be received by Turkish shipyards has shifted to European and Far Eastern shipyards.
“We demand that Eximbank or other banks create a letter of guarantee limit of at least EUR 900 million for the shipbuilding sector at banks in Qatar and the United Arab Emirates, if not in Europe,” Seven said. Seven also said that access to financing, a competitive exchange rate and addressing the labor shortage are other urgent issues needed to maintain competition.
Turkey’s ship and yacht exports increased by 34 percent annually in 2023, reaching USD 1.94 billion. Shipyards thus broke the all-time export record. However, as the EKONOMİ newspaper has frequently mentioned recently, the main reason why things went well in 2023 was the orders received in previous years. Due to rising costs and difficulties in accessing financing, the sector had started to lose new orders to rival countries one after another. This is because shipbuilding costs have even reached parity with Norway, the sector’s largest exporter. Some shipyards started to move their shipyard investments to Europe to maintain their competitiveness. Faced with the danger of losing global leadership in the construction of special-purpose boats to rival countries, the sector is waiting for urgent solutions to the problems to regain its competitiveness.
Seven listed these problems and suggested solutions as follows:
– EUROPEAN BANKS WITHHOLD GUARANTEES
One of the main problems that the ship, yacht and services sector has been facing since 2018 is the issue of European banks not adding a counter-guarantee to the letters of guarantee given against work advances. Despite the decline in country CDSs, foreign banks continue not to add confirmation to letters of guarantee with maturities exceeding 1 year, citing the ratings of ‘rating’ agencies. Ship and yacht construction periods vary between 2-4 years. Since European banks refrain from confirming the letters of guarantee issued by Turkish banks on behalf of exporters with maturities longer than 1 year, a significant portion of the orders to be received by Turkish shipyards go to European and Far Eastern shipyards.
SOLUTION: We request Eximbank or private/public banks to establish a letter of guarantee limit of at least EUR 900 million for the shipbuilding sector at banks in Europe or in Qatar or the United Arab Emirates. From this limit, our exporters will be able to provide their customers with letters of guarantee with a counter-guarantee attached, receive work advances and continue to receive new orders.
TURNING DOWN INCOMING ORDERS DUE TO FINANCING PROBLEMS
Due to the Banking Regulation and Supervision Agency (BDDK) decision dated 21.10.2022 and numbered 10389, most of our producers can’t use TRY loans. Access to foreign currency loans has become difficult and interest rates have risen to double digits. Our producers, who have difficulties in utilizing credit facilities, turn down orders from abroad because they cannot receive customer advances due to the letter of guarantee problem.
SOLUTION: BDDK decisions should be revised to ensure that our exporters have access to TL loans, and TL and foreign currency loans with favorable interest rates should be established only for our exporter companies.
– LABOR COSTS INCREASED BY NEARLY 100 PERCENT
The high inflation rate and the fact that the exchange rates do not increase as much as inflation during the long-term ship and yacht building process lead to significant increases in our companies’ labor costs and domestic equipment inputs, causing significant erosion in profitability. Depending on the size of the ship and yacht being built, the cost of labor and domestic equipment has increased between 60 percent and 100 percent in Euro terms in the last 1.5 years. As a result of the geometric increase in costs, Turkish shipyards fell behind in competition with the shipyards of Spain, Poland and even Norway, resulting in a significant decrease in new construction orders. Especially in fishing vessel exports, where we have world export championships, our market share is shifting to Spanish shipyards.
SOLUTION: Exchange rates should be devalued by the percentage of inflation or the SSI support provided within the scope of the Investment Incentive Certificate should be increased both in terms of duration and financial support, taking into account the duration of ship and yacht construction to prevent market loss. In addition, our exporters should be given investment incentive support.
– GROWING LABOR SHORTAGE
Labor force problems are growing in the shipbuilding sector. Students graduating from vocational high schools and vocational colleges for the sector are turning to other fields instead of looking for a job in this field.
SOLUTION: Conditions that will make the sector more attractive should be provided. Awareness should be raised in schools.
