Under starter's orders

A growth in world trade, together with unprecedented demand for energy from developing countries, particularly China and India but to a lesser extent Brazil and Venezuela, is exerting pressure on the global dredging market, with some market watchers observing that with almost 100% of the dredging fleet occupied, port development plans could be severely hampered.

Demand for dredgers is such that 2008 looks set to crown 2007's stellar year with various projects likely to fully occupy the dredging fleet for some time. Both Royal Boskalis and Van Oord anticipate high equipment utilisation, with large projects in Europe, South America, Australia, South Africa and Asia keeping their fleets deployed until 2013, possibly 2015.

For Boskalis, whose international dredging and land reclamation projects accounted for ¢942m ($1.4bn) of its 2007 turnover of ¢1.9bn ($2.9bn), on-going projects include the expansion of the Ras Laffan LNG terminal in Qatar, various gas/oil pipe protection activities in Taiwan, Thailand, India and Russia, and the North Sea, and in a 50/50 joint venture with Belgian contractor DEME, the redevelopment of Dubai's historic Port Rashid into a vast cruise terminal. This ¢400m ($600.4m) contract awarded by Nakheel in July will deploy four large trailing suction hopper dredgers to reclaim 540 hectares of land (86m cubic metres of sand).

But it is the Middle East, despite the near completion of land reclamation work for the "Dubai palms", that is still host to more than half the world's dredging fleet - an incredible proportion, considering there are really only three or four main dredger operators/contractors, all of them European based.

Anthony Bates, senior partner with the firm of consultants to which he has given his name, points to two main factors that underpin current under-capacity. One is the large scale projects that involve billions of cubic metres of dredged up material and land reclamations and need a high number of dredging units. These, he says, are usually more financially lucrative than some northern European projects and for contractors that operate internationally with no particular allegiance to one country or other they can go wherever the money is.

Another factor, suggests Mr Bates, is capacity loss - a dynamic exemplified by the collision with a containership last year that placed the 232m long WD Fairway, one of the world's largest trailing suction hopper dredgers, out of circulation.

The dredger shortage is further compounded by the unprecedented boom in global shipbuilding, and while all the major players have extensive newbuild programmes totalling ¢4bn ($6bn) in progress, it is difficult to see any immediate change to the current shortage because demand for new tonnage across all shipbuilding sectors has placed a three to four year lead time on vessels at most shipyards.

However, long lead times for newbuild dredgers have failed to deter port operators across the Indian sub-continent, some of whom are placing orders for dredging units with Chinese shipyards in a bid to curtail the overall global shortage and to reduce dredging costs which have risen by 70% in just five years. This means once these units have been delivered they will always be available and unaffected by market forces.

According to a Livemint report, the Krishnapatnam port in Nellore, India, has placed orders for three newbuild dredgers as well as contracting Van Oord to carry out channel deepening works to the port, while two more dredgers are being purchased for works at the Karaikal port and Essar Shipping, Ports and Logistics has purchased a dredger to carry out work at Hazira Port in Gujarat.

Investment by port planners/operators in dredging capacity may seem a panacea to the current shortage of available units and indeed some are going back to the old in-house solution out of desperation, but it is pertinent really only to port operations in India, due to the problems of funding projects there.

According to Constantijn Dolmans, general secretary of the International Association of Dredging Companies (IADC), it takes quite some time before projects reach open tender because India has a tendering system that gives preference to Indian dredging companies. Mr Dolmans believes that this rather than under-capacity is the prevailing problem as the process makes international contractors reluctant to tender in India as indigenous contractors will almost always under pitch them.

Besides, even if ports did invest in their own tonnage, the quality of the project might be an issue, as Van Oord's marketing and publications director Bert Groothuizen points out: "Going with a contractor ensures quality. We are capable of executing projects quickly, within the time frame and within budget, taking into account all environmental aspects. We may not necessarily compete on price but we can definitely compete on quality and offer a quick return on the investment. This is why [companies in] Dubai and Abu Dhabi are selecting western dredging companies."

All the dredging contractors Port Strategy contacted advised port operators planning land reclamation projects to contact dredging contractors at the very earliest stage, even before budgets have been approved, or preferably enter into long-term contracts. The latter solution would place the onus on the contractor to ensure capacity is available for a given project and provide sound planning advice to port operators, although in the current climate contractors can generally pick and choose which type of project they wish to undertake.

"It is very cost effective in the long term. At the end of the day, delays and not fully understanding where the risks lie can be very expensive. The risks involved are very high so you have to be sure you plan the project right and contractors help with this. We can guarantee the execution of a project in a given period. We understand all the risks. If both parties decide, for instance, to plan the project for winter months, the contractor takes the risk of vessels being laid up due to bad weather. Or if we have other commitments we can rearrange [the deployment of] our dredgers. The advice we give is to really plan ahead," says Mr Groothuizen.

The long term contract is a solution that garners favour with Anthony Bates. "With  100% of the dredging fleet occupied there is great difficulty in sourcing a dredger at short notice and the point has been made strongly to clients that if they are planning something then they have to think at least 12 months ahead. The process is quite long winded, but you have to look for dredging contractors at the very early stages. Where there is a regular dredging need, such as maintenance dredging, we recommend long term, three year contracts."

So if, for example, you want to deepen your port in 2010/2011 start the tendering process now or enter into a long term agreement. It will be much easier for contractors to tend the capacity, carry out soil analysis and possibly quote you happy.