Turkey Special Report: Confidence creeping back into Turkey

If the economic pundits are to be believed, the major maritime force that is Turkey has already started up its engines and is ready to get going.

The economic recovery continues to gain traction as political noise linked to April’s referendum abates. Industrial production expanded for the sixth consecutive month in March, while both consumer and business sentiment gained ground in the aftermath of Erdogan’s victory in his quest to transform Turkey into a presidential regime.

Economic confidence has been rising in recent months as growth-inducing measures from Ankara continue to be felt among Turkish households. In a bid to shore up Turkey’s labour market – the unemployment rate rose to a seven-year high in January – the Government also launched an employment campaign that is expected to be reflected in February’s print and onwards. However, there is one warning, and that is that although these measures will provide respite to the ailing domestic economy, massive Government-led stimulus risks creating a hole in the state’s finances, with the fiscal deficit already widening substantially in Q1.

When it comes to business confidence overall, this reached an 11-month high in April. Indeed, according to statistics, the Real Sector Confidence Index published by the Central Bank of Turkey continues to improve markedly and in March it reached 111.2. This was well above February’s 108.9 and marked the highest reading in nearly a year. As a result, the index lies further above the 100-point threshold and indicates optimism among firms.

April’s result was driven by improvements in firms’ views regarding future domestic- and export-oriented new orders as well as better expectations of unit costs and selling prices. Nonetheless, companies’ perspectives on production and employment edged down in April, suggesting the pick-up in sentiment was far from broad-based.

So how is this economic sentiment being felt in the shipping industry, especially considering the current state of freight markets?

According to Bulend Temur, Managing Director of Global Marine Services, a ship supply company specialising in spare parts, main engine port and electronic equipment, while the newbuilding sector in Turkey may be down due to a lack of orders globally, things are strengthening, though there are many issues which still need to be addressed.

“Our maritime industry is still far from the point it should be,” he said.

“For an investment to be made in the local maritime sector there are many unnecessary steps which need to be taken. While one Ministry may give permission, another Ministry or Municipality may refuse it, and issues such as these are wearing out foreign investors.”

One example he cited related to shipyards in Tuzla which are still operating with temporary licences. Some of the yards in Altinova still have to be provided with asphalt roads.

“The State sets the rules and the infrastructure and provides the service. In turn, they also allow the industry to develop and advance and then take a share from the profits.

“What is important is not for investments to be made but for them to be continuous. I would begin by not trying to find palliative solutions but fundamental solutions to the issues,” he said.

“Global Marine Services was formed as a result of my will to put to use my knowledge and 10 years of experience at sea and as an operator of vessels in my own right. Of course, it was not easy in the first few years especially as it was the time that the ISM Code was coming into force. When visiting ship owners, I soon realised they needed assistance,” he said.

The company has progressed and has already supplied the first IMO Tier 3 emission level engines manufactured by GE.

“Besides our activities in the sales and servicing of spare parts and ships’ equipment, we are also very active in our 3,000 tonnes per year capacity steel factory,” said Mr Temur.

Turkish P&I is one Istanbul business which is starting to look at good times ahead. Established to meet liability insurance requirements of Turkish maritime interests which arise under Turkish insurance law, a major purpose of this law is to establish a framework which legally compels Turkish interests to carry liability insurance for risks which are deemed mandatory to be insured under Turkish Laws & Regulations.

As Ufuk Teker, General Manager, told SMI, while the company may be young compared to other players in the market, utilisation of its local perspective has been to its advantage meaning that “over the last three years we have gained a bigger share of the Turkish market – particularly with coastal vessels, passenger carriers, floating barges and cranes. We now cover more than 2,000 units and are concentrating on coastal fleets of up to 10,000 GT, trading internationally. Business is growing because we are local”.

Burcu Berrak, Claims Manager, stressed that due to the large percentage of passenger ships in its portfolio, the majority of claims were personal injury claims rather than collision.

“We have immediate emergency response plans. We know what should be done in the first instance. For recurring claims, we are working closely with our loss prevention department and we also hold seminars for our clients because it is important that we educate,” she said.

Mr Teker again: “Our mentality is that of a mutual P&I Club but technically we are a fixed premium facility. But our claims handling is more aligned to that of a mutual. What we are trying to achieve is creating a synergy where we have already earned trust with our ship owners. This has made it easier to make headway in the hull and machinery market. We are using this product as an ancillary, not just on a standalone basis.”

And what of the strength of the Turkish maritime cluster?

“Turkish shipping is generally dominated by family companies and there have been no major entrants into the market over the last three to four years. There is some organic growth. Some are renewing their vessels by adding new tonnage, but some are also quitting because of the market conditions,” said Mr Teker.

