CDL sets sail for more expansion

COLOMBO HARBOUR -- Visiting Drydock No.4 at the Colombo Dockyard Ltd (CDL), my first thought was a Chinese Proverb – the water that a ship sails on is the same water that swallows it up. Standing at the foot of the ship that was sent in for a ‘paint job’ in shipping parlance, to me seemed as large as life.

Used for ship repairs this drydock has a capacity of 125,000 DWT (dead weight tonnage) and there are three more such drydocks at different locations. CDL officials explained that Drydock No. 2, built during the British reign, was constrained at the entrance because of the short width, thus limiting the vessels that could be accommodated in it. A decision was made to expand the width of the entrance of the Dock No 2 by 3.5 meters, removing the limiting factors of the existing shipbuilding launching way which only permitted building of vessels with maximum dimensions of 50 meters by 14 meters and thus providing the needed capacity for CDL to embark upon building larger vessels. This was a welcome move because CDL’s new building order book will be full until mid 2008.

According to Shinichi Tatebe, Chairman CDL, during 2005 and 2006, with increased demand for ship repair, CDL was able to undertake a substantial volume of work within the limited resources available. “During both these years, more than Rs.800 million in total was invested for renovation and improvement of the yard facilities under the three year management plan, which started in 2005,” he added.

CDL’s ship repair sales revenue of Rs. 3,317 million, with an operating profit of Rs. 1,019 million was recorded in 2006, which was the highest ever results recorded by the company. “We are now reaching the completion stage from implementation of those renovation and improvement work and we shall be therefore responsible to achieve the target budgeted in the management plan, by effectively utilising those renovated facilities,” Tatebe said, adding that the company is considering the possibility of expansion of facilities, outside the Port of Colombo due to the limitation in the existing space inside the port premises.

CDL recorded a sales revenue of Rs.7,333 million with a profit after tax of Rs.607 million last year and the company will expand its shipbuilding facilities in a bid to meet with increasing demand for ship construction. “We need to consider the possibility of expansion of the shipbuilding facilities in conjunction with the expansion of ship repair facilities,” Tatebe said.

CDL CEO, Mangala Yapa said that the contracts for the building of two 80 tonne Anchor Handling Tug and Supply Vessels were signed with Greatship (India) Limited in August 2006 for the total value of US$29.5 million, which is the very first contract for te construction of Anchor Handling Tug Boats, by CDL. In the light of diminishing local business opportunities, the company's only option was to look at opportunities outside the country.

“Contrary to the ship repair sector, the company did not have a good reputation as an international shipbuilder, though capable and the price became the critical factor in attracting foreign orders,” Yapa said, adding that CDL was in a niche product portfolio; harbour craft, workboats and patrol boats, which restrict its potential in the international market.

In the above backdrop, penetrating the Middle Eastern offshore service providers’ market by securing two contracts for 30m and 33.5m Aluminium Hull Crew boats is considered a major milestone. “We have also successfully completed ten 23 metre Fast Patrol Craft projects for the Sri Lanka Navy, of which seven crafts were delivered last year. Two out of three tug boats, named “ Jeddah 41” and 42”, each having 58 tonne bollard pull capacity have been delivered to A.A. Turki Corporation in Saudi Arabia,” he said, adding that the third tug boat is due to be completed and delivered in the early part of 2007.

The 35 meter and 40 meter Fisheries Protection Vessels are also under construction, to be delivered in the year of 2007, to Maldives together with two pilot launches for the Sri Lanka Ports Authority. Yapa predicted the boom in the shipping and particularly shipbuilding is forecasted to continue, at least for the next few years. “The demand for energy, oil and gas too, will continue to grow at a constant rate due to the ever increasing demand in China and India with growth rates of over eight percent,” he said, adding that global warming which is becoming even more serious has necessitated the reduction of road based transportation, encouraging water-based transportation and thereby increasing the demand for ships, particularly in Europe.

He said that the European Unon (EU) has already taken several steps in this direction and the enhanced capacity in Dock No 2 of CDL is ideally suited to meet some of the merging requirements for European river-based transportation. He said that among the factors that favour CDL’s ship building ventures are the South Asian subcontinent’s emerging opportunities in both the commercial ad the specialised vessels segments. Yapa said the Offshore Fleet is old and it’s technologically obsolete, requiring imminent replacement, while increasing concerns for improved safety and environment – new safety of Life At Sea (SOLAS) and International Marine Organisation (IMO) Regulations- too, demand replacement of the older vessels with proven and state-of-the-art designs.

“The recent major accident in Bombay-High where a Supply Vessel collided with an Offshore Production Platform destroying billions worth of assets and lives, has set in motion urgent replacement of the aged fleet of Offshore Vessels; Anchor Handling Tugs (AHT), Platform Support Vessels (PSV), Offshore Supply Vessels (OSV),” he explained, adding that all these favour and support business opportunities to CDL, creating a formidable future in the years ahead.

He also noted that the increased demand in shipbuilding has resulted in the escalation of prices in all segments.” The dearth of building space has compelled existing ship owners to spend more in upgrading and extending the life cycle of existing vessels, creating even better opportunities in the ship repair sector,” he said. Yapa reiterated the importance for the government moving ahead with the Colombo Port expansion project (CPEP) would certainly help Sri Lanka to sustain its edge and competition in the region.

He said that short sighted thinking, concentrating solely on revenue from container related activities will only provide short-term and limited benefits. “The far sighted decision taken in the late seventies and early eighties in CDL’s expansion, by constructing the largest drydock facility, and thereby the country as a whole, can benefit in adopting such congruent,” he said.

Yapa said that the Sethusamudram Canal Project mooted by India and particularly the Tuticorin Port Trust will not be a threat to the business of the company. “Part of the Indian tonnage that went around Sri Lanka from west to east and vice versa would use the canal, if feasible, once the project is completed and we also believe that such developments would enhance maritime activities in the region, particularly offshore activities and would create more opportunities for CDL,” he said.

He also noted that the South Harbour Project, the envisaged expansion of Colombo Harbour by constructing a new Breakwater and the Development of Hambantota Ports, are two other major development plans of the government will create more opportunities and enhances the potential of the Company both in the domestic and international business.