Government-backed Protection for Lender’s
In July 2023 the UK Department for Business and Trade announced its Shipbuilding Credit Guarantee Scheme. The scheme was applauded by UK shipyards, lenders and particularly vessel owners intending to order new builds or undertake refits, retrofits or repairs of existing vessels at UK shipyards. The scheme forms a partial government guarantee in favour of the lender of the buyer/borrower’s repayment obligations under a loan. This gives lenders an additional level of protection and may well encourage lenders to support projects that would not otherwise proceed.
Whilst the primary focus is on the new build sector, we anticipate the demand for refits to increase as vessel owners transition towards net zero in 2050. The fact that refits are also included in the scheme is an enormous positive for the industry. The DBT can provide a partial guarantee to cover up to 80% of the risk of non-payment of loan principal and interest for whatever reason. Comparing this to the Chinese and Korean government export credit support at 90-95%, whilst the mitigation of risk is relatively lower, it is still very much welcomed.
Transformative Infrastructure: New Ship Build Hall
In October 2023, work began on a large new ship hall which will transform construction of the UK Navy’s next-generation frigates. Once complete, vessels will be built side-by-side in the new facility – vastly speeding up production from its existing capabilities. Currently, construction is carried out at BAE’s Govan yard, before the ships are transferred to the firm’s facility at Scotstoun for completion, testing and acceptance. However, the existing sheds at Govan only allow for fore and rear sections to be built under cover – the largest segments are then joined together on the standing, meaning the ships are exposed to the elements for potentially multiple months at a time.
Once complete, the new Ship Build Hall will be equipped with two 100-tonne and a further two 20-tonne cranes, with up to 500 workers employed per shift on frigate construction. As well as being spared the elements, ships will emerge from the new hall in a more finished state. This new complex forms part of a larger £300m investment in BAE’s facilities.
Government Responsibility: Ensuring a Robust Pipeline
Whilst this ‘National Shipbuilding Strategy Refresh’ is essential to delivering a once-in-a-generation change to UK shipbuilding, the sector needs a guaranteed pipeline of work if it is to truly fulfil its economic potential. The onus is very much upon the government to put in place the conditions to prioritise UK shipbuilding in its procurement programmes with a commitment to make timely decisions on contract award for its programme of work, since delayed decisions make it difficult for the industry to plan and assign resources. Key growth in UK Shipbuilding will revolve around the 30-year government shipbuilding pipeline. This pipeline creates the conditions for a stable domestic commercial order book by implementing a series of sector-specific and targeted interventions, such as the Shipbuilding Credit Guarantee Scheme mentioned above.
Industry Stability: The Importance of the 30-Year Shipbuilding Pipeline
By providing greater certainty of government investment in the 30-year shipbuilding pipeline, Shipyards will be able to maintain a skilled and adaptable workforce, improving overall productivity and competitiveness in the industry. This will result in industry being well-placed to enter the 2030s ‘match fit’, with a shrinking skills gap and productivity levels in line with, those currently found across northern European competitors.