The impact of the market certainly on the newbuilding sector is something the Tuzla-based shipyards have experienced. But, according to Hakki Sarikaya, General Manager at Inter-Mar Ship Repair Engineering, concentrating on the other string to your bow such as main and auxiliary engine maintenance and overhauling as well as piston and exhaust valve reconditioning and manufacture is a good way to ride out these tough times.

Inter-Mar was established in June 1990 by Hakkı Sarıkaya and M. Bülent Özkan,  both ex-Chief Engineers. And it is this knowledge of what needs to be done and how best to do the job that has put the company in good stead. Indeed, it is this reputation of quality which has ensured it continues to work for quality owners such as Arkas Denizcilik Ve Nakliyat and UN Ro-Ro Liman ISL.

And while the markets may be bad, the vagaries of the international maritime regulation sector have meant some yards in Tuzla are busy with ships getting their scheduled drydocking in ahead of the deadline for the entering into force of the Ballast Water Management Convention on 8th September.

Indeed, according to Levent Zorer, Deputy General Manager at TK Tuzla, his shipyard, which can accommodate vessels up to VLCC size, is already fully booked until August.

“Repair activity in Turkey is still very good when compared to other yards in Europe. Prices are reasonable which is why owners prefer to use Turkish shipyards,” he said.

Known as the Tuzla Shipyard and operated by ERKAL Uluslararası Nakliyat ve Tic, the facility is the largest ship repair facility in Tuzla Bay and provides drydocking, repair and conversion services with fast turnaround times.

While Turkey is competitive in Europe, competition with China is a different story, although different trading patterns mean that attracting those vessels away from China to Turkey is difficult as they are trading over there anyway.

“Pricewise we cannot compete with China,” said Mr Zorer.

Citing a combination of quality workforce costs and the massive price differential in steel costs between China and the rest of the world, he said ships coming into Europe will still be attracted into Turkish yards because of their cost competitiveness.

And with longevity comes knowledge and experience, something the yard believes puts it in good stead when working with local and international ship owners.

“Being a member for about 50 years of one of the leading ship-owning families providing services to the Turkish maritime industry, we are well aware of the main expectations of the ship owners. Tuzla Shipyard is a provider of quality construction repairs, conversion products, and other services to the shipping industry, all delivered in a safe and environmentally responsible manner.

“For the continuity of Tuzla Shipyard, we follow a policy of recruiting the best staff, and providing opportunities for their development and advancement. In order to fully utilise their talents, strengths and technical knowledge, we have created a working environment which nourishes increased productivity, cooperation and solidarity. Tuzla Shipyard has set high growth and profit targets for 2012. We will make every effort to achieve these objectives,” the company said.

This whole issue of the drop back in vessel newbuildings was echoed by Capt T. Cagatay Altan, General Manager of safety equipment and firefighting supplier and service centre, Altanlar, who claimed that while Turkey was finding it hard to compete when it came to the construction of chemical tankers and general cargo vessels, it was very much holding its own when it came to the construction of ferries, research vessels, special tug boats and supply vessels.

“This expertise in this area is proving of benefit to Turkey because we cannot compete with China when it comes to the construction of general cargo vessels. But I cannot see any problems with Turkey competing in the specialised areas,” he said.

Altanlar, established in 1997, is a major supplier and service centre for lifeboats and life rafts and all things to do with safety and currently represents 15 lifeboat and life raft manufacturers. But while the split between new sales and servicing was around the 50:50 mark prior to the market crash in 2008, servicing is by far the strongest part of its business now, taking up 80% of the share. So important is this area of business that the company is looking at setting up an operation in the Gulf States, although a precise location has yet to be announced.

Another player in the marine safety and firefighting sector is Onursan and while agreeing the newbuild sector may not be as busy as before, the servicing side continues to perform well.

As Bahadir Onur from the company told SMI, owners are getting ready for the passing into force of the BWM Convention in September and are drydocking their vessels ahead of the deadline. Also, the Bosporus continues to remain busy which also generates good business throughout.

The company, which was founded in 1983, specialises in marine firefighting, life raft and lifeboat servicing as well as supply safety equipment to the Turkish maritime sector. It is an approved lifeboat and davit service agent for many of the large manufacturers.

“We are a servicing company, not only serving the market in Turkey but we have a sister company in the US, where we are undertaking the same type of work,” said Mr Onur. American Marine Safety, which is based in Houston, Texas, covers all the necessary needs in security for all types of commercial ships from life raft and lifeboat inspections to keeping the firefighting equipment up and running including immersion suits, life jackets and EEBDs as well as fixed and portable firefighting systems, gas detection equipment sales and calibration services.

So why Houston?  Mr Onur again: “In Turkey we are an old and established company, although in Houston we are new to that market. The reason we are is Houston is because my brother and I studied in New York and we were attracted to the country. So far business there is very good especially following expansion of the Panama Canal, so there will be lots of opportunities.”

Time can be a motivator in the shipping business especially when vessels are in need of repair. Ship owners always look for a company that can be ready at short notice during tight repair schedules and transit passages that offers quality service, said Istanbul Marine Turbine (IMT) Executive and Sales Manager Metin Gungoren. Beyond that, the need for a reliable service partner during shipyard periods is indispensable, he added.

The company’s 1,400m2 technical facility includes workshops, offices, a warehouse, bearing and oil pump reconditioning room and a blade welding room. It is situated close to the Bosporus and Tuzla – the main shipyard area in Istanbul – and IMT also has affiliate service companies in the ports of Izmir and Mersin. This makes it capable of carrying out turbocharger service and repairs to meet its customers’ needs all around Turkey.

Among the tools available to its engineers are glass bead blasting machines and a number of cleaning machines, using hot water, high pressures and chemicals. Cleaned or repaired rotors have to be balanced – especially those that have had blades replaced – which has to be done by a specialist.

IMT also supplies new and reconditioned parts, such as bearings, oil pumps, rotors, casings, nozzle rings, turbine blades and compressor wheels, for all types
of turbochargers.

Karavelioğlu Group was established by brothers Osman Azmi Karavelioğlu and Cemal Azmi Karavelioğlu in 1916 and while the Karavelioğlu Group started its professıonal life as a dealer for Shell and Mobil, by 1980 the group was the oldest dealer in Turkey and became also the biggest bunker dealer in the Marmara region. The Group has been led by  İlhan Karavelioğlu since 1992, who was also President of Turkish Ship Owners Confederation.

The Group expanded its activities through tanker ownership and shipmanagement from the 1960s to 2008 and worked with Shell, Mobil, Ditaş, BP, Perenco and other operators and worldwide traders. The Group also has some activities in tourism and construction. However, it is its operation of the Inebolu Shipyard that is interesting especially as it is the only shipyard on the Turkish Black Sea coast which operates a floating dock with a 4,500 tons of lifting capacity, capable of handling vessels up to 15,000 dwt. Apart from handling all vessel repair and maintenance work, it is also involved in new construction.

Services undertaken at the yard include steel and pipe renewal; blasting and painting; rudder, propeller and tail shaft works as well as all kinds of mechanical repair and overhaul and conversion works.

As İhsan Karavelioğlu, CEO of the Inebolu Shipyard, told SMI: “We are the only shipyard with full service facilities near the Black Sea. We have the qualified workforce to provide this full service. We are busy as it is what makes us stand out from the rest. Because of this, we are looking at joint ventures with international partners.

“We are a family company, and we want to be sustainable, so building international partnerships is appealing. We are looking at group ventures in ship repair and newbuildings. Our costs are lower than Europe, so it is appealing for foreign partners. Turkey is at the centre now; specifically as a repair centre so attracting new companies is important. But a lot of the success is down to our workers and we have very good engineers,” he said.

But pressures in the shipping markets have implications for various operating sectors and none more so than the ship supply sector. And while suppliers have always complained about tight margins and tight payment terms, the current market conditions mean some feel they are being overly pressurised to operate as banks for owners and managers by extending what could be regarded as general unfeasible payment terms.

As Osman Bilgin, Managing Director of Mare Supply & Services said: “Nowadays most of the ship owners and ship managers are using ship suppliers like banks. In the past we normally worked with 30-day payment terms, but nowadays it is not unusual to be 45, 60 or 70 days and in some cases more than 120 days. And if we enter into 120-day payment terms then we can forget our money as it won’t come.

“But we are working with reputable ship owners who may prefer to work with reputable ship suppliers and we need to understand each other; we need to reach a level between the two of us which is acceptable. But we need to be careful because the freight rates nowadays are not very high but they are not dropping. The market is not so bad and we need to be patient. But the ship owners need to help us because we are serving their vessels, so they need to be honourable to us and pay their debts too,” he said.

This was a point echoed by Sercan Kacar, General Manager at Piri Reis Ship Supply and Ship Repair, who said: “The beginning of 2017 has been better businesswise than 2016, especially over the last three months and we are very happy about that. The problem is linked to payments because ship owners are struggling because the market is so low. But we have been working with these clients many years and we must support each other.”

Apart from operating as a ship supplier, Piri Reis also operates a ship repair and hull cleaning division.

“The ships come in to Turkey with pet coke and then go to the Black Sea to load grain so we are cleaning the holds out and preparing them for grain loading. On the ship repair side we work on behalf of the charterers, and we repair the ships that have incurred damage during
cargo loading.

“Most of our business is international, 95% of our clients are from abroad, and we are also the preferred supplier of Garrets International.

“When it comes to payment, our work with Garrets is okay at 60 days and we have a good contract with them. But for other third-party shipmanagement companies and ship owners, we are looking at a minimum of 90 days. And most of the products we are supplying to them, we have to pay cash or 30 days payment terms maximum,” he said.